How to Manage risk at LS equity?
Hi,
care to share your experience or practice in managing single stock risk in the portfolio? How do you manage the near term 20% draw down risk from a stock vs 12 months 100% upside for example?
how do you navigate through the noise, pre-empt risks that you may or may not be identify in advanced? Among all, not risk missing upside to the original thesis?
Using checks. If you understand the business well enough, you can isolate the noise and focus on the real KPIs, and then come up with estimated. From them on, it is all about checks (surveys, conversations, etc.) and just keeping an eye on metrics (lots of people shun technicals, but RSI has always been good to me most of the time; check direct correlation for a paired L/S…ideally you find 2 businesses within the same operating universe but with distinct performance features such as management, vision, market sentiment, trends, and etc., and that should lead to a possibility of mis-pricing with high enough correlations…ex = AMD vs INTC, PANW vs FTNT)
You just gotta find what works best for yourself and ultimately hope for the best. But be honest with yourself in terms of how much skin in the game you’re actually comfortable with. Once you invest, if you haven’t accepted that you could realistically suffer a possibly significant draw-down, you’re not ready to invest
What is your acceptable potential upside relative the max. Draw down limit you can accept for single stock?
like u see 50% upside but the stock is down 20%, are you willing to take the bullet and hang on to it?
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