The Correction

The current correction has sent my portfolio into negative territory for the first time. Over here, I would like to make some recommendations to help people sleep better at night

Invest with what you can afford

As investors, whatever we plough into our stocks is usually for mid to long term, such that we can weather such corrections. Do invest with what you can afford to lose. If you have trouble sleeping at night, it could mean that possibly that you may have invested too much.

Depending on your age, you may wish to keep about anywhere between 10% to 40% of your holdings in cash. I keep about 10% of my holdings in cash. As such I haven't be losing much sleep.

So what about people trading on margin. I have nothing against margin trading, but likewise, don't overload yourself. Put into your account about 70% of the amount you can afford to lose, and keep the other 30% as cash needed just in case of a margin call. That way, you won't lose sleep over margin calls.

Avoid Contra Trading

Contra trading is to purchase a stock, and before the payment is due, usually within 3 to 5 days, the stock is sold off. The difference between the purchase price and selling price is the amount you keep or you repay, depending on whether you made a gain or a loss.

Contra trading is one of the things that will made you stand on edge. If the tide turns against you, for example if China announces changes in monetary policy, these things cannot be detected by technical analysis. Purchasing the stock there and then is also a mistake, as the company may not have fundamentals to support it through the period of time. It may result in you racking up big losses.

With these 2 pointers, I hope that you will have a better sleep over the next few days as we unwind from this major correction.