From Daryl Guppy's Money Management Rule
Zero Cost Averaging
This is how it works?
Sell 50% of the position once the unrealized profit reaches 100% of the initial invested capital.
- Bought 10 lots of Stock A at $1
- When Stock A reaches $2, then sell 5 lots (50%) and hold the other 50% to run with the Bulls. The remaining 50% is now at zero cost i.e. all invested capital has been taken back.
Standing on the shoulders on these Gurus's money management rules, I have formulated my own money management rule.
Pillow Stocks - The money management used by Old Uncle from Hougang HDB Heartland to protect his capital. Money in the pocket is always safer than capital in the stock market.
Any kind of investments by nature are risky as you may lose some or all your invested capital if you get it wrong. Even if you initially get it right, and somehow by over-staying in the stock market; it may turn wrong.
The only safe and risk-free investment in the market is Zero Cost investment aka Pillow Stocks Strategy, where I can sleep peacefully at night regardless of the market conditions as my capital is not at risk.
The Pillow Stocks Strategy
With active investing through re-cycling of investing capital, I ride on number of profitable trades on the SAME stock over and over again, and then slowly accumulate enough realized profits to eventually own a certain number of shares of that stock at zero cost in terms of cash flow, and then let it runs in the stock market to collect dividends as passive income or when necessary for future draw-downs by selling some of it slowly. Absolutely, NO CAPITAL AT RISK and yet passive income.