Capital Allocation – Part 1

Of late, I have seen many people deploying a lot of fund in ISS strategy due to its nature of delivery cool and consistent monthly returns. Guess what – after I introduced web app based trading bot, this number went further high which made me make a video on capital allocation and its importance.

Though I keep saying in most of my videos that diversification is one of the key concepts when it comes to money management, unfortunately I still don’t see people many people following that. So, I decided to make a detailed video explaining its advantages and also how to rebalance funds in our portfolio.

I have 2 plans for capital management and in this post I am going to discuss the first method. In both the methods, presumption is that you invest/trade in multiple strategies.

Method 1 is a time based reallocation and we only make a churn in our portfolio after every year. We do NOT touch or shift capital from one strategy to another within a year. This way of wait, watch and rebalance helps us to go forward in a conservative manner. Here are 3 simple steps to split our capital under this plan

• Divide your capital equally into multiple strategies. The word “equally” is subjective here since various strategies demand various capital requirements. I can only talk for my ISS and PDR strategies
• Trade for entire one year and then combine all profits/loss got from all your strategies
• Again split the capital equally among all your strategies and trade for complete one year before doing any adjustments.

As mentioned earlier in this post, this is a conservative approach for those who want to make a slow progression.

Here’s the video that explains the above concept with example.