Investing & The BIG Position

Posted by Richard Russell - Dow Theory Letters

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Rare Earths

Investing –I’ve written before that in order to make big money in the stock market, you’ve got to be willing to take a big position in a given item.

But in this business, nothing’s easy. A big position puts a strain on your nerves; it’s always stressful. One other choice is that you can sit with a modest or small position.

Example — Some years back my son, Ryan, told me that he loved Apple products. He pressured me to buy some stock in Apple. I wasn’t particularly intrigued with Apple at the time; the company had troubles, and its stock was selling at 22. But under pressure, I bought Ryan 75 shares of Apple. I soon forgot about Apple. Had I bought 1,000 shares I’d probably have been checking on the price twice a day, and I probably would have sold it on the first correction.

But through thick and thin, we held onto the stock, finally selling it recently for a fat profit. Lesson — often you will hold a small position in a stock where you couldn’t sit with a big position in the same stock over a long period of time.

Current example: I like the future of rare earths. I bought a small position in the rare earth exchange traded fund, REMX. This ETF looks OK, but nothing dramatic has occurred. The action has been slow. I’ll sit with my small position until either the ETF breaks out to the upside or until it craps out. Either way, I don’t feel under stress holding a limited position in REMX. Actually, although I like the story in REMX, I don’t have the guts to take a big position in this ETF. Wait, if REMX closes at 27 or better, I’ll add to my position. Otherwise, I’ll just sit.

 Rare Earths

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