From big pension funds to Joe Six-Pack, it is remarkable to see how often portfolio decisions are made on an all-or-none basis, even though the market so rarely accommodates that sort of approach.

So investors who were, say, 80% invested in stocks coming into the fall of 2008 ended up selling everything in January of 2009 just as the pain climaxed. Now those same folks are considering jumping back in whole hog in a despite attempt to quickly make back some losses.

Obviously, it s easy to judge after the fact, especially considering the sharp rally in stocks since March. Yet, regardless of the state of the markets, we know that an 80% allocation, to one particular asset class or in one security, can easily wreck a portfolio when it moves against you. The good news is that you re certainly not obligated to start off with that size commitment right off the bat, and you don t need a position that large to make money off it.

Truth be told, stock selection is really an afterthought: Position size is where the rubber meets the road. Even an out-of-favor position, as stocks were last fall, can still command a 10 to 15% of your portfolio without having a majorly detrimental impact on the bottom line. Maintaining even a nominal position keeps you in the game. If/when an asset class reverses, it s much easier emotionally to add to a trade than to reestablish one in which you ve previously sold at a loss.

So I start with a 3% to 5% position and build from there. If I m horribly wrong and end up buying the top, the modest size and appropriately placed stop loss order can usually mitigate the damage. With large positions, I employ a staggered stop. With Panasonic (PC) at $14, for example, I might sell one-third of the position at $12.45, one-third at $11.45 and the final slug at $10.45 should it fall that far.

As we pointed out last week, despite an abysmal economic environment and even more stringent federal regulation, the investment industry preservers in rolling out unique and innovative ETFs tracking everything from carbon credits to Colombian stocks. The ETF industry has slowed but it by no means has stopped.

The true investment wonks will enjoy a subscription to what many consider to be the bible of the industry, the Journal of Indexes. These scholarly and deeply researched articles, often dealing with rather obscure issues such as tracking error and index construction, will delight any investor whose interest in ETFs extends beyond the basics of the PowerShares QQQ (QQQQ) .

While the web site contains a host of tools and archive material worth a look, the glossy and thoughtfully presented print edition is also worth a look, and is available free of charge to qualified subscribers.

Swine Flu Sickens Mexican Peso Trade

I ve joined the ranks of Americans frustrated by Mexico.

Not the people, mind you, but the value of their currency. I ve been sharply burned by the decline in the value of the Mexico peso in recent months. As risk aversion took over last fall and the dollar became the flight-to-quality asset, emerging market and commodity-linked currencies were dumped wholesale, with the peso among the worst performers among major currencies. Ay caramba!

Perhaps the market foresaw the news, as it seems the headlines out of Mexico can t get any worse lately. Political corruption, a growing and deadly drug trade and, of course, the swine flu. After climbing roughly 18% from a March low, the currency dropped 6% as word of the outbreak spread. Investors can trade the peso through the CurrencyShares Mexican Peso ETF (FXM) .

Of course, the situation in Mexico remains fluid and could deteriorate quickly. And I m hard pressed to suggest the currency has shown the leadership of consumer-oriented equities like Ruby Tuesday (RT) or Ruth s Hospitality (RUTH) . But the news is awful, plain awful, for a security that less than a year ago was near a six-year high. Longer term, that negativity is unquestionably a bullish sign.

Peso Pummeled

Currencyshares Mexican Peso (FXM) - 1 year

A Constitutional Cartoon

It might surprise you that the word democracy does not actually appear in U.S. Constitution. Although we vote to elect our political representatives, America is not and has never been a country of majority rule. As a constitutional republic, the rights of every minority, that is, every individual, are protected. As Ayn Rand famously said, The smallest minority on earth is the individual. Those who deny individual rights cannot claim to be defenders of minorities.

In just the past few days we witnessed the truly remarkable spectacle of minority discrimination with the president of the United States chastising, and actively working to undermine, the property rights of Chrysler s senior-secured creditors. Bankruptcy code is well established in this country and the senior lenders are secured creditors. The unions, alas, are not.

Last week we pointed you to the Illustrated Road to Serfdom, which chronicles how collectivism, especially during times of crisis, can quickly destroy the individual freedom that defines our Republic.

Another piece worth your time is Make Mine Freedom, a charming, old-school cartoon short that simply illustrates basic principles of Americanism: capitalism, liberty and individual rights and how easily those can be sacrificed by a slick-talking salesman who promises the world.

Although the piece was created in 1948, just a few years after the end of World War II, the essential issue, freedom and capitalism versus everything else, is unquestionably appropriate given what s occurred in this country over the last 14 months.

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