Low-Risk investment strategy ?

aliciathyme

bowlhead99 wrote: »

........... In a well developed market like FTSE 100 I suppose there's nothing necessarily wrong with looking at a share on the technicals of its price graph, rather than the fundamentals of how much profit it's making. After all, part of the share price movement is a function of people being attracted to the stock who have already done proper analysis of fundamentals, and part of it is due to buying by massive hedge funds whose actions are to an extent determined by computer simulations driven off simple moving average charts.

The whole technical analysis thing is self-perpetuating if everyone is making the same buy or sell decisions when they see the same movements. So I do accept that making investments on historic price movements is not quite as risky as making a roulette bet based on what number came up historically.

Well now, do I detect some vestige of support here?

I guess if someone wanted minimal risk they would invest in a cash ISA with a minimal return. I too do not put all my eggs into the shares basket, but also have some 5-year bonds yielding 5% pa gross (safety in peanuts!).

I understand your comments about the dilemma about which equity to sell, and sometimes it may well be advantageous to sell other than the best performer, but identifying which one would require expert knowledge. As an amateur I have neither the expertise nor the time for such research. My system is designed to build my portfolio gradually from the initial 3 companies to currently a holding of 15. To do that I either have to inject more funds or to sell the profitable holdings. I prefer the latter route.

I must add that the experts do not do so well either. Over the last 5 years out of 2456 Unit Trusts and OEICs almost half (1166) produced a loss ! Investment Trusts fared even worse with over half (231) making a loss out of a total of 388 !! I wonder how the managers justify their trading decisions. But then they get their annual management fee win or lose ...............

I will stick to my simplistic DIY system!
You might like to review your portfolios and see how you would have fared using my Sell-to-Buy scheme?

Alicia

grey_gym_sock

now you've got to 15 companies, that's just about enough to give a diversified portfolio - providing they're from reasonably diverse sectors. when it was 3, it was far riskier.

so there was a lot more luck in the early stages than there is now. it's evolved into something which may have a sensible level of risk (though not low risk), but it could easily have never got there.

selling the biggest holding made more sense when you had fewer shares, because it enabled you to diversify. with more shares, it's not obviously right.

the other aspect of "sell to buy" is that you always stay fully invested. so you're not trying to time the market as a whole, which is probably sensible.

what % of your portfolio do you turn over per year on average?

bowlhead99

aliciathyme wrote: »

Well now, do I detect some vestige of support here?

Support in that I can understand someone using a dataset and statistical analysis derived from trading data to plot their own trades. Still, this is more suitable for traders and less so for investors.

No support for the lack of reason on what/when to sell, or for the passing off a very small portfolio of directly held shares in one market as being a low risk strategy.

I guess if someone wanted minimal risk they would invest in a cash ISA with a minimal return. I too do not put all my eggs into the shares basket, but also have some 5-year bonds yielding 5% pa gross (safety in peanuts!).

As we all know, cash is low risk to nominal value of capital and inflation erodes the real value of the capital. So although we all need some of this cash and fixed rate bond stuff, a higher risk solution is required on the side, to produce a real return.

The riskiness of that higher-risk-than-cash solution will be different for different people as we all have different appetite for, and capacity for, risk. A cautious old guy will want something different in it than a young pup would want. But it should still involve a mix of un-correlated assets and a range from lower to higher risk assets in the portfolio.

The approach you've taken is not suitable for most investors as their whole portfolio, nor is it suitable as the lower-risk cornerstone of their whole portfolio. Instead, it would be at the higher risk end of the portfolio. If you are going to start by putting all your investable cash into 3 companies, and recognising that any one of them could easily tank by 40% (so that the proceeds on that third of the portfolio need to be invested into something generating 67% return to get it back to where it started), you are playing high risk games.

I understand your comments about the dilemma about which equity to sell, and sometimes it may well be advantageous to sell other than the best performer, but identifying which one would require expert knowledge. As an amateur I have neither the expertise nor the time for such research. My system is designed to build my portfolio gradually from the initial 3 companies to currently a holding of 15. To do that I either have to inject more funds or to sell the profitable holdings. I prefer the latter route.

So if I did what many people on internet forums do, which is paraphrase others to ridicule them:), I would say this:

You reckon you have bought or developed/built a system which is excellent for identifying stocks which have the best chance of going up using statistical analysis (apart from the 10% of stocks it accidentally picks which tank by 40%). But when you need a few thousand out of your portfolio to support a new investment, you don't know enough about stocks or statistics to know which ones to sell, and you don't trust your system enough to use it to compare the three to 15 stocks in your existing portfolio and identify the two to 14 best prospects to keep. As a result of this, you think the best thing to do is to sell the best performer you have.

This level of competence does not stack up with someone making 80 good investments out of 100 for 300%+ return and so one conclusion could be that you are a lucky fool whose performance is a statistical anomaly helped by a rising market. The other conclusion is that you are simply a snake oil salesman, who will at some point invite others to try the oil once you've reached the magic 10 post-count here to post links, or perhaps by PM to enquring individuals.

No offence intended, perhaps actually you're great at investing and enthusing about the results and simply poor at explaining why your results are to be expected from your strategy and not very high risk after all.

I will stick to my simplistic DIY system!
You might like to review your portfolios and see how you would have fared using my Sell-to-Buy scheme?

If I had followed your system to identify the target companies when they came up in the spreadsheet analysis using the same rules you used, and set the same stop losses, and used the same rationale for exiting existing investments when there was another good target: I would have the same portfolio as you.

But while I would like the cash return it had made, I would not be generally comfortable with the system and would cash in the 45k to reinvest into something more balanced which looked more like my actual portfolio looks now. Not that your current 15 FTSE 100 shares are necessarily fundamentally flawed, just the logic for getting there is flawed and so I'm unlikely to want them to be 100% of my portfolio.:)

aliciathyme

grey_gym_sock wrote: »

what % of your portfolio do you turn over per year on average?

Year 1 (Nov 07/8) = 24 holdings traded
Year 2 (Nov 08/9) = 34 holdings traded
Year 3 (Nov 09/10) = 6 holdings traded
Year 4 (Nov 10/11) = 14 holdings traded
Year 5 (Nov 11/12) = 22 holdings traded

coastline

With the stock filter in this link could you show us how you pick a few winners...please post the settings so we'll all have a try..
Theres many systems out there...some just use charts...one of the old favourites was to pick the worst performers from last year....dogs of the ftse.

http://www.iii.co.uk/markets/?type=stockfilter

aliciathyme

bowlhead99 wrote: »

You reckon you have bought or developed/built a system which is excellent for identifying stocks which have the best chance of going up using statistical analysis (apart from the 10% of stocks it accidentally picks which tank by 40%). But when you need a few thousand out of your portfolio to support a new investment, you don't know enough about stocks or statistics to know which ones to sell, and you don't trust your system enough to use it to compare the three to 15 stocks in your existing portfolio and identify the two to 14 best prospects to keep. As a result of this, you think the best thing to do is to sell the best performer you have.

I'll accept the cynicism, but the scheme was designed as a long-term investment for uni fees. I am not interested in taking funds for a new investment, and I have previously said, the best thing for me is indeed to sell the best performer.

This level of competence does not stack up with someone making 80 good investments out of 100 for 300%+ return and so one conclusion could be that you are a lucky fool whose performance is a statistical anomaly helped by a rising market

Perhaps, but the results are consistent, as you will see from my reply to "grey gym sock". Maybe rising markets are always there if you can identify them. My 2010 ISA (First trade 15th June 2010) is today showing 124% net profit.

The other conclusion is that you are simply a snake oil salesman, who will at some point invite others to try the oil once you've reached the magic 10 post-count here to post links, or perhaps by PM to enquring individuals.

???? you've lost me. Must be some forum jargon?

Alicia

aliciathyme

coastline wrote: »

With the stock filter in this link could you show us how you pick a few winners...please post the settings so we'll all have a try..

I have already explained the system. I have written my own software to implement the functions automatically and send me a daily email if there is any action to be considered.

You might like to try the trend function. I suggest you log a string of closing prices data into an excel spreadsheet and add a trend formula. If on a given day a 21-day trend exceeds a 20-day trend by more than 1% AND the price is lower than the previous day's price you have a potential buy.
Hope this helps.
(sorry, I don't understand your URL link)

Alicia

aliciathyme

bowlhead99 wrote: »

If I had followed your system to identify the target companies when they came up in the spreadsheet analysis using the same rules you used, and set the same stop losses, and used the same rationale for exiting existing investments when there was another good target: I would have the same portfolio as you.

But what if you used your own stock picking criteria and applied my Sell-to-Buy strategy. Would you have done any better??

By the way, I really appreciate your insights and the time you are spending on all this.

Alicia

Thrugelmir

aliciathyme wrote: »

You say that the FTSE 100 is now lower than 5 years ago, true, but I have been selective within the listed companies, buying low and selling at profit. It's not too difficult to beat the FTSE index if you look at trends of individual constituents.

So you held no bank shares and had no holding in BP ?

Thrugelmir

aliciathyme wrote: »

It's not too difficult to beat the FTSE index if you look at trends of individual constituents.

So so easy..........

If it was. A trading programme would have written to execute the trades instantly by now.