Low-Risk investment strategy ?

aliciathyme

bowlhead99 wrote: »

I had a very quick sense check of the consequences of selling my good investments to fund new ones and in many cases it did not stack up.

I am disappointed that you have not considered it worthwhile to look at your data properly in the light of my concept, but are making a "quick sense" judgement. This is illogical for someone who appears to be a passionate professional.

In a rising market the odds are in your favour so the system can appear to work, winning 81% of the time and up overall. But the long term result of whether you are above or below the general stock market performance, or above or below the expected casino 'house edge' is due to luck and absolutely not to do with the 'Sell to Buy' killer strategy.

Casino gambling is a win/lose position in which every coin toss has a discrete 50% chance of being right - it takes no advice from past tries and cannot expect to be successful other than by lucky chance or cheating, and is never an investment strategy. Anyone who enjoys this level of gambling will be aware that it is an expensive pass-time . On the other hand my system has proved itself over many dataruns, whether the market is rising or falling (see my Post No15 in reply to Grey Gym Sock for just the last 5 years portfolio).

This has been an interesting exchange for me and I repeat my thanks to you (and others), but I can see you will never be convinced by a mere upstart amateur. However, I have come to stock market investing without any preconceptions of how it "should" be done and have found a system which has out-performed the professionals over the the last many years, simply by using my God given analytical skills and clear thinking to deal with streams of data (taking care NOT to project forward!).

Good luck with your system - I will be continuing mine which has now increased to net profit of 339% (was 332% when we started this discussion 4 days ago) and has risen by 0.4% today as I write this whereas the "market" (FTSE 100) has fallen by 0.3%.

If anyone else is interested in evaluating my Sell-to-Buy strategy on their portfolios, I would love to hear their results.
Then I can get a realistic assessment on how well it works in other stock picking schemes.

This is the Sell-to-Buy method:
Divide your initial investment by three to define a value for your lot size, invest in your first three stockpicks using this lotsize and subsequently wait until you have a new stock to buy AND at least 5% profit in your best holding then sell that stock to fund the new one using the same lot size. As your profits accumulate you will be able to buy another without selling anything. Use a 40% stoploss for protection, track all stoplosses and if one falls to 50% loss buy it back again. If the whole market crashes, sell everything and start again.

Which is more or less where I came into this forum!

Alicia

coastline

aliciathyme wrote: »

I wanted to know if anyone else had experience with Sell-to-Buy concept for increasing the long-term returns (most of the profits are small, but the turnover is high. i.e If I can make 10% ten times in a year by selling one to buy another I will have doubled my money).

Alicia

Theres some people who study charts to judge buy and sell postions.Its not everyones cup of tea and in general on this forum it appears most are buy and hold investors.
I've loaded a weekly chart of the FT100 which can also be loaded with individual stocks and set up some lower indicators.The horizontal lines are the overbought and oversold indicators.Theres some kind of guide there and considering its only around £10 basic to deal in a stock your £3,000 a position would make it possible to deal reasonably effectively.

aliciathyme

coastline wrote: »

The horizontal lines are the overbought and oversold indicators.

Thanks for that.

Alicia

bowlhead99

aliciathyme wrote: »

I am disappointed that you have not considered it worthwhile to look at your data properly in the light of my concept, but are making a "quick sense" judgement. This is illogical for someone who appears to be a passionate professional.

As said earlier if I had used your starting point and stock picking technique and your selling /funding technique, I would have your portfolio. You said I should use my own data and my own picking with your selling/funding technique and see what happened.

But my portfolio over the last 5 (or 10) years did not start with three equal weighted FTSE 100 stocks, each subsequent investment was not funded entirely from the sale of existing investments (plenty of new cash was introduced), and I have relatively few trades albeit spread over a wide number of holdings.

So to try and get comparable source data (low number of equal holdings, high volume of trades, purchases funded by disposals) I would have to make judgement calls to run my portfolio to your strategy. Such judgement calls and adjustments to the levels of what I bought or had to sell mean I could probably get the results to say whatever I wanted them to say because they are not the way the portfolio was actually run.

What I can say is that I looked at the timing of a bunch of my investments and considered what would have happened to my overall return if I had always funded them by disposing of investments which were showing highest gains at the time rather than using new cash or disposing of the ones I actually disposed of. The returns would have been down. Me building an entire model to prove it to you is not going to happen, it is a waste of time and an exercise in futility.

Casino gambling is a win/lose position in which every coin toss has a discrete 50% chance of being right - it takes no advice from past tries and cannot expect to be successful other than by lucky chance or cheating, and is never an investment strategy.

We are agreed on that.

If anyone else is interested in evaluating my Sell-to-Buy strategy on their portfolios, I would love to hear their results.

This is the Sell-to-Buy method:
Divide your initial investment by three to define a value for your lot size, invest in your first three stockpicks using this lotsize and subsequently wait until you have a new stock to buy AND at least 5% profit in your best holding then sell that stock to fund the new one using the same lot size. As your profits accumulate you will be able to buy another without selling anything. Use a 40% stoploss for protection, track all stoplosses and if one falls to 50% loss buy it back again. If the whole market crashes, sell everything and start again.

You said we can use whatever method we like to pick the stocks we buy, fundamentals, technical analysis, whatever, right? And what you're wanting to convince us of is a system for disposing of stocks to fund the next purchase, which you've named "Sell-to-Buy"

As mentioned on an earlier post, in your system the selection of the stock to dispose of is not driven by an assessment of the quality of that stock formed from technical analysis or fundamentals. You have taken no advice from any credible stock picking system on whether it is the right time to sell the stock or whether it is a stock that deserves a place in your portfolio over the other two. You just know you need to get some cash for a purchase.

The selection of the name of the stock to sell is effectively a coin toss, you just made a predetermined decision that the stock in Position A would always be the one you sell.

A coin toss decision has a chance of being right - it takes no advice from past tries and cannot expect to be successful other than by lucky chance or cheating, and is never an investment strategy. You probably recognise that from your own analysis of casino gambling, above.

On the other hand my system has proved itself over many dataruns, whether the market is rising or falling

Whether the system was to bet on the hand that performed badly (and sell the top stock) or bet on the hand that performed well (keep the top stock and sell the dog), your betting system -betting on what you should sell to fund the purchase- is a gambling strategy which does not improve the long term odds.

The concept of using technical indicators to make purchase selections has helped you buy mostly good stocks over the periods, though sceptics would perhaps call it luck. The sell side which is the strategy you want us all to test, is a gamble which has not failed badly enough to take away from the buy-side quality, so you are presuming it had contributed to the returns, and would always help the returns. This is not the case, it doesn't improve the long term odds, see casino explanation in previous post.

aliciathyme

bowlhead99 wrote: »

The concept of using technical indicators to make purchase selections has helped you buy mostly good stocks over the periods, though sceptics would perhaps call it luck. The sell side which is the strategy you want us all to test, is a gamble which has not failed badly enough to take away from the buy-side quality, so you are presuming it had contributed to the returns, and would always help the returns. This is not the case, it doesn't improve the long term odds, see casino explanation in previous post.

I have bought 100 stocks over the period. According to your "luck" each one would have a 50% chance of losing, but of the 85 I have sold, 69 have won and 16 have lost (the other 15 which I still hold are work in progress and do not yet contribute to the assessment). I cannot see how you come to a conclusion that "The sell side has not failed badly enough" Failed? How does the FACT that it returned BETTER results than any of 2844 commercially managed funds constitute failure??

A little more information for you:

Starting with the investment of £10,500 and the first acquision of Rio Tinto on 22 November 2007 (sold for 6% 17 days later), the capital gains were as follows:

FY 07/08 £1,526
FY 08/09 £3,357
FY 09/10 £14,320
FY 10/11 £6,398
FY 11/12 £7,231
FY 12/ 13 £818 (including work in progress for 15 current holdings)

As there were periods when no holding was in profit, there were also missed opportunities:

A total number 178 potential opportunities was advised by my software of which only 100 were actually purchased.
The remaining 78 were not purchased because of insufficient profits in holdings existing at the time, but would have been profitable had they run their course.

Overall for ALL the 178 companies, only 22 never made the minimum profitability grade, representing an overall success rate of 88% (excluding any dividends, which would further enhance the results),
and the median profit of all 178 was 25%.

Are you still convinced my results are down to luck?

Next you will be citing an unfair influence of feminine guile in the selection process?

Alicia

bowlhead99

aliciathyme wrote: »

bowlhead99 wrote: »

The concept of using technical indicators to make purchase selections has helped you buy mostly good stocks over the periods, though sceptics would perhaps call it luck. The sell side which is the strategy you want us all to test, is a gamble which has not failed badly enough to take away from the buy-side quality, so you are presuming it had contributed to the returns, and would always help the returns. This is not the case, it doesn't improve the long term odds, see casino explanation in previous post.

I have bought 100 stocks over the period. According to your "luck" each one would have a 50% chance of losing, but of the 85 I have sold, 69 have won and 16 have lost (the other 15 which I still hold are work in progress and do not yet contribute to the assessment). I cannot see how you come to a conclusion that "The sell side has not failed badly enough" Failed? How does the FACT that it returned BETTER results than any of 2844 commercially managed funds constitute failure??

You miss the point. There are two sides to a succesful investment round-trip:
1 - The decision to buy the stock at a date and price which represented a better than average opportunity
2 - The decision to exit the stock after you have maximised the returns reasonably available from it compared to what is perceived to be available from everything else you own or could buy.

You told us that we could ignore your 'what to buy' strategy driven by complex proprietary technical analysis (what you are using for Part 1) and use our own stock picking tool, but we really should should consider employing your sell side strategy (the "Sell-to-Buy" concept) for Part 2 to enhance returns.

However, as I explained, your sell-side method is not scientific or properly reasoned and does not improve the odds. It is a coin toss and the choice it makes for you to sell £3000 of investment A over £3000 of investment B might be good, bad or indifferent, it is pure luck.

What I was trying to say in the bit you quoted was that the selling strategy is not doing anything great for your returns that you could not get by tossing coins when you want to know which stock to exit. However, in terms of giving you a performance result it has "not failed badly enough" to offset the pretty good stock selections from Part 1 which have been driving the performance. Therefore your return is still overall pretty good, and you think the exit strategy is helping you to get those good returns.

However, it is more by luck than judgement that Part 2 has not damaged your returns instead of enhancing returns or being neutral. It cannot be judgement because you are not exercising any judgement, discretion or technical analysis on the stocks you are about to exit, and there is no evidence that you would not have improved your performance by picking one of the other stocks to raise money from in priority to the one you actually exited.

A total number 178 potential opportunities was advised by my software of which only 100 were actually purchased.
The remaining 78 were not purchased because of insufficient profits in holdings existing at the time, but would have been profitable had they run their course.

Over a long enough timescale most stocks are profitable if you let them run their course because most of them pay dividends and/or go up in value over the long term which is why, generalising, people use them to build investment portfolios.

Overall for ALL the 178 companies, only 22 never made the minimum profitability grade, representing an overall success rate of 88% (excluding any dividends, which would further enhance the results)

Like I said with the example of a trip to the casino, if the odds are not in the casino's favour you are more likely to have the opportunity to leave at 5% up than be forced to leave at 40% down. But setting those stops or limits doesn't change the longterm odds to put them in your favour.

Are you still convinced my results are down to luck?

I'm not in a position to say whether the software system you used to select stocks (i.e. Part 1) which ultimately gave you a great return on your high risk strategy is fundamentally a good stock selection tool or just got lucky and delivered a good result.

Certainly the fact it gave a return well above the normal distribution of investment funds means it is either way better than what the professionals use or more realistically there was some luck involved.

I am able to say with confidence that your method of exiting stocks (i.e. Part 2) by arbitrarily selecting one which is showing a high absolute cash return when you need money is not particularly returns enhancing, and if it did in fact enhance rather than detract from the returns over the review period, that's probably due to luck. See the reasoning already noted in this and previous posts.

Next you will be citing an unfair influence of feminine guile in the selection process?

Alicia

This is an anoymous forum on the internet. I've no idea whether you are male, female or a bit of both, and I've no idea whether the stock selection software you talk about even exists, and if it exists whether it was written by you or someone else, and if it was written by someone else what gender they were, nor whether it produced the results you claim, nor whether you actually acted on the results.

I'm happy the concept of Sell-to-Buy for part 2 of a round-trip is not particularly returns enhancing though, and certainly not to the extent that it would deliver 4x cost in a typical 5 year period on its own. To reiterate from my first post on the subject, it is not a 'low risk investment strategy' and so the title of the thread is misleading.
:beer:

grey_gym_sock

so we are not discussing how to select what shares to buy and when, but only:

1) investing the same amount of cash in each share you buy

2) starting by putting all your money into 3 shares

3) always staying fully invested (except for odd amounts of cash, insufficient to buy a new holding of a share)

4) a method of selecting what to sell, viz. the most valuable holding

correct?

i think 1) and 3) are fairly uncontroversial. except that i'd tend to increase the amount i put into each share gradually over time, so that the number of different shares held doesn't rise without limit.

2) is very very risky. it might be OK if you start with a small amount of money, and are planning to add to it over time, until you build up to (say) 15 or 20 shares. if it's your entire life savings, and you're just retiring, and this money is the only "pension" you have, it's complete madness.

on 4), i'd agree with bowlhead that i can't see the logic. however, OP, as well as urging us to test it with our own stock-picking strategies, you could test it with your own. just compare your actual results with the results of picking which share to sell at random. this would work best with a computer simulation, to test a range of random outcomes, but you've been writing sophisticated software to pick stocks, haven't you, so this should be a doddle.

aliciathyme

grey_gym_sock wrote: »

so we are not discussing how to select what shares to buy and when, but only:

1) investing the same amount of cash in each share you buy

2) starting by putting all your money into 3 shares

3) always staying fully invested (except for odd amounts of cash, insufficient to buy a new holding of a share)

4) a method of selecting what to sell, viz. the most valuable holding

correct?

Yes, exactly so - see my original Post No1 !
(I got diverted into unveiling my stockpicking methods by responding to Glen Clark at Post#9)

2) is very very risky. it might be OK if you start with a small amount of money, and are planning to add to it over time, until you build up to (say) 15 or 20 shares. if it's your entire life savings, and you're just retiring, and this money is the only "pension" you have, it's complete madness.

I absolutely agree - anyone investing in the stockmarket should never invest funds they can't afford to lose, and we all have to remember about that the past is not necessarily being repeatable.

I was fortunate to receive a small family inheritance from which I have allocated a portion for these investments. I have the first block we have been discussing, plus three self-select shares ISAs taken out on each of the last three tax years. These ISAs I took to the full ISA imits. All have to be considered as long-term investments and if they lose short-term the thing is not to panic, but hold. Incidentally, they also sometimes do well in the short term, but that cannot be relied upon.

I am particularly geared up to supporting univ fees, the first block still has 10 years to run, the others a few years longer.

you could test it with your own. just compare your actual results with the results of picking which share to sell at random. this would work best with a computer simulation, to test a range of random outcomes, but you've been writing sophisticated software to pick stocks, haven't you, so this should be a doddle.

I have done something similar by taking the lowest, second-lowest, second-highest, zero profit etc etc. As you say it's not difficult when you already have the basic model established. My conclusion was the one I have been reporting, simply because it has given the best results over many dataruns from different starting points.
I want now to find out how well it works for others.
I am not expecting anyone to seriously invest with this model, simply to run a virtual portfolio using the system with their own stockpicking recommendations.

Alicia
ps grey gym socks takes me back a few years (mine were supposed to be white though):)

aliciathyme

bowlhead99 wrote: »

I am able to say with confidence that your method of exiting stocks (i.e. Part 2) by arbitrarily selecting one which is showing a high absolute cash return when you need money is not particularly returns enhancing

I think you have a completely different approach to the whole investment scene.

I am cash limited and unable to just add more funds when a new opportunity pops up as you seem to do.

Once I realised my first investment was likely to run into high capital gains levels I developed my strategy for investment within the ISA wrapper to maximise returns (no tax liability except for stamp duty). However, within an ISA there is no way of adding cash once the limit is reached (and I use the maximum sums in order to minimise the impact of broker fees). My selling is not arbitrary, I first proved it by extensive modelling before using it for real.

That is why I sell-to-buy, and as I have just reported to Grey Gym Sock, my investments are really long-term for a specific reason.

I now hope someone will take me seriously, try the scheme on their own holdings, and let me know their conclusion.

Alicia

BLB53

Good luck with your system - I will be continuing mine which has now increased to net profit of 339% (was 332% when we started this discussion 4 days ago) and has risen by 0.4% today as I write this whereas the "market" (FTSE 100) has fallen by 0.3%.

Returns over the past 5 years for the legendary Warren Buffett are just under 96%. Forgive my scepticism of your claims but unless you post your trades at the time they are made, there is no way they can be verified.

If you are confident about your system, I would suggest you post a record of your trades for a defined period of time - purchases, sales etc and lets see how you get on compared to the FTSE 100.