As the reporting season heats up next week with the potential for increased volatility, Michael Batnick, director of research at Ritholtz Wealth Management, is warning of a common mistake investors should avoid.
div > div.group > p:first-child"> Better-than-expected earnings from J.P. Morgan sent financials flying higher and the S&P 500 within striking distance of its all-time highs.
Avoiding regular check-ins on a portfolio's performance prevents investors from feeling the anguish of day-to-day swings and roundabouts and from any irrational decision-making on down days, Batnick said. If avoiding the temptation to check regularly is too difficult, Batnick has another piece of advice for investors worried over earnings season volatility.
One way to do this is through position-sizing, he said. For example, if an investor wants to risk 1% of their portfolio's capital, but will only allow a holding 10% downside, that position should be no larger than 10% of the total portfolio. If an investor is willing to give a holding 20% downside, then it should limit that to a 5% position of their portfolio.
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