In the last post the formula worked on the amount of cash invested compared to what the formula said should be invested. However one could compare it to share value, and come up with different numbers. This would be like a constant dollar plan. Lets use the same stock prices and see what happens. Again we start with .5 or 50% X $10k = $5k to invest, and we own 714 shares. but now when the stock price drops to $5, we do the formula and get .83 or 83% of $10k or $8300, as what the stock should be worth, but our 714 shares are only worth $3570, so we should invest the differences, or $4730 in to the stock. So we buy another 946 shares. Now if the stock should go down to $4 we would not have the required money to invest, something to think about. But for now we have 1660 shares, and $9,730 invested for a average cost of $5.86. If the stock goes to $7 we have a share value of $11,620 and we only want a share value of $5k, so we keep 714 shares and sell the rest. So we sell 946 shares for $6,622, when the stock goes to $10 we sell the rest for $7,140. Our portfolio has increased to $13,762 for a gain of 37.6% on a stock gain of 50%. I think over all this is a improvement.
Come see me at Systematic Investing group #board-966 lets talk formula plans.
