Low-Risk investment strategy ?

Jegersmart

gadgetmind wrote: »

I'm happy to be proven right in the end. What happens along the way is just one of those things. If people think I'm wrong, and say I'm wrong, then so be it. What matters is how much I've made when I finally press the sell button.



It forces you to do your research up front rather than just relying on a stop loss to preserve some of your wealth. However, I do recognise there are different investment styles and some may require a lot more reacting to the views of others than mine does.

Of course, I agree completely - but at the end of the day I would (and have) personally taken note of the fact that I could have had owned 4 times as many shares in this case, and would/could I have done things differently....

Relying on a stop loss to preserve wealth? Most people that I know that have been doing this for say more than 20 years will most of the time use some sort of stoploss. If you don't, that is of course your choice!

J

Jegersmart

clairbear wrote: »

The sector has been in decline for couple years added to the FTSE been in decline since mid March either way cant be called ''low risk''???

Oh I agree, this sort of activity is not low-risk.

J

gadgetmind

Jegersmart wrote: »

Most people that I know that have been doing this for say more than 20 years will most of the time use some sort of stoploss.

Based on discussions elsewhere, most people don't use stop losses and instead use research and diversity to preserve wealth.

As I say, different styles.

Glen_Clark

Don't listen to Gadget. You keep using the stop loss. It makes bargains for the rest of us

IronWolf

There are dangers to a stop loss too. For example your stop loss is on the order book for everyone to see. If the price ever gets in that general area and there are quite a few stop losses, the market makers will push down the price to trigger all the stop losses. They make money off volume, they don't care you're losing money.

Jegersmart

Glen_Clark wrote: »

Don't listen to Gadget. You keep using the stop loss. It makes bargains for the rest of us

haha.......ok, thanks for your view.



J

Jegersmart

IronWolf wrote: »

There are dangers to a stop loss too. For example your stop loss is on the order book for everyone to see. If the price ever gets in that general area and there are quite a few stop losses, the market makers will push down the price to trigger all the stop losses. They make money off volume, they don't care you're losing money.

Yes, I agree - it depends on one's activities in my mind.

If, like some of the posters above are only buying and holding and trying to achieve an average return over a long period of time then certainly stop losses are less important partially due to (over) diversification potentially.

I think there is a lack of objectivity here. If trading, i.e. not buying and holding for long periods of time a stop loss is almost vital in my experience. Even with investing a stop loss is sometimes desired imho, but it is good to gain different opinions on this topic - even if one joker suggested that using stop losses makes stocks cheaper for others:D

GLA

J

gadgetmind

Jegersmart wrote: »

using stop losses makes stocks cheaper for others:D

Well, *someone* needs to be buying high and selling low.

My Brother In Law also once said that he served a valuable role in the housing market by creating fixer-uppers for others to buy at well below market price.

Jegersmart

gadgetmind wrote: »

Well, *someone* needs to be buying high and selling low.

My Brother In Law also once said that he served a valuable role in the housing market by creating fixer-uppers for others to buy at well below market price.

Very amusing story - thanks for that and good luck.

J

aliciathyme

Following further modelling I have introduced some changes to the selling procedure in order to refine the stoploss policy and introduce a Take Profit scheme.

Stoploss: Set stop loss at 10% for the first 2 weeks, thereafter at 33%
Take Profit: After a holding reaches 33% profit, sell when it falls by 10% from it's peak

The 5-year portfolio to 30 April 2013 yields a net profit of 180% using this revised selling policy, with a first year gain of 44%.

Inevitably the win ratio suffers due to more holdings meeting the new conditions and for sold holdings is 61%.
There are just 6 holdings still current, and a bank balance equivalent to a further 2 holdings.

You can see how the STB system works and view the 5-year performance graphically at: Alicia's STB 5-year to 30 April 2013

The following is a schedule of all transactions for the 5-year portfolio to 30 April 2013: 5-Year Schedule

By comparison with 4400 funds listed on the Interactive Investor website, the result is 3rd best :
Comparison Chart as at 30 April 2013
(This fund comparison website is updated each day at II Fund Listing )

Applying this new selling criteria to the ISA portfolios gives as follows:
2010 ISA: 148% net profit (was 94%)
2011 ISA: 33% net profit (was 41% loss)
2012 ISA: 13% net profit (was 8% loss)

The effect of these changes is to improve short-term gains to reduce the number of first-year losses in 5-year portfolios.
The 5-year results are almost unchanged from previously (ie, using just the 40% stoploss and no profit taking), and still maintain a top position in the overall fund comparisons.
And the short term results as seen in the ISA performances are significantly better.
In my view, such a good performance justifies the "Low Risk" epithet.

Operating this new selling policy is more hands-on than the previous simple 40% stoploss, but the results may justify the complication.

Alicia