Low-Risk investment strategy ?

aliciathyme

Jegersmart wrote: »

One clarification, do you sell the entire holding that is in most profit (assuming above 5% and a buy signal on a different stock) or do you sell the original stake size only?

J

YES!
If you sell only the original stake you will be left with a very small holding (representing the profit portion) which will be expensive to sell in the future.
And you need to retain the profit as cash to accumulate for expanding the portfolio later.

Alicia

Jegersmart

Thanks Alicia

You mentioned earlier "For people with lager sums to invest than I have, the system would be scalable, but capital gains erode the reinvestment strategy."

What do you mean by this? In terms of CGT?

J

aliciathyme

jamesmorgan wrote: »

That has been true for the markets in the past 5 years, but may not be true in future markets. I developed my own strategy in 1999 by an analysis of FTSE100 shares over the preceding 10 years. Since then I have gradually tweaked the strategy to take account of different market types. In some markets, keeping your winners is the right approach. In other markets it isn't.

I did something similar, having given up on traded options by processing the old CEEFAX feeds through an excel filter, I decided to look at less risky ways to invest. Initially in 2003 I started developing my anomaly function which worked fine until the market uptrend when there were long period of silence. I then went looking for a scheme to select from rising stocks and so developed my trend function. I combined the two and with some later adjustments came up with the system I use now, having started for real 5-years ago, and which I have quoted from extensively already. Incidentally, I have just run my current model over the whole 10-year dataset with surprising results: the original £10,500 would now be £143,023 net (including £17,895 dividends), having sold 217 holdings with a win ratio of 71%, and ending with 43 current holdings, of which there were multiple holdings (up to 3) in 10 companies. This represents a net profit of 1,362%, but is, of course, a totally academic exercise using the current FTSE100 constituents which is not representative of 10 years ago (missing Cadbury, Northern Rock etc, etc), and I don't have the early dividend data, but maybe it illustrates the power of the sell-to-buy strategy?

Are you selling shares in a down market based on your 40% stop loss, or do you have some other criteria that you use?

No, I look for a downward trend in the FTSE100 index value.

I assume you know you can simply add your ISA allowance to an existing ISA rather than open a new ISA. This would save you costs (as each ISA typically has its own costs).

Yes, but as the investments are for four different recipients for uni fees I wanted to keep them separate. However, I suspect they may in time converge onto the same stocks.

My own strategy is also limited to FTSE100 so I'm not sure it adds to your existing data. I have in the past looked at the best strategy to sell shares. Across rising, falling and flat markets I have found the best overall approach is to sell a share as soon as it hits a specific target (whether there is a new share to buy or not). However, as my buying criteria are different from yours I'm not sure this really helps you.

Are you looking for feedback on markets outside the FTSE100 because you want to extend your potential pool of shares? If so, I think some caution may be necessary as I suspect part of your success comes from having few buy signals (as explained before, the more buy signals you get relative to the number of shares held, the more likely your gains will tend towards 5%/share). Out of interest, do have records for how many buy signals you get each year, and how many of these are acted upon as you have a share that can be sold?

Your comments are helpful to me to give me confidence that I have not overlooked something important in my thinking - so, thanks again!

No I am not looking to expand outside the FTSE100 list because I have an innate distrust of anything lacking liquidity. Friends have said I should market my system, but I would not want the responsibility when things go wrong (which they inevitably will). Meanwhile I am making a very good return on my investment, and happy to discuss it if it would be helpful to others.

The following is a list of buying signals / those acted upon:

FY 07/08 16/ 9
FY 08/09 96/ 30
FY 09/10 22/ 22
FY 10/11 5/ 5
FY 11/12 24/ 22
FY 12/todate 15/ 12

The totals are 178 signals of which 100 were bought.

Alicia

aliciathyme

Jegersmart wrote: »

Thanks Alicia

You mentioned earlier "For people with lager sums to invest than I have, the system would be scalable, but capital gains erode the reinvestment strategy."

What do you mean by this? In terms of CGT?

J

Well, for me it would mean having to sell holdings to pay CGT, I would rather keep that money to reinvest.

Alicia

doughnutmachine

why dont you post the shares you are planning to buy? it seems your system is too good to be true.... i would love to be proved wrong though...

Jegersmart

doughnutmachine wrote: »

why dont you post the shares you are planning to buy? it seems your system is too good to be true.... i would love to be proved wrong though...

The basics are there to be tried, why don't you do some work for yourself?

J

aliciathyme

In an attempt to sastisfy the sceptics on the Low Risk issue, I have run a series of 5-year portfolios through my 10-year FTSE 100 dataset using my Sell-to-Buy strategy.

Each new run started from the day following the first buy which had been actioned in the previous portfolio dataset. This has generated a total of 84 portfolios each spanning a 5 year period, with the last one ending 28th December 2012. I have run three versions, using Investment/LotSize ratios of 3:1, 5:1 and 10:1

The results are as follows:

3:1 ratio (£10,500 investment, £3,500 LotSize)
NP 168% mi, 407% me, 702% ma
Wr 68% mi, 81% me, 94% ma
Nb 54 mi, 100 me, 125 ma
Nc 4mi, 16 ne, 20 ma
Nl 12

5:1 ratio (£10,500 investment, £2,100 LotSize)
NP 145% mi, 323% me, 542% ma
Wr 61% mi, 76% me, 93% ma
Nb 62 mi, 117 me, 146 ma
Nc 4mi, 20 ne, 25 ma
Nl 6

10:1 ratio (£10,500 investment, £1,050 LotSize)
NP 112% mi, 210% me, 335% ma
Wr 47% mi, 67% me, 91% ma
Nb 62 mi, 138 me, 159 ma
Nc 4mi, 28 ne, 36 ma
Nl 13

Where mi = minimum, me = median, ma = maximum
NP = net profit
Wr = win ratio of holdings which were bought and sold.
Nb = total number of holdings bought
Nc = number of holdings still current at end of 5-year period
Nl = number of runs in which there was a loss at end of first year
(all subsequent year ends were in profit)

This demonstrates the effectiveness of the system over a variety of datasets, and (perhaps surprisingly) that the 3:1 ratio variant gives the best win ratio performance.

If anyone has any results from using my Sell-to-Buy scheme, I would love to see them posted!

Alicia

Jegersmart

I am not sure what the above proves, however as far as I am aware there have been no buy signals on FTSE100 stocks since we started discussing this, although on the FTSE250 universe I think ITE Group did qualify (just for interest sake).

J

aliciathyme

Jegersmart wrote: »

I am not sure what the above proves,
J

I was hoping the results form a variety of different datasets and lot/investment ratios might have persuaded sceptics that the strategy was in fact "low risk" and worth trying on their portfolios to see if they would benefit. Anyway, thanks for your interest, I agree that ITE Group met the trend condition on 13th December, but the price was higher than previous day so it would not have been a target.

Alicia

novadragon849

aliciathyme wrote: »

I was hoping the results form a variety of different datasets and lot/investment ratios might have persuaded sceptics that the strategy was in fact "low risk" and worth trying on their portfolios to see if they would benefit. Anyway, thanks for your interest, I agree that ITE Group met the trend condition on 13th December, but the price was higher than previous day so it would not have been a target.

Alicia

Hi Alicia

If you don't mind me asking how much have you made using this investment strategy and over how long a period.

I may give it a try in the future, I understand all your steps to this strategy but I still can't get my head round picking the 3 shares to start of with...