How To Size Exposure As An Active Investor

Most of the articles I write relate to the overall markets, and our expectations for certain instruments and their price targets. In this article, I want to discuss a few approaches that might help investors maximize performance and minimize risk when taking advantage of investment opportunities.

A common question I get from investors and traders is how to determine the correct size of exposure to allocate to each investment opportunity. The simple answer is "it depends". It depends on a number of factors, as there is not a "right size fits all" when it comes to appropriate exposure. As an example, it depends on the risk to reward skew of the particular opportunity, your individual risk tolerance, whether you are using funds in a 401K vs. a self-directed IRA account, your tolerance for the overall amplitude in the value of the capital accounts you are managing, or whether you are using leverage, just to name a few.

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