Hi LifeChoices,
From my understanding nomore4s was showing the power of compounding rather than showing an investment strategy. If you had half proper Investment plan and an exit strategy.
You would sell CBA shares in 07 @ $50 (Sell when price goes down by 2.5%)
and buy them again in 09 @ $38.
Just by having this simple strategy you would have been roughly $40,000 better off.
It is just my thought. I am a newbie and I have never invested in shares. So I could be completely wrong.
Cheers,
Sri
That is how I would look at at as well Sri. Brings up another question from me, in my plan for long term div. Reinvestment portfolio, I have written that it will be evaluated every 3 months. Is this a fair time frame or should it be monitored on a more regular basis?
Hope that makes sense, I am on my phone which is a PITA to type on.
t.I thought nomore4s was showing us an example of what he does with portfolio 1 - but yeah, I agree he/she would have been better off selling shares on 14 Dec 2007, putting the money in the bank at 7% interest and buying shares again on 23 Jan 2009.
Just be careful here as you are starting to curve fit. While it may sound simple to sell in '07 @ $50 and buy back in '09 @ $38, it raises a few issues.
-First there is the tax that needs to be paid on the capital gains, one of the advantages of this strategy is it lets me grow a passive income without increasing my tax, as remember the dividends are fully franked.
-How do you pick the tops and what triggers the buy back? Here is a list of the major swings with CBA in the last couple of years.
$56.24 on 23.10.09
$50.40 on 2.11.09 - Swing of 10.38%
$55.95 on 10.11.09
$50.30 on 27.11.09 - Swing of 10.09%
$58.65 on 18.01.10
$51.01 on 15.02.10 - Swing of 13.03%
$60.00 on 21.04.10
$48.44 on 21.05.10 - Swing of 19.27% or $47.05 on 02.07.10 - Swing of 21.58%
$54.20 on 03.08.10
$48.07 on 25.08.10 - Swing of 11.31%
$53.96 on 15.09.10
$47.47 on 26.11.10 - Swing of 12.02%
$55.48 on 09.02.11
$49.25 on 17.03.11 - Swing of 11.32%
So in the last 18 months you could have been potentially stopped out of the stock 7 times with declines of over 10%, and now when do you buy back in on each move? It's actually feasible you would still be sitting on the sidelines and now you've paid up to 7 more lots of brokerage, tax for every-time you exit the stock at profit and maybe even missed some dividend payments.
This is fine but it now does not fit in with my original goals and strategies of the portfolio, it is now beginning to fall into Portfolio 2 or even 3.
This is why I'm saying you need to be clear on what exactly you want to achieve before you begin, knowing what your plan is when the stock rockets, falls or trades sideways. Under my exit criteria for this portfolio I would not have had one signal to exit CBA in the whole 15 years, that's not to say I won't have one in the next 15 years.
The above is also why I run other strategies, so I can just let my long-term portfolio grow and do what I've designed it to do without having to chase the markets swings and roundabouts, as I'm trading these swings in my other portfolios.
That spreadsheet is purely an example of how it can work. Remember in the original spreadsheet I purchased the stock on the same date every year without paying any attention to the price and that is not how I run that portfolio, I only did it that way to show even with a very crude entry method it is possible to get good results.
So now instead of trying to pick market tops & bottoms to improve the return and creating tax events in the process how about we bring in some simple entry rules to try and help maximizing the returns while still keeping within the portfolios original plan.
Possible Entry rules.
- As we are buying once a year why not only buy after a decline or at support levels each year as the opportunities present -eg on current CBA chart buy at support at around $48
- If the market or stock is toppy - eg 2007, don't buy but wait for a decline and purchase 2 years stock at once at a discounted price, while still receiving dividends from current holdings.
Don't fall into the mistake of looking at charts and saying if I brought here or sold there or if only I had held here instead of selling, etc etc as it will do your head in.
You will never nail every move perfectly and you will have plenty of times where you exit a stock and it goes to the moon after you exit or you fail to buy a stock for whatever reason and it takes off.
All you can do is build a strategy/system/method/plan that is robust and profitable and then follow through on it to the best of your abilities.