Systematic Investing Group

[lostcowboy]

Hi Lou, It sounds like you have a good grip on how they work. I read your message on the AIM board and was going to respond. I think your present AIM fund has reached a point where the $600 a month does not mean much to it. I think that I would select another fund to start investing new money in, If possible a fund that does not behave like your present fund. That way the peaks and valleys in your portfolio should start to average out. Should you do Synchrovest, Twinvest, value averaging, DCA ,Invest%, or a un named process based on 200 day moving average, or a combo of any or all the above. IN the I-box for this group I have two links where you can get spreadsheets to try. The dcagainloss spreadsheet, try's to show some of the short comings of the dca method. In the first link, which goes to start investing on MSN, I provide more web sites, that agree with my thinking that DCA does not respond very well after 12 periods, though I look at it from a different angle than they do. They are looking at it as a way to invest a sum of money over a short period of time. I am looking at it over a long period of time, as in a 401k. Let us say you invest $600 a month in a fund that goes like this 10,8,5,4,5,8,10,8,5,8 ... That second month it looks like DCA is really working, At the end of the first month you had a loss of 20%, you add the next $600 and now you have a loss of only 10%. Ain't math neat, you still loss the same amount of money, it just looks better this way. Average cost goes from $10 to $8.89 a share. Now lets look at ten year's later. In month 115 the share price is $10 your shares are worth $114,600. The next month it is $8 a share your stock is worth only $92,280.00, but now when you add that $600 it hardly does anything for you.Your average cost goes from $6.02 to $6.03. If you try the Twinvest spreadsheet you will see that it behaves the same. Only Synchrovest, or Value averaging are able to have a big effect on the average cost after ten years.

I guess I got a little bit carried away there, back to your question. If as you believe we are at the bottom of the bear market you should do a modified DCA, and when we get to the top of the new bull market you should sell all your shares and start a Synchrovest plan, to ride the next bear market. By modified DCA I mean take 80%-75% of that 600 and DCA it, the other 20%-25% is for buying on the dips. Keep track of your average cost and when ever the share price is less than it, you will divide Average Cost by Share Price to get a multiplier, subtract one from it so all you have is a fraction,if the fraction is grater than .5 use .5, then multiply that fraction with the cash and that will be an additional amount for buying shares on the dip. The next question will be when to sell? One would have to build a spreadsheet, like I did for Synchrovest and put in the last ten years of data of the fund. And then optimize the spreadsheet for the fund. I think you will find that you want to sell somewhere around a profit of 30% to 50$ over total amount invested, you should be near the top then.