Ask Colin

I find it hard to use Dr Elder's 2% and 6% rules for investing. The stops are too far away. What do you suggest?

In principle, the position sizing rule (2%) works the same way no matter what time frame you invest or speculate in. If the rule does not let you buy a realistic parcel, then it is because your capital is too small, or the particular investment or speculation has a stop loss level that is too far from the buy price. In both cases you need to look for investments or speculations that have closer stop loss levels and pass up the others.

Update March 2008
Dr Elder tells me he now very rarely risks anything like 2%. It is more commonly 1% or less, bringing him very close to what I have been doing for years. This is in his new book due out in a few months time.

I do not think the Elder 6% rule serves medium term speculators or active investors very well. I have a diversification rule instead. I also manage market risk with a market exposure strategy.

I am a medium term investor - active investor. I think you will find that my book The Aggressive Investor suits your time frame. However, please bear in mind that you may not be able to just copy my investment plan. You may have to adjust it for your own risk tolerance and other comfort levels. Nevertheless my plan will provide a model you can adapt for your own preferences.

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