How to set an investment limit and a maximum loss line
Limits are the L in HOLD. A can shelf has three slots, and a fourth can falls off. Investing is the same: write the limit before you buy.
There are two limits: the most you will put in (position size), and the most loss you will accept.
Three steps
- Set the amount limit: what percentage of my total savings, at most, goes into this? Payments should not eat all your income, and craze toys or collectibles should not be bought with living money.
- Set the loss line: how far can this fall before I can no longer cope?
- Write it down and sign it, with a date.
Simple arithmetic (illustration)
If you put 20% of your savings into one asset and it falls 50%, your total savings fall by about 10% (20% × 50%). The larger the share, the more the same fall hurts overall.
The sleep test
Ask yourself: if this fell to my line, could I still sleep? If not, the amount is too big, so reduce it. You can try the junjun.life stress test and position-size helper.
Try it on junjun.life
Use the stress test and position-size helper with your own numbers.
Open the stress test and position-size helper ↗FAQ
Should my line be −30%?
−30% is only an example. Set it from your own finances and tolerance.
Must I sell if I hit the line?
Not necessarily. Hitting the line means "review", following the rules you wrote in advance.
Is this investment advice?
No. For education only, not investment advice.
Looking for ideas to check with HOLD?
Arrie HK StockScreener screens Hong Kong main-board stocks every night. It only generates ideas and is not a buy recommendation. Before acting on one, check it with a HOLD plan, a stress test and an exit plan.
Open Arrie StockScreener ↗A separate tool on another site.
Keep reading
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