Low-Risk investment strategy ?

aliciathyme

bowlhead99 wrote: »

So by following your system, I think, I get 3000 of 4 stocks and have effectively rebalanced my portfolio, which is a pretty standard piece of advice for anyone to do from time to time when looking at asset allocation between stocks or sectors.............A concern I have is that by forcing me to exit my two favourite stocks in favour of rebalancing, I am left with C in my portfolio. I do not want C. It has not performed since purchase (or perhaps it grew and then declined), there have been no recent buy signals. I just don't want the thing any more! But until it becomes my best performer, I can't sell it under your model. I have to keep holding it until it becomes top of the league table of A,B,C,D, which may never happen.

Thanks for taking time out to respond.

I would agree with your logic in arriving at the 3000 in each of 4 stocks except that you have assumed no movement between the buying actions. However, you now have 4 stocks instead of 3 and this should allow more opportunity for future growth for funding another - that is what my system does. Yes you end up with C on the back burner, but you can still buy your E stock and the others as you switch holdings as the rest of the portfolio is built up. The longest holding in my portfolio was Wolseley held between 7th May 2009 and 28th Nov 2011, during which time 31 other stock buys were actioned. But it realised a net profit of 37.5%, which is a prefectly respectable annual return. That could have been your C stock.

Unless I an mistaken, I can't see any way of modelling your system because you use cues for selling which are outside the stock prices database, so there is no way of demonstrating it's potential.

My system is very simple and can easily be modelled with variations to see how it would have performed historically.

Alicia

aliciathyme

Jegersmart wrote: »

It is a difficult and subjective conversation but I personally try to remove as much emotion (fear and greed) out of trading as possible and I prefer to do so through technical analysis and other indicators.

Exactly so.
Just look at RBS - up 1.5% today in spite of the news this morning that they will receive 100s of millions in fines for their part in LIBOR fixing. Presumably the "market" thinks the fine less than expected?

Viva Tech Analysis!

Alicia

Jegersmart

aliciathyme wrote: »

Unless I an mistaken, I can't see any way of modelling your system because you use cues for selling which are outside the stock prices database, so there is no way of demonstrating it's potential.

I can't see it either, one cannot model a "I feel good about this share so I am not going to sell it" type input:)

As I have said many times, it is key to have an open mind in life (and trading etc) - I am happy to consider something and not reject it because it is a new idea or concept that I am uncomfortable/unfamiliar with. I would hope that others are able to do the same.

By the way and as an aside, I do believe that we will see a low on most of the developed equity indices that will take out the *low* of 2009 before setting up for a 5-6 year bull market which will reach all time highs. The macro picture is always worth bearing in mind regardless of the system you use:) I think we will have a top in place on SPX; FTSE, DJI etc by around March before we have weakness with volatility into 2014...

All very imho..

J

bowlhead99

Jegersmart wrote: »

By the way and as an aside, I do believe that we will see a low on most of the developed equity indices that will take out the *low* of 2009 before setting up for a 5-6 year bull market which will reach all time highs. The macro picture is always worth bearing in mind regardless of the system you use:) I think we will have a top in place on SPX; FTSE, DJI etc by around March before we have weakness with volatility into 2014...

Whether or not we get where we thought we were going, it's always an interesting ride! I look forward to a couple of years of buying opportunities again...

srcandas

Jegersmart wrote: »

There is no profit until you take some remember?

I've never understoof this. You can measure your wealth in many ways and that wealth can exist in various forms.

My wealth is made up of property, possessions, investments, a pension, cash, my diving gear, ...............

These possessions give me buying power and some I can utilise in non buying ways. So my wealth is made up of various assets but the value of those assets relates directly to buying power and utilisation.

For sure some are less liquid than others. They may also have greater volatilty of their contribution to my wealth.

I don't get this thing that cash is the only reality. The pound is a promise just like a share certificate. Just that there is often more substance behind the share certificate

If I buy £8000 of BP shares today and they lose 20% of their value tomorrow I have lost 20%. I can't kid myself otherwise.
:beer:

Linton

srcandas wrote: »

I've never understoof this. You can measure your wealth in many ways and that wealth can exist in various forms.

My wealth is made up of property, possessions, investments, a pension, cash, my diving gear, ...............

These possessions give me buying power and some I can utilise in non buying ways. So my wealth is made up of various assets but the value of those assets relates directly to buying power and utilisation.

For sure some are less liquid than others. They may also have greater volatilty of their contribution to my wealth.

I don't get this thing that cash is the only reality. The pound is a promise just like a share certificate. Just that there is often more substance behind the share certificate

If I buy £8000 of BP shares today and they lose 20% of their value tomorrow I have lost 20%. I can't kid myself otherwise.
:beer:

I dont look at things that way. If I spend £8000 on 1500 BP, I own 1500 of BP and no longer have £8000. The shares may have a potential in my view to be worth say £10K which may well not be impacted by a temporary fall in price. Taking this approach means that I dont see shares as a repository for cash nor do I have any temptation to sell in a panic. This implies that significant real cash needs to be available for any known purchase or conceivable emergency.

Jegersmart

srcandas wrote: »

I've never understoof this. You can measure your wealth in many ways and that wealth can exist in various forms.

My wealth is made up of property, possessions, investments, a pension, cash, my diving gear, ...............

These possessions give me buying power and some I can utilise in non buying ways. So my wealth is made up of various assets but the value of those assets relates directly to buying power and utilisation.

For sure some are less liquid than others. They may also have greater volatilty of their contribution to my wealth.

I don't get this thing that cash is the only reality. The pound is a promise just like a share certificate. Just that there is often more substance behind the share certificate

If I buy £8000 of BP shares today and they lose 20% of their value tomorrow I have lost 20%. I can't kid myself otherwise.
:beer:

I am not talking about "wealth measurement", purely that if one owns say £50000 of LLOY shares then the "value" of that asset is rather more volatile than cash and that if a capital gain has been made according to market prices then it is prudent to realise that gain by exchanging the volatile asset for one that is much less so, and has the benefit of being a for of exchange accepted almost everywhere.

Sure, a pound is a promise just like a share certificate but the value of the asset behaves very differently.

J

srcandas

Linton wrote: »

I dont look at things that way.

I understand that thinking in a certain way, as Alicia does with her system, removes the temptation for spontaneous human interference in long term strategy but to tie the concept of profit and loss to cash ignoring asset value seems artificial.

Take your £8000. The BP shares now have a book value of £6000. You think they are still potentially worth £10000. On your wealth books are they £0, £6, £8 or £10k?

A company holding say a copper stock, their raw material, would write down/up the value over time as the price of copper dropped/rose. They enter this as a profit or loss. That doesn't mean they need to sell it.

I see big dangers here for especially first time and young investors. Something is only worth what you can sell it for. I would say to them 'try putting down potential value of shares as a house deposit!'

srcandas

Jegersmart wrote: »

Sure, a pound is a promise just like a share certificate but the value of the asset behaves very differently.

J

Yup with you on the volatility part but while we talk of profits it is easy. Still worries me people conning themselves who are sitting on enormous losses.

I guess my view is also tainted as I am not in the future going to be pound orientated and that makes money as in cash much more volatile. :beer:

Linton

srcandas wrote: »

I understand that thinking in a certain way, as Alicia does with her system, removes the temptation for spontaneous human interference in long term strategy but to tie the concept of profit and loss to cash ignoring asset value seems artificial.

Take your £8000. The BP shares now have a book value of £6000. You think they are still potentially worth £10000. On your wealth books are they £0, £6, £8 or £10k?

A company holding say a copper stock, their raw material, would write down/up the value over time as the price of copper dropped/rose. They enter this as a profit or loss. That doesn't mean they need to sell it.

I see big dangers here for especially first time and young investors. Something is only worth what you can sell it for. I would say to them 'try putting down potential value of shares as a house deposit!'

On my accounts they appear at current market value, but that figure is only of passing interest just like an estimated value of my house. Of more immediate importance are my cash assets and cash flow plan.

I think the bigger danger to inexperienced investors is for them to regard their investments as another form of cash. Then the pressure to sell on downturns must become very hard to resist.