How Much is Too Much?

When somebody conducts a great trade usually the first thing they want to do is invest more money into the project. After all if I can make so much with this amount, then I could easily double the returns with more money, right?

If you made 40% returns with $5000, then imagine what you could do with 20,30, no $60,000. Its a win-win situation, right?

By now you probably already realized I was just baiting you into an obvious corner. Just because you are lethal with $5000, that doesn’t mean you can duplicate that success with more capital. Here’s why:

Lack of Good Plays

Simply put with less money you can only have so many positions at once. Where as you could easily find 3-4 good stocks in to invest in, you may have trouble finding many stocks at one time. If you do not already have a solid system, scan, or whatever it is you do to find stocks, then it can be hard to make good use of all the money and end up in the red.

Often times, that is why many high profiled brokers or funds don’t see high returns so often. With all the money they have to manage, they merely don’t have the man power to physically hand pick each stock. Rather they have scans created that picks stocks that fits their criteria.

Just like in any business. The larger it gets the more it seems like you need to automate or outsource.

The Ability to Maintain High Pain Threshold

By this I mean you need to make sure you don’t get scared at the first sign of loss. In the $5000 example, making $200 may have seemed like a great day and losing $100 was probably no big deal. What happens when you lose that same percentage with $60000 of capital, which equals $1200.

Will you get scared, frustrated, stressed out?

Some do, and that causes them to make bad decisions, which ends up making the situation even that much worse. Do you have what it takes to not get squeamish when you lose so much of your OWN money in one day?

On the flip side, can you maintain not getting too excited when you make $1200 in one day and let your guard down?

Disorganized and Lack of Plan

Along with more money comes the need to have a clear and more focused plan. Like I stated before, with less money you hold less stocks. This means that you could probably remember many of the buy and sell points on the top of your head.

With more money, that may not be the case. That is why its important to have a solid game plan. You should record everything you want to buy, sell, when to do it, and problems that you encountered. The last thing you want to happen is have your stock plunge because your forgot the sell point.

This will save you time when it comes to taxes and actually help with the ability to add even more money to your account.

Final Thoughts

Now I am not saying that you can’t be successful with more money; however, you should plan and be cautious before throwing the boat into the equation. The more money you add into your portfolio, the more you should treat it like a true business. If an actual company had no plan, then they probably wouldn’t grow in the long run, and either will your portfolio.

Like Diddy said, “more money you come across, the more problem we see.”

image source – discoveryconsulting.com | This article is based on TWI article from May 18, 2008