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Thanks Larry! We're all tired from lack of sleep, but happy!
My son, Tarun, was born this morning at 10:01 am CT! A great way to start the new year! He and my wife are doing fine.
Our first son, Anshul (who is 5 1/2), is excited to have a little brother.
Thanks AIMster! I hope you have lots of success for the new year!
Thanks, Tom! What I'm really happy about is that I have exclusively used the STR system on my portfolio for the last 6 years, and have beaten the S&P 500 over those 6 years:
Year, Me, S&P 500
2005, +13%, +4.91%
2006, +14%, +15.79%
2007, +22%, +5.49%
2008, -40%, -38.49%
2009, +44%, +23.5%
2010, +22%, +13%
My portfolio had a cumulative six-year return of +65.66% vs. +10% for the S&P500.
Happy New Year to everyone!
I had another successful year as an investor, and again beat the S&P 500.
The S&P 500 returned 13% for 2010, and my portfolio (managed by the Stock Trading Riches system) returned 22%.
Thanks mtcinc0,
I appreciate it!
Here is a June 2009 article that Laurie Pawlik-Kienlen wrote after interviewing me:
http://theadventurouswriter.com/blog/how-to-figure-which-stocks-to-invest-in-financial-management-tips/
I just re-read it, and it does a good job of explaining my basic investment philosophy.
If I had already owned the stocks, I would sell them back down to the constant value ($2000). Since I am buying them as new positions, I am buying $2000 worth.
So, whether they are new or existing positions, I would still have $2000 worth of the stock.
Even though CE and DEO are above their lows, I think they are still undervalued, so I think it is ok to add them as positions.
My goal with analyzing stock picks is to identify good companies whose stocks are either value or gaarp (growth at a reasonable price). I'm probably not as strict with trying to buy at the lowest price as other contrarian traders might be, because I trust the STR system to correct the position over time through constant value rebalancing.
At the portfolio level, I consider my system contrarian to the extent that I would expect to be 100% invested at market bottoms (like I was at the end of 2008) and at maximum cash when stocks peak.
In this case, after rebalancing, I found myself with more than the maximum (30% cash). I needed to buy 6 positions to get my cash balance down to 30% of the account. If this was truly an overvalued market, I would have had a hard time finding 6 reasonably priced positions.
It is the end of the year, so I reapplied the "Stock Trading Riches" formula to all my stock holdings - and adjusted the positions (by buying and selling shares) accordingly.
Since my portfolio is up about 22%, after being up 44% last year, the rebalancing of the individual positions resulted in the cash portion of my portfolio being over the maximum for the STR system.
I found that I needed to add 6 positions to my portfolio to put the excess cash back to work.
Here are the 6 positions I bought:
1. Hasbro (HAS) - Parents and grandparents who had to hold back on toy purchases during the recession want to buy things for their kids now that the economy is coming back. Hasbro has a large share of the toy market, and their Beyblades are a big hit. I bought it at $47.60, which is trading at about 14 times estimated 2011 earnings.
2. Jakks Pacific (JAKK) - This is also a toy company. Besides benefiting from the improving economy, they are at the bottom of their hit cycle. Hannah Montana dolls had pushed their stock from $18 to $30. Now, the dolls popularity peaked, and the stock is at $18.65, ready for the next craze.
3. GOL Airlines (GOL) - The only developed country airline I own is Southwest (LUV), but airlines in developing countries have growth potential. GOL is the new, low cost carrier in Brazil that has quickly captured 40% of Brazil's seat capacity. At $14.71, it is trading at 1.5 times book value, 80% of annual revenue, and six times estimated 2011 earnings.
4. Flsmidth and Co (FLIDY) - I usually don't buy pink sheet stocks, but I bought this stock at $9.31. This is a Danish company that provides engineering services to cement makers. They are really strong in emerging markets like India. The stock is trading at 2 times book and 11 times 2011 estimated earnings, and will participate in the materials comeback as the developing world resumes its growth.
5. Celanese (CE) - This is a play on the improving global economy because they make acetyl chemicals, and 3/4 of its revenues are from outside North America.
6. Diageo (DEO) - With funds focusing on emerging markets and Asia, UK multinationals like spirits maker Diageo are undervalued. At $74.22, I'm broadening my portfolio at a good price to include premium drinks such as Johnnie Walker, Jose Cuervo, Baileys, and Guinness. They also own 34% of Moet Hennesy (which owns luxury brands like Hennesy cognac).
That's great, Aimster - thanks for doing the research.
I'm going to look more into folio investing - sounds like they may be able to save money, even over a discount broker.
In the case of Forbes Magazine, I've figured out that the columnists are motivated to give good picks at good prices. They even publish how their picks did a year later (minus a certain % to simulate commissions, fees) vs. the S&P 500.
The readership of Forbes is skewed to the wealthy, and Forbes and the columnists make the big money and business contacts by hosting investor luxury cruises, etc.
So they are motivated to give good, timely picks because they want to attract wealthy couples and financial planners to their cruises and retreats.
That is why a billionaire like Ken Fisher bothers to write a column for them.
In a way, getting some picks from Forbes is a contrarian play, since the majority of magazines give picks after the stock is successful
I'm not sure of the other publications but, over the years, I've gotten some good stock picks from Forbes magazine.
But, I only look at the columns by the analysts - especially Ken Fisher, who is a contrarian and a billionaire. I've found that they recommend stocks at good prices - either value or gaarp (growth at a reasonable price).
I have found that it's best to avoid investing in those companies featured in the main stories - those written by reporters. Those stocks have already climbed a lot by the time they are featured.
I think basing sells on average share value is a great alternative rule that someone might want to consider in individualizing the system.
In my own trading model, I don't track stats such as average price for each stock, because I only look at return at the portfolio level. I just rebalance each stock once a year.
The market doesn't know and is not affected by how much you have invested in the stock or what your average return is.
For example, if you bought 200 shares of a $10 stock, and it now went down to $5, you will have to add another 200 shares to get back to a constant value of $2000.
Now, you have $3000 invested in the position, but I would not track this, because it is reflected in the portfolio's return stats. Instead, I would focus on that now I have a $2000 position at $5. In terms of risk and potential reward going forward, I am equivalent to someone who just initiated a $2000 position at $5.
So, I don't think "If I rebalance, I have a sunken cost of $3000 in stock XYZ." Instead, I want to evaluate it going forward as a new position - "Do I want to invest $2000 today in stock XYZ at $5?"
Even if you make a sale below your average cost, you are making a LIFO profit.
I agree. The key is you have to find a system that suits your temperament and that you can actually use when money is at stake.
Nobody wants an investment to go against you, but if it does, you should know what to do and be confident enough to execute.
If you use only stocks with the STR system, you need to understand why they went down (for example, when Blockbuster went down it would have been a mistake to rebalance it because their business model was broken by Netflix, Red Box, etc).
Also, you need to find a constant value that you feel comfortable with. You might be able to sleep better with ten $2000 positions rather than two $10,000 stocks.
Otherwise, you can use funds / ETFs - or a mixture. Say 70% ETFs and 30% stock positions, if you want to get your feet wet analyzing stocks.
Hi Toofuzzy,
I agree that, as markets drop, positions become more correlated. But, rebalancing a diversified basket of stocks and/or ETFs will still not need as much cash as one position.
For example, in the AMZN example from my book, I had to add about $1800 to an original $2000 position.
In my real life portfolio, in 2008 I ran out of cash and had to add a lot of cash. I couldn't add enough to rebalance all positions. I ended up having to sell off 2 or 3 positions to make sure all the rest were rebalanced.
But, I didn't have 30% cash. In my book I said that, if I was adding a lump sum, I would keep 30% in cash, but with my regular contributions, I was just putting in the $2000.
Now, after 2008, I am contributing $2900 when I want to add a $2000 position, so I have that 30% cushion.
But, my point is that, with 30% cash, I would have been ok in 2008, while that wasn't enough for Amazon.
Even in a crash like 2008, a multi-position portfolio does offer some protection.
For example, one of my stocks is CRI (baby clothing company Carters). It finished slightly up in 2008.
(on an unrelated note, this is a sign of strength when a stock goes up despite a strong downtrend. The stock doubled since Dec 2008).
Hi Larry,
The thing is, I don't even track results at the individual stock level. I couldn't tell you which of my stocks is in negative cash because STR is meant to consider return, risk, and cash at the portfolio level.
That is why the constant value amount doesn't change individually with buys and sells, and we look at the % of cash at the portfolio level to cap it. The idea is to make it easy to run a portfolio of multiple positions.
My system's edge is that you capture more reward for less risk because you diversify across the portfolio, but rebalance stocks individually.
Also, when looking at the Amazon example, or testing stocks with my spreadsheet, you have to keep in mind the limitation - that we are just seeing how a particular stock or ETF would trade with constant value investing.
Since it is in isolation, it doesn't necessarily show how it would actually affect the portfolio's drawdown or return.
For example:
1. We might not have needed to add all cash to the portfolio because some other stocks in the portfolio may have kicked off cash.
2. In 2004, the AMZN example's cash pool was over 30% - which meant that the excess could have been invested in a new position.
This is actually a drawback of the spreadsheet for comparing the STR system to AIM BTB or B&H for increasing securities. Since STR doesn't increase the constant value automatically, the cash pool builds up and drags the return. But, you have to imagine that, in actual practice, when the cash pool gets beyond 30% of the portfolio value, you are supposed to add new positions.
For example, if you compared STR, AIM BTB, and B&H with Microsoft during the boom years, the STR spreadsheet would show a lower return, with a high % of the portfolio in cash. But, you have to remember that you would have added more positions that would then also be rebalanced. If those excess positions had been Oracle and/or Apple, you could have more than made up ground with the other systems.
The Amazon example was meant to introduce the constant value formula. It wasn't meant to be the whole system.
I agree that it would be pretty discouraging to have your account drop so much year after year, and I don't advocate having only one stock in your portfolio.
The philosophy of my system is that there is an edge in constant value rebalancing stocks over time because they fluctuate. They don't necessarily cycle between 2 price points, or cycle at a constant frequency, but stocks fluctuate. My system is to buy and hold growth and value stocks, and use constant value as a pump to generate extra cash from the "tidal" movement of the stocks. Like a casino has table limits, I want to either use ETFs or a multi-stock portfolio to guard against being wiped out - so my edge can build excess return over time.
Just some things to keep in mind:
1. I chose AMZN from 2000 because it was the WORST possible time to buy the stock. I wanted to show how constant value investing can self-correct the initial purchase. In practice, I try to buy positions that aren't overvalued and would hope that I don't get too many situations like this.
2. On page 38, where I discuss the optional stop loss rule, I mention that it would have caused us to sell out of our AMZN position. In January 2001, it was trading at less than 1/2 the initial buy. So, at that point, if we were using the stop loss technique, we would have sold all the AMZN shares and bought $2000 worth of a replacement - say Ebay, Apple, or Microsoft, etc. In other words, you still rebalanced back to a $2000 position, it's just that it is a different stock.
3. On page 71, I state:
Diversify your holdings - It is foolish to put all your
money in one stock. If you do not have enough funds to
put at least $2,000 in 5-10 stocks, then avoid individual
stocks and stick with mutual funds or ETFs.
Hi Aim Hier and Larry,
In the Amazon example, we're starting with $2000 and buying a $2000 position. The table then tracks # of shares, the cash pool, total value (of the portfolio) and the amount invested (in the portfolio).
I think, for the last column, the name "amount invested" is creating a bit of confusion. This is the total amount invested in the portfolio, not in the stock. It only increases when we have added money to the portfolio from the outside.
In 2005 and 2007, the buys were now done by cash from the cash pool. We didn't need to add extra funds into the portfolio. That is why the "amount invested" column did not increase.
The return is figured by dividing the portfolio value (stock value + cash pool) by the amount invested in the portfolio.
In the AMZN example, we had to make our last cash infusion into the portfolio in 2003. At this point, the portfolio value was $1,986.60 and the total invested (in the portfolio) was $3,762.90. The cumulative return at this point was -47%.
After this point, we had some sells which generated the cash for the purchases in 2005 and 2007. That is why the amount invested in the portfolio stayed at $3,762.90.
Recently, I have received a lot of emails from people interested in an Ebook or Kindle version of "Stock Trading Riches".
I am working on publishing a Kindle version, but my book is now available for purchase and instant download as a pdf-format Ebook.
I've updated the board introduction above with a purchase link to the new Ebook.
Hi Larry G,
To understand the example, think of it as a portfolio consisting of cash and one stock (AMZN). The "amount invested" column is the total amount that has been invested in the portfolio.
So, to get the return, we are dividing total value (stock value + cash) by the amount invested.
In 2005 and 2007, we could make the buys using only the cash pool. We didn't have to invest more money into the portfolio. So, the "amount invested" column didn't change, but the "cash pool" column decreased.
I hope that helps.
I'm sorry that it wasn't clearer.
Praveen
Hi Aim Hier,
You are right that you can have more than $2,000 invested in a position that had successive buys, but I don't focus on how much I've invested in any one stock.
I only focus on my return at the portfolio level and don't track accumulated investments and returns at the stock levels.
For example, if I invested $2000 in a stock at $10 and, after one year, it was at $5, I would invest another $1,000. So now I would have $3,000 invested in the stock.
But, the market does not know that I spent $3,000. That is the self-correction of rebalancing. The past is a sunken cost and should be considered erased or "reset". From today going into the future, I have the same profit/loss potential as someone who bought their whole $2,000 position at $5.
So, at the start of the year, I would consider that I have a $2,000 position in the $5 stock. If it went bankrupt, I would lose $2,000 from the current value of my portfolio (the $1,000 is already reflected in the current portfolio value).
An example of a deep diver I've had is Glenayre Technologies. It's old ticker was GEMS, it then became EDCI, and finally EDCID when it got delisted from NASDAQ.
I originally bought it at $5.65 then at $2.29, and finally at $0.68.
At the end of 2008, I needed to use the "triage" rule from my book because I could not add enough cash into the account to rebalance all positions. So, I had to choose some positions to sell off, so that I could rebalance others.
This was one of the positions I chose to sell because it was so weak and, fundamentally, their attempts to diversify out of CD/DVD manufacturing (they had a large market share, but its a dinosaur business) weren't working. I sold the whole position at $0.41 (ouch! ). Even if I didn't use the triage rule, I would have probably sold the position anyway because of the fundamentals.
(In 2009, some allegations came out that management had been doing something funny, and they settled a class action shareholder suit. I recovered something from that - though I never counted the settlement in my annual returns).
Hi AIMster,
I like to have a mix of value and growth, but I try to stay away from momentum plays (paying high prices for explosive stocks).
My bias would be towards value and gaarp (growth at a reasonable price).
I found this interesting New York Magazine article on Vikram Pandit, which mentions a bit about Citigroup and the financial crisis.
http://nymag.com/news/businessfinance/55035/
This quote from page 5 of the article (mentioning Citigroup’s Sandy Weill and Clinton’s Treasury Secretary Robert Rubin) actually is a good example of the marriage of politics and finance that got us into this mess:
Rubin and Weill had been friends since the late nineties, when Rubin served in the Clinton administration. It was Rubin who helped push through the Gramm-Leach-Bliley Act that effectively allowed the merger of Travelers and Citicorp. A year later, Weill made Rubin a board member at the company he helped create, paying him a salary of $17 million a year.
My final list for purchase had come down to RPM or NETC.
RPM International (RPM) is another stock you may want to look at as a value and dividend play. They are based in Medina, OH and make industrial and consumer paints, coatings, adhesives, solvents, etc. At $20, it is trading at 12 times Ken Fisher's estimate of 2011 earnings, 75% of its sales, and has 4% dividend yield.
I like this stock, but could only buy one this month, so I decided to go with NETC because it provides a little more diversification to my portfolio.
I don't have that much exposure to Brazil, but I have several stocks like RPM - including Cummins, Inc. (CMI) and Illinois Tool Works (ITW).
I bought NETC today at $13.628. This is Net Servicos De Communicacao.
One of my major sources for stock picks is Forbes Magazine. In the latest edition (November 22, 2010), money manager Ken Fisher, who has a regular Forbes column, included this stock as one of his recommendations.
He considers it to combine growth with cheapness. This company is Brazil's largest pay-TV provider, and vendor in phone and internet services - so it is a play on the growth of Brazil's growing middle class.
Fisher thinks its cheap because, at $13, it is trading at 50% annual revenue, 4.5 times cash flow, 1.25 times book value, and 10 times his 2011 earnings estimate.
This isn't a recommendation to buy this stock, but for informational purposes - something you may want to look into and consider at your own risk.
I primarily use Forbes and/or my own research to find growth, value, or both stocks with good fundamentals, stories, and long term potential. Then, I use the Stock Trading Riches system to manage the position and, if I bought at a wrong price, automatically correct the position over time.
Hi Aim Hier,
That's great that you have your own system with an edge. That is the most important thing - a system that you feel comfortable using.
A lot of it is learning about yourself too. If someone gives you a system, but it trades at a frequency you aren't comfortable with, or it has a drawdown pattern you don't like, then you won't end up using it.
With my trading model, it is focused on the fact that stocks fluctuate. That's the only assumption - not that I can find the next Microsoft or Google. That is why I don't automatically increase CV, and I want diversification - the more stocks, the better.
With a buy/hold portfolio, or if you spend a lot of time analyzing stocks, then I agree that too much diversification is a bad thing. In the first situation, the individual movements cancel out and, in the second, you can't do an in-depth analysis on each stock.
In my model, I would be happy having hundreds of stocks (if my portfolio was large enough ) because each one is rebalanced separately. By using a pure CV (without automatically increasing it), I'm looking to maximize trading fluctuations - not growing the individual position. I want to sell every last dollar that the position is over the constant value, and buy every dollar that the position is under constant value.
I consider my trading model a form of market-making (at a large, macro level). I'm making a market and getting rewarded for adding liquidity - soaking up excess supply when the stock is weak, and feeding excess demand when the stock is strong.
So, I want to make a market in many stocks. In my model, it's a numbers game. Some stocks might stay range-bound for 3 years (I think you mentioned this example in an earlier post) - so if stocks like this would make up a big chunk of my portfolio, my account wouldn't do anything. But, eventually it will fluctuate, or get taken over. In the meantime, I have other stocks moving.
This doesn't mean I eventually want hundreds of $2,000 positions. At some point, I would increase the CV - maybe to $4,000 or $5,000. Then, I would stop adding new positions and rebalance the existing positions to the new CV - with maybe a combination of new money and selling positions that are duds. Then, I would be adding new positions slower because of the larger CV. This part is more subjective, and more a judgment, based on practicality.
So, to summarize - my system can be thought of as investing in stocks like real estate. Hopefully, getting some price appreciation, but looking for "rent". Dividends also give you this (and I do collect on dividends from my positions), but the tidal motions of the stocks pump out the rent.
Maybe a better analogy is that I'm buying property and pumping oil or erecting a windmill, so I can sell the energy and use the cash return to pay off the land. In this case, the "land" is the stock, and CV rebalancing is the "pump" or "windmill".
Hi Aim Hier,
No arguments here. I welcome all improvements. In fact, in the book's section on optional rules, I mention that, even though I stick to the basic rules, I would not be surprised if others developed an even better system.
In the past, I've also thought about increasing CV by a certain % every year. That is certainly a valid adjustment to make.
I want people to customize STR to suit their analysis and philosophy. So, if someone wants to implement the trading model that they increase their stock positions over time by growing CV, increasing it by a yearly "interest" is a good way to do it.
Just to clarify, even the basic STR rules want to grow the stock holdings over time. Its just that, instead of growing each position's CV, it wants to grow the number of positions by reinvesting cash in excess of 30% of the portfolio value.
In the book, while I didn't specifically write about increasing CV by a yearly %, I mention that you can grow it, and I have an optional rule for increasing CV when stocks go up by averaging the constant value and the higher stock value, to compute a new CV.
As far as how much to invest in one stock, the basic system is that you can always replace a position with another one if, for example, something changes fundamentally that you don't like about the company.
There is also an optional 50% (or N%) stop loss rule, where you exchange a stock if it drops below 50% (or N %) below your initial buy point.
One thing about STR is that rebalancing a position only once a year also helps keeps you from taking small profits and adding a lot to losing positions.
Hi Karw,
That's a great idea - since STR is a simple enough system it can also be used as a secondary system for someone who already has a primary trading system.
I also find the virtual share idea (sell virtual shares / buy real shares) to be intriguing.
Thanks,
Praveen
Hi AIMster,
I like simple, flexible systems and solutions because they let everyone design something that works for them, and that suits their temperament.
I think that's important to have because, when you start trading and investing with real money, fear and greed are amplified. If you are trying to use a system that you don't understand and feel confidence in, there is a strong impulse to override the signals.
Thanks,
Praveen
Hi Aim Hier,
Thanks for your post.
I look at the portfolio level for growth and computing expenses.
Since the basic STR system is to rebalance annually on at least a 10% move, that means that, at most, we will have 1 trade for each $2000 in the account. 7/2000 = 0.35% expense ratio. I think that is low for a managed fund - which is what I consider my portfolio to be. In reality, it will be lower because some stocks won't move 10% in the year and some of the portfolio will be in cash.
That being said, $2000 is the minimum holding per stock or fund my book recommends. Certainly, the expense ratio goes down if your constant value is higher. Also, the 10% value can be increased.
I agree that a flaw of basic AIM is that cash can be a drag, and that the stock market goes up in time. STR handles this at the portfolio level.
In the basic STR system, each individual stock position doesn't grow, but the stock portion of the portfolio grows. So, we cap cash in the portfolio at 30% (you can always adjust the percentage). So, if your cash ever got above 30% of your portfolio, you would add new position(s).
In the STR variations section, there is a rule to increase constant value when the stock increases - basically by averaging the new stock value and the old constant value. Also, constant value can be adjusted manually, so raising it by 6% a year is an option.
STR tries to be flexible, so people can build their own customized system around constant value rebalancing, so that they feel comfortable with it.
Because the main ingredient for trading and investment success is to have a system you like and trust.
So, with STR, you can account for growth at the individual stock level by increasing constant value, or at the portfolio level by adding positions with excess cash, or both.
Hi Clive,
One thing to be aware of with precious metals and other exotic ETFs is that, if you hold them in a taxable account, they aren't necessarily treated the same as stocks and stock-based funds.
For example, in my book, I have a section where I warn to be careful about exotic ETFs, and I mention about the SPDR Gold Shares (GLD). This ETF is actually set up as a grantor trust instead of a mutual fund.
This means that, for tax purposes, it is like you are investing directly in the metal. Any gains will be taxed as either ordinary income or at the collectibles rate (currently 28% - almost double the long term capital gains rate of 15%), depending on whether it is a long term or short term gain.
Here are my returns for the last 5 years vs. the S&P 500:
Year, Me, S&P 500
2005, +13%, +4.91%
2006, +14%, +15.79%
2007, +22%, +5.49%
2008, -40%, -38.49%
2009, +44%, +23.5%
My portfolio thus had a cumulative five-year return of +35.79% vs. a loss of 2.66% for the S&P500.
I'm especially happy with how constant value rebalancing helped my portfolio bounce back from 2008.
At the end of 2008, I added cash to my account, but still did not have enough to fully rebalance every position. So, I had to implement the triage rule mentioned in my book, and I sold off a few positions to rebalance the others.
My testing had indicated that, after a drop, your portfolio recovers better with fewer, fully rebalanced positions, then having several unbalanced positions.
The admins are very helpful and quick to respond.
He said another admin deleted it as spam on his own, but then probably had second thoughts and restored it - but then I couldn't remove it.
So, this admin removed the post.
Hi Tom,
Thanks for the information! I didn't know there was a time limit to delete spam posts.
I just tried to remove #41, and I got this message:
You can not modify the status of this post because an Admin has previously restored it.
Contact an Admin if there is a problem.
I will contact the admin and see what happened.
Thanks,
Praveen
Hi Karw,
Actually I have a section in my book on variations to the basic system.
One variation is to increase the constant value as the stock value increases. The formula is new CV = (old CV + stock value) / 2.
So, if your constant value is $2,000 and the stock value is at $4,000 at the end of the year, under the basic system you would rebalance back to $2000. Under this variation, you would change constant value to (4000 + 2000)/2 = 3000, and so you would rebalance the position to $3,0000.
I don't use it in my personal trading, because I don't want to track individual constant values, and I don't want a few stocks that rise to start dominating my portfolio (in case they eventually crash or stagnate).
Another variation is an optional stop loss. If the stock falls below 50% (or you could pick another percentage) of your initial purchase, you sell the stock and rebalance into another stock.
Hi Karw,
Welcome and thanks!
I look forward to your contributions.
Hi Infooverload,
That is correct. I assign a constant value to each stock that doesn't change. To make it simple, with a lot of stocks, I just have the same constant value for every stock.
Of course, you could assign different constant values if you wanted to. For example, you might make your core holdings 4 funds with a constant value of $6,000 each, and have a few stocks at $2,000 each.
Then, each year, I rebalance every stock back to the constant value if it has moved at least 10% (either up or down).
The second part is that I limit the cash portion of the portfolio to 30% (you could use any number - for example, 20% or 50% depending on your agressiveness). If the cash is more than 30%, I will use the excess cash to buy more positions.
So, each individual position doesn't grow - it just pumps out cash. But my portfolio grows because the number of positions increase.
Of course, as the portfolio grows, and you have a lot of positions, at some point you could decide to increase the constant value rather than add more positions.
It's possible that chart patterns could be reflecting changes in supply and demand.
But I think that trading from chart patterns is as much an art as a science, in that some people are better at picking them up. Chart patterns can be affected by so many things - such as time frame, scaling, etc.
People who trade successfully off charts may not be actually predicting what will happen, as much as seeing probabilities and managing the risks.