Small Positions Can Have A Big Impact
Every dollar matters
A few days ago, I had my fourth purchasing round for my main portfolio. In that post, I mentioned that I wasn’t quite as confident about some of those picks as compared to past rounds. And, wouldn’t you know it, a lot of those picks haven’t done so well.
But, one purchase in particular has done spectacularly bad. Can you spot it?
If you said Qudian (QD), you’d be right! What a piece of garbage!
Qudian had good intentions - I liked the numbers I saw; I liked the idea of a micro cap; I liked the idea of some China exposure; I liked the idea of taking a bit of extra risk. Despite all that, it was a pretty out there play, so I did my smallest single-stock purchase yet of just $150. With that small of a buy, how material could it really end up being to the overall portfolio?
Well, turns out, pretty material. Even when a single stock is only about 1.5% of the total portfolio, when it drops 30%, that still hurts the whole thing pretty noticeably! Losing a third of $150 is $50 and to a $10,000 buy-in is 0.5%, which means the difference right now between the whole portfolio being up 2.3% and 2.8%. That’s a big difference in profit!
Even in the scenario where I’m somehow not an idiot on that purchase and the stock recovers and goes up, I’ve still introduced a good amount of volatility to my portfolio. I knew that going into the purchase with a micro cap but I guess I didn’t expect this much, so call me naive.
Every allocated dollar matters. There are no throw away investments. There is no “money you can afford to lose.” Even a small lost piece can ruin the puzzle.
While I didn’t throw money into Qudian to gamble or anything (I do give these investments some thought I swear), it will definitely make me think twice about my purchases going forward! Obviously, I can’t control the outcome of an investment but I can control the thought and work that goes into it. And that’s a process that’s always improving!
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