Subcriber Questions About Model Portfolio and RCMT

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April 20, 2006 | SIN Picks | | Author Asif

A SINLetter subscriber asked me a couple of questions today and since the answers may be of interest to other subscribers/visitors, I figured I would post the answers on this blog.

Question 1: How do you allocate how much to spend per position (in the model portfolio)? I’ve noticed a wide spread from the $4k level to above $10k.

Answer: I usually try to invest roughly $10,000 per stock in the model portfolio. In certain instances, if I feel that the stock may appreciate slowly or may have comparatively higher risk then I invest a lower amount. Two such instances are the $7,536 investment in Safeway (SWY) and the $5,942 investment in Unitedhealth Group (UNH). Certain other stocks such as Wipro (WIT), Seagate Technologies (STX) and VA Software (LNUX) that are currently displaying a cost basis of $4,955, $5,072 and $7,320 respectively are lower than $10,000 because I sold part of the original position to finance new purchases. You can see this from the Historical Trades link at the bottom of the Model Portfolio page.

Question 2: The second question is about your latest pick (RCMT). I always worry about the liquidity of a stock that trades (at) a very low volume. Any comment?

Answer: RCMT does have a low average daily volume (11,471 as of today) and hence may not be as liquid as other small-cap or large-cap stocks. However since it trades on the Nasdaq and is not an over-the-counter stock, I do not see a big liquidity issue unless someone was buying or trying to unload a very large number of shares. I did buy some RCMT myself after the April SINLetter was sent out to subscribers.

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