wsDKII's Money Management Journey... Help?

Hi all, I have been reading quite a bit here and am doing my first post so I can start getting advice from those who want to impart any knowledge they have in the area of Money Management.

I have always wanted to get into the share market and have been researching as much as I can over the past few months. I have a fair way to go before I actually purchase anything, and I'm starting with Money Management.

Before I talk about my strategy I think some info about me might help:

I'm 27 years old, in a relationship earning a combined ($15,000 + $70,000) per year, have expenses of $45,000 per year, debt of $54,000 (HECS) and save the remainder. We have saved up $230,000 and are wanting to use a portion of this for our investments. I want to start in the stock market, not the housing market.

My general thoughts on investing is that it is a long term marathon and needs to be maintained. I am not going to be doing any day trading, or any short based buy and sells - I don't have the time and I'm not sure I would be any good at it at all.

From my reading I have been able to guess (at this stage) that ill be the type of person who would want to undertake fundamental analysis on a company before I purchase it (in most cases), and then use technical analysis to determine the best time to enter the market for that company.

(By the way, sorry if I'm misusing any terminology here! )

What I've put together below is an overview of my strategy and was hoping to have some feedback?



The general idea here is that I will pace layer my approach with 3 streams of activity, each having a higher frequency of effort with potential higher return. I am also trying to spread out my investments across different categories to minimise overall risk.

I realize that this approach may end up being to involved for the time I can commit to this, and I may have to modify as I progress.

I guess at the end of the day I'm sick and tired of being penalized as a saver (having all my current money in the bank at this point).

The approach I want to use with implementing this strategy is as follows:

Spend 6 months testing across the board using either an online tool or excel to simulate buying, holding and selling with an initial capital of $100,000.

If I am able to turn a profit I will start out with 1 company in each category and slowly purchase more shares / companies over a 6 month period (after doing the fundamental analysis), where the right conditions exist.

I am in no rush to invest $1 or $100,000 and I plan to take my time. But if the right opportunity presents itself I want to be able to take advantage of it.

I guess ill leave it to you guys to pick this apart!

Thank you in advance for any feedback on anything I have said

The only comment I have is that theory and practice are on different planets.

Only experience will answer any of your questions.
Anything else is for you----without experience---- theory.

The best money management IS experience.

When you can recognize opportunity when it isn't recognizable to others
And you understand how to trade both when your wrong AND when your right
You'll be standing in a room full of simplicity.

You will see it as clear as the sun in the sky.
No one can get you there.

Just as your degree took 1000s of hrs and many 1000s of $s
So too will your education in securing financial freedom.

Good luck
Successful trading is as boring as bat ****e and as simple as 123

If its not----you haven't got it----YET

You must be the worlds best saver with 25k left after expenses to save per year and that means you would have been saving that amount since you were eighteen. This makes me wonder where I went wrong when at your age I could manage to save on a tradesmans wage only $150 per week or 7k per year. But there was always other stuff in life that cropped up which made holding onto savings in my 20's a constant battle.

I can only suppose the money came from elsewhere and wonder why the government (tax payers) can't be repaid the 54k you owe out of the money you have. Maybe because the loans are near interest free so there is no incentive to eliminate debt.

You also know the language indicated by the criteria you use on the road map attachment. This could be from experience but tech/a has already summed up your situation. Facts aside, I do encourage your professional approach to the market.

Wysiwyg said:

You must be the worlds best saver with 25k left after expenses to save per year and that means you would have been saving that amount since you were eighteen.

Click to expand...

May be he left out a zero here?

wsDKII said:

I'm 27 years old, in a relationship earning a combined ($150,000 + $70,000) per year, have expenses of $45,000 per year, debt of $54,000 (HECS) and save the remainder. We have saved up $230,000 and are wanting to use a portion of this for our investments. I want to start in the stock market, not the housing market.

Click to expand...

wsDKII said:

What I've put together below is an overview of my strategy and was hoping to have some feedback?

The general idea here is that I will pace layer my approach with 3 streams of activity, each having a higher frequency of effort with potential higher return. I am also trying to spread out my investments across different categories to minimise overall risk.

I realize that this approach may end up being to involved for the time I can commit to this, and I may have to modify as I progress.

I guess at the end of the day I'm sick and tired of being penalized as a saver (having all my current money in the bank at this point).

The approach I want to use with implementing this strategy is as follows:

Spend 6 months testing across the board using either an online tool or excel to simulate buying, holding and selling with an initial capital of $100,000.

If I am able to turn a profit I will start out with 1 company in each category and slowly purchase more shares / companies over a 6 month period (after doing the fundamental analysis), where the right conditions exist.

I am in no rush to invest $1 or $100,000 and I plan to take my time. But if the right opportunity presents itself I want to be able to take advantage of it.

I guess ill leave it to you guys to pick this apart!

Thank you in advance for any feedback on anything I have said

Click to expand...

You said investing is a marathon. You also said that a fundamental approach is what you should use and what makes sense to you. Both may be correct depending on what you can become good at. However, testing things on paper for 6 months is completely incompatible with the above. And regardless of the result of such testing, your actions will not be more or less informed.

On your strategy slide... the different row entries are again incongruent. Take your "Core" long term investing for example. You want to invest in large caps earning slow and steady return compounding over time. Yet you have a stop loss of 10%. This stop loss makes no sense compared to what you are trying to achieve. A 10% stop loss (assuming it's trailling) would have you stopped out of CBA 5 times, WOW 7 times, TLS 5 times and CSL 4 times over the last 5 years. Yet if you bought and hold these 4 stocks for the last 5 years you would have achieved exactly what you set out to achieve.

I am not advocating blind buy-and-hold, nor I am advocating having no exit strategy. But I think your strategy may need further refinement.

Wysiwyg said:

You must be the worlds best saver with 25k left after expenses to save per year and that means you would have been saving that amount since you were eighteen. This makes me wonder where I went wrong when at your age I could manage to save on a tradesmans wage only $150 per week or 7k per year. But there was always other stuff in life that cropped up which made holding onto savings in my 20's a constant battle.

I can only suppose the money came from elsewhere and wonder why the government (tax payers) can't be repaid the 54k you owe out of the money you have. Maybe because the loans are near interest free so there is no incentive to eliminate debt.

You also know the language indicated by the criteria you use on the road map attachment. This could be from experience but tech/a has already summed up your situation. Facts aside, I do encourage your professional approach to the market.

Click to expand...

Actually I started professional work at 21 with $7k in my account. I was able to rent with a mate for a few years, which saved me quite a bit. My partner has saved a portion of that amount as well though, it isn't all me. But there was no typo. She is currently working part time looking for work (for over 2 years now! )

Honestly I'm surprised how much we have myself - given the small amount of years, and I should say that only recently has our expenses increased to $45k per year, so we are saving a fair bit less now we rent together. But also note that our only other assets include 2x cars worth about $25k total! haha.

I am considering paying off her HECS debt but may wait until the federal government makes a decision regarding whether or not to increase the interest accumulation. Presuming she can get a job this year it will begin to be paid off anyway.

Just on your comment regarding potential experience - I have none but have been reading / watching everything I can get my hands on recently, so that might have something to do with my language.

It seems as though there aren't any big issues so far, so ill take that as a good sign!

skc said:

You said investing is a marathon. You also said that a fundamental approach is what you should use and what makes sense to you. Both may be correct depending on what you can become good at. However, testing things on paper for 6 months is completely incompatible with the above. And regardless of the result of such testing, your actions will not be more or less informed.

Click to expand...

I am not sure I understand what you are talking about here. After looking at my plan again I can see a potential incompatibility with the Core area - not enough time to really see anything in this area, and chances are ill be doing the 'learning by doing' approach that Tech/a was referring to here.

But with the other two streams I believe I should be able to evaluate some companies, choose a buy position and hold till a time arrives where I can / should sell?

If not, can you please point out what I'm missing (although it's late so I hope it isn't too obvious! )

skc said:

On your strategy slide... the different row entries are again incongruent. Take your "Core" long term investing for example. You want to invest in large caps earning slow and steady return compounding over time. Yet you have a stop loss of 10%. This stop loss makes no sense compared to what you are trying to achieve. A 10% stop loss (assuming it's trailling) would have you stopped out of CBA 5 times, WOW 7 times, TLS 5 times and CSL 4 times over the last 5 years. Yet if you bought and hold these 4 stocks for the last 5 years you would have achieved exactly what you set out to achieve.

I am not advocating blind buy-and-hold, nor I am advocating having no exit strategy. But I think your strategy may need further refinement.

Click to expand...

Thank you. A fair observation and clearly I haven't put enough thought into it as of yet. Would a better approach be to constrain the stop loss guideline around a time window? e.g. If the stock loses 10% of it's value over 1 week, sell - But if it loses 10% over 1 month, hold?

Or perhaps I should increase the percentage to 20, 30 or 40?

Or what about using a 'gut feel'?

As I have no experience I'm not sure what is a good approach for 'blue chip' companies in this regard. Your words indicate a happy medium exists somewhere though

Do you have any thoughts given the percentage allocation to each of the 3 'buckets' of investment? Is 50% too much to put into 'blue chip' or perhaps to little? I suspect that the answer lies (as usual) in the gray area....but how to understand this?

Anyway, thank you for the reply

wsDKII said:

Thank you. A fair observation and clearly I haven't put enough thought into it as of yet. Would a better approach be to constrain the stop loss guideline around a time window? e.g. If the stock loses 10% of it's value over 1 week, sell - But if it loses 10% over 1 month, hold?

Click to expand...

How does a price movement of x% to where your stop is disprove your investment thesis?

Why would you consider stop losses at all with a long term, fundamentally based investment strategy? I think your whole approach is odd, you seem to be trying to cover all bases and have a little bit of different styles and strategies. I dont think that will end well.

I think tech/a hit the nail on the head, "The only comment I have is that theory and practice are on different planets."

Your approach looks a bit like a nicely designed university project, life turns out to be rather different to uni!

Sorry! My reply looks a bit harsh and negative when i reread it! Congratulations for your discipline in saving so much at such a young age, that is something the vast majority dont achieve.

I do think you would be well served by doing a lot more reading and learning before you start actually investing in companies. Aside from resources like ASF there are many good books out there. I suggest you read ones that appear to align with your preferred strategy, eg Fundamental Value Investing, but also make sure you read some that are opposed, so Technical Trading, you may be surprised to discover a strategy you werent fully informed about resonates better with you than you might expect.

I also think reading some psychology relevant to investing is very valuable, I am currently reading "Contrarian Investment Strategies" by David Dreman and another good one is "The Psychology of Persuasion" by Robert Cialdini.

Trying to choose an investment strategy that aligns with your investment personality is important to.

Good luck with your chosen path.

McLovin said:

How does a price movement of x% to where your stop is disprove your investment thesis?

Click to expand...

galumay said:

Why would you consider stop losses at all with a long term, fundamentally based investment strategy? I think your whole approach is odd, you seem to be trying to cover all bases and have a little bit of different styles and strategies. I dont think that will end well.

I think tech/a hit the nail on the head, "The only comment I have is that theory and practice are on different planets."

Your approach looks a bit like a nicely designed university project, life turns out to be rather different to uni!

Click to expand...

Ok, so im starting to think that using stop losses with my investment streams is incompatible with how those investments will work?

Perhaps reviewing the fundamentals / technicals on a regular basis will enable me to understand if I need to pull out of an investment?

As mentioned im still starting out so will need to refine this stuff for quite a while

galumay said:

Sorry! My reply looks a bit harsh and negative when i reread it!

I do think you would be well served by doing a lot more reading and learning before you start actually investing in companies.

Good luck with your chosen path.

Click to expand...

Its ok mate, I'm not taking offense

I certainly will be reading a lot more, especially on fundamental and technical analysis. There is so much out there its hard to know where to spend the time. But thanks for some recommendations

With regards to your final comment, I haven't 'chosen' a path yet - I'm just starting and will see where it leads me.

wsDKII said:

Perhaps reviewing the fundamentals / technicals on a regular basis will enable me to understand if I need to pull out of an investment?

Click to expand...

I think you need to choose one or the other, although some people combine both. But don't make the mistake of buying for fundamental reasons but using a technical price signal to sell. You've got to be consistent. Which is why I asked what relevance an arbitrary stop loss would be to your original decision to buy.

You doing well for a 27 years old with 230K saving, well done
When I was 27 I got a mortgage debt and kid on the way and little money.

I am now in a much better position thanks to the stock market

I don't think you need to worry too much with massive plans and cover all basis, from my experience
with someone like you with good money habits, it doesn't take long for you to
get to know the stock market and learns its in and out.

take baby steps and learn as you go is the best way, the longer you are in the market, the more in and out you be able to pick up and 5-10 years later, you be comfortable deploying your capital without losing much sleep.

you are more than half way in your quest for financial independent ....spent a fraction of what
you earn is the key to all wealthy individuals, investment returns and put money to work is a cream on the cake.

Good luck and enjoy the journey

McLovin said:

I think you need to choose one or the other, although some people combine both. But don't make the mistake of buying for fundamental reasons but using a technical price signal to sell. You've got to be consistent. Which is why I asked what relevance an arbitrary stop loss would be to your original decision to buy.

Click to expand...

I guess what I'm aiming for is to use fundamental analysis to identify the companies that I want to invest in, and then use technical analysis to identify the best time to enter the market. For example, I wouldn't purchase CBA shares at the moment because I believe they are severely over-priced (although I don't have any data to back up that statement).

Following on from that example, If I had purchased CBA when they were $26 after the GFC, I might consider selling a portion of them at their current ($90) price on the assumption (whether fundamental, technical or 'gut feeling' based) that they will soon fall. I would then re-evaluate when to purchase them again.

Is this rational thinking? I'm not sure but it makes sense to me at this point.

wsDKII said:

Following on from that example, If I had purchased CBA when they were $26 after the GFC, I might consider selling a portion of them at their current ($90) price on the assumption (whether fundamental, technical or 'gut feeling' based) that they will soon fall. I would then re-evaluate when to purchase them again.

Is this rational thinking? I'm not sure but it makes sense to me at this point.

Click to expand...

Nice in theory but in real life there would have been hundred of times since then that the technical signal tell you to sell well before it reaches $90 and at the times of $26 the technical tell you to sell the hell out and don't touch (so good in theory, stock market is random and unpredictable)

you are trying to time the market with various tools but you aren't going to get them correct all
the time, sometimes you lose and sometimes you win just make sure your loss is less than your gain.

Things look logical and orderly in hind insight but stock market is anything but

Whatever you do Keep it simple.

Complexity breeds chaos.

Its this simple.

If its going up stay on it or get in it.
If its going down get off it or don't buy it!

Build around that
That's all you need---really it is!!

+1 but few will believe you, Tech.

Julia said:

+1 but few will believe you, Tech.

Click to expand...

Totally understandable.

Human nature is that the more complex it is the more
beneficial it must be.

Take Weight Control.
Eat less
Exercise more.

Yet Books are written on it.

Business.
Satisfy demand
Keep expenses lower than income.

Marriage/Kids
Respect and love each other and enjoy the time you have.

Friendship.
Be a friend.

Life---Enjoy it---it is a gift

Gotta go that's Deepak Chopra on the phone and I have to return the Delia Lama's Call.

ROE said:

Nice in theory but in real life there would have been hundred of times since then that the technical signal tell you to sell well before it reaches $90 and at the times of $26 the technical tell you to sell the hell out and don't touch (so good in theory, stock market is random and unpredictable)

you are trying to time the market with various tools but you aren't going to get them correct all
the time, sometimes you lose and sometimes you win just make sure your loss is less than your gain.

Things look logical and orderly in hind insight but stock market is anything but

Click to expand...

Hmmmm ok, im starting to think a bit differently about this.

Perhaps the 'Core' stream of my investment portfolio should be a (as I stated myself) - for long term investing
Maybe I wont sell them....or if I do it will be for reasons other to then just make a profit.

I'm thinking that I will leave the technical analysis component to the shorter term trading stream, where perhaps technical analysis can be more suitable.

tech/a said:

Whatever you do Keep it simple.

Complexity breeds chaos.

Its this simple.

If its going up stay on it or get in it.
If its going down get off it or don't buy it!

Build around that
That's all you need---really it is!!

Click to expand...

See, I understand this from your later post where you talk about eating well, running a business etc....I think I just need to get over my physiological barrier to thinking that all this investment stuff is the land of those who have studied, trained and proven themselves multiple times.

In any case, ill be giving this a go over the following year -once I have a handle on Fundamental and Technical analysis

Thank you for your succinct explanations - It helps to ground the conversation.