Low-Risk investment strategy ?

bowlhead99

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?

I presume he has them on his books as being worth 6000 today but acknowledges that the market is currently valuing them substantially lower than historic highs, and if he wants exposure to Big Oil generally or BP specifically he shouldn't go out and sell them right now. If anything he might want to rebalance his exposure and acquire more, depending on how the rest of the portfolio is currently composed and how it's valued by current market conditions.

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!'

You have to have a measure of what things are worth but also what potential they have and a strategy for what to do if this potential is not getting recognised by the wider market.

Personally I don't like to just sell one stock that has gone up to replace with one that has gone down on the same market, as if the stocks were completely interchangeable stores of value. The characteristics of a share are not just as simple as 'homogenous UK blue chip'.

As a store of value (ignoring inflation) cash is a constant in your life that you can certainly compare the other liquid assets to, and see if you would rather have cash right now than an asset which has recently 'had a good run' or conversely 'been hammered by market sentiment'. Balancing your portfolio in and out of that is not necessarily a bad thing, as I agreed above. Clearly as you mention, GBP cash is not the only type of cash which brings its own issues if you expect to be needing significant amounts of non GBP cash as you look to the future. Whole 'nother topic!

aliciathyme

Linton wrote: »

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.

Which is why it is important to remove emotion from the position.

For example, I bought my current holding in IAG on 30 Jan 2012 @ 175p and it has now risen to 201p (14% in profit) having fallen meanwhile by 22%. And I bought one of my current RBS holdings @ 280p on 5 Aug 2011 and that is now 362p, (29% in profit) having fallen meanwhile by 37% (my stoploss is set at -40%).

The message is : hang on in there (but set a stoploss to avoid catastrophes)

Alicia

aliciathyme

If anyone is still interested in following this thread you might be interested in an update.

As there had not been a target buying opportunity since October, and good profits are being made by existing holdings, I decided to relax the trend condition to be independent of the change from the previous day price.

This resulted in a target buy on 15th January for ENRC at 339p as per Twitter.

My original "5year portfolio" investment of £10,500 now stands at £54,386, a net profit of 418%.

Alicia

Jegersmart

I bought ENRC at 340p using end of day values fwiw.

J

aliciathyme

Jegersmart - Good to hear someone is taking action!

I thought I had better run the model to see the impact of always buying when the price is independent of previous day price. So, based on the historical modelling of 5-years data-to-date running only my Trend Processor on the FTSE 100 constitiuents database, with/without this condition:

a) Buy price regardless of previous day price:
Investment £10,500 became £19,403 (85% net profit), 80 buys, 83% win ratio for sold holdings.

b) Buy price less than previous day price:
Investment £10,500 became £39,998 (281% net profit), 54 buys, 86% win ratio for sold holdings.

My purpose in relaxing the condition was to stimulate a new target buy and take profit from the portfolio. Consequently, having now bought ENRC (after selling RBS at 32.6% profit), I have now reset the trend processor back to only alert when the price is less than the previous day price.

Alicia

LannieDuck

Alicia, I'm interested in your approach, but can't see how to easily get the data from each of the FTSE 100 companies into a spreadsheet every day. It must take ages. Have you found a website that has them easily downloadable?

Jegersmart

Hi Alicia

Thanks for that, I have a slight difficulty in applying the rules based on end-of-day values. I also have to do the process manually each day and I guess if I dont do it every day it might screw up the selection process somewhat. What I do is when a stock has first reached the 20+% condition based on end-of-day value, so lets say that ENRC reached 20.96% on that day, I set a limit buy order for the next day to buy at -0.961% for that day and if it hits I buy and if it doesn't then I don't. I am not sure how this compares with your system:)

J

aliciathyme

LannieDuck wrote: »

Have you found a website that has them easily downloadable?

Google "FTSE 100 constituents" will find several websites offering data with a 15-20 minute delay, e.g. http://finance.yahoo.com/q/cp?s=%5EFTSE+Components
which also has historical prices.

Alicia

aliciathyme

Jegersmart wrote: »

I am not sure how this compares with your system:)

Well, I can't model it because it would need intra-day data, but it sounds very similar.

Alicia

Jegersmart

I have Evraz at 19.7% rise in last month today....:)