Red Across the Board

ColdIron

Kendall80 wrote: »

This is xmas bonus - 'extra' cash. My long term monthlies are unchanged. Just best to inject at a low point. That reads wrong. I mean 'invest on a down'?

Nothing wrong with being opportunistic if circumstances present themselves and you have free cash. Just don't base your whole strategy on it

Ryan_Futuristics

The most reliable way to buy on dips I've found is to take the FTSE 100's peak (6930?), take today's value (6370)

Subtract today's value from peak and you get: 560

Once a month, do that equation, and buy that much: £560 (or apply some scale as appropriate)

When it's climbing new highs, you don't buy (or you have a minimum buy amount), when it's down at 5,000, you buy a lot

I've done backtests on this, the net result is your average buy-price over a market cycle is very close to the dip - returns are only marginally lower than if you'd only bought on the bottom

Kendall80 wrote: »

Maybe its going to be a late santa rally this year? I'd like some commodity and Russia increases under my tree - wishful thinking methinks. Especially with recession looming for the latter.

I think Russia (and commodities) have a rough 2015 ahead - a good few years before they start paying off, but people who didn't buy when they were cheap may be kicking themselves

Thrugelmir

Europe is looking increasing deflationary. In 2015 things may well hot up. Lots of unrest.

gadgetmind

Ryan_Futuristics wrote: »

Subtract today's value from peak and you get: 560

And what do you do what the market passes a previous peak?

middlepuss

gadgetmind wrote: »

And what do you do what the market passes a previous peak?

Interesting formula. It still works when new peaks are reached: the only problem would be if it happens to hit a new peak on the one day a month, every month, you do your calculation and your buying - you buy nothing. But that's not going to happen.

Ryan_Futuristics

gadgetmind wrote: »

And what do you do what the market passes a previous peak?

You could have a minimum buy amount (you'd have to figure out how much you'd want to be investing, and for how long, in the event of a strong bull market)

You could do nothing (and instead add to perhaps your Asia or Emerging stocks or fixed income, or just be patient)

Or you could use that other cost-averaging technique, where you say you want (perhaps) a 0.8% increase on your FTSE 100 holding each month, and then inflate the market peak value by that much ... In the event of a big climb, you could sell any excess over this

They all do roughly the same thing

For me it would depend on what my cash reserves/income looked like, and platform charges ... Doing it with a L&G FTSE index on Hargreaves (with free fund trading) I've returned 10-20% annum on backtests

middlepuss

Ryan_Futuristics wrote: »

Doing it with a L&G FTSE index on Hargreaves (with free fund trading) I've returned 10-20% annum on backtests

How would that compare to having invested a fixed amount each month in that same fund?

Ryan_Futuristics

middlepuss wrote: »

How would that compare to having invested a fixed amount each month in that same fund?

I've got a really simple example here - just using a triangle wave to show a market rising and falling on whatever scale (with no dividends or anything taken into account)



The green line (lump sum) could be moved up or down the scale to represent when you bought in - I'd just set this one up to show buying at market peak (worst time possible)

The red line (using that buying the difference technique) in simple capital accumulation terms you can see will give you roughly double the market return of a drip feed, and really it's only fractionally off what you'd have if you'd lump-summed at EXACTLY the right time

In favour of lump-summing would be dividend accumulation, but against it would be risk ... In studies, lump-summing slightly edges drip-feeding on average (because markets have tended to rise over time - although that's not guaranteed in the future), but the Buy the Difference technique is clearly a way to generate much better returns

JohnRo

Have you tried to apply this theory to a real index?

System

I invested the last of my ISA.. last weekend would you believe.

One year ago I would now be panicking and selling this weekend. I used to panic at the sign of 5% drop. However finally the penny dropped. Every time I traded I lost. I was the classic buy high, sell low.

This year I am kicking myself, not because I invested last weekend, but because I don't have any more funds to buy on the dip! Of course the dip could have some way to go yet. I am still a buy high person, but my mantra is now sell higher!