Never Lose Money Investment Strategy

[cjam]

Hi Ken.

Sorry, had a rushed day today so a somewhat haste reply.

I'm of the opinion that either dividing your fund by 12 and running with that over the next 12 monthly plays, or calculating 1/12th of the total fund value each month and using that will over time have comparable returns. In my opinion therefore whichever is simplest for you personally therefore is the better choice to go with.

The figures I used in the graphs are percentage based (product), so that is comparable to using the current value at that point in time divided by 12 each month.

For my probability calculations, yes it is like coin-flip counting.

I haven't tried to find the best-fit, so 10%, 15% etc type levels might provide better returns or a better indicator.

For the calculation you mention, I based it upon :-

If 38% of cases are win runs, then if we assume they win 5% (being conservative and matching the level to the same as the losing run), then of those 38%, we might expect 38% of those to go on to win by 10%, and in turn 38% of those go on to win by 15% ... etc This, as you indicate, is probably not the best approach, but should give a reasonably conservative estimate of potentials. The inaccuracy probably shows in that the 5% gain and 10% gain figures both being 15% is unrealistic as you say. Probably best to just forget the content of that posting if I were you.

The easiest way is to use back-testing as an indicator of possible future profits. If you take the Dow over the last 71 odd years, then there were :-

855 total monthly start dates for which I have daily high, low, open data.

310 (36.25% of all plays) went the full year from that start date without ever falling 5% below the starting value (based on using intra-day Index values (lowest lows), so the figures should be reasonably accurate). Reasonably close to our 38% mathematical estimate (325 expected), I suspect that the recent two or three years of poor index performance accounts for that deviation from the expected (15 winning months adrift).

The average of all winning plays was a 20.5% gain.

The losers each lost 5%, but those losses could be assumed to be offset by the combination of both cash and dividend benefits earnt over the year as described in the web pages.

So if you had $12,000 and put $1000 per month in, then on average, as the Dow had 36.25% winning runs (4.35 win months in each of 12 month periods), each win would increase on average by 20.5% to $1205.

For the losing runs, each lost 5% of that $1000 (fell to $950), but the dividend or cash benefits received whilst holding the stocks or in cash for the remainder of the year would cover that loss, in effect restoring it back to the $1000 level.

So with 4.35 average winning months each year = 4.35 * $1200 = $5242 and 7.65 losing months at $950 each = $7267 plus 12 months of cash/dividends totalling 5% of $12000 = $600. In total makes a year end pot of $5242 + $7267 + $600 = $13109 which is a 9.24% average p.a. gain on the original $12000 year start amount.

Remember that this is the core strategy. So in the above, whilst we earnt $600 in cash interest or dividends, only 7.65 * $50 (losses) was required to cover the losing plays ($382). We could therefore scale up by $600 divided by $382 = 1.57 factor and still have had enough cash interest and dividend benefit to cover the losing plays (in the Standard strategy we actually use a 1.6 leverage factor).

Hope this helps.

I'd agree with you that trying to time the market is pure speculation and as you say often the time you spend in attempting such just doesn't cost in.

I believe this strategy is simple (to operate at least), logical and long term and should provide average returns from an average selection of stocks if the standard strategy is adopted (possibly some small losses), less for the core strategy (but generally no losses).

It evolved from my dislike of downside losses. My mental attitude was (and still is) to count paper profits as being my own cash after sustained periods of time and when the paper profits evaporated I tended to take it too much to heart as though I'd actually lost cash value. I much more prefer to go from step up to step up, even if it does mean that for several years at a time it may involve the fund value not increasing. Those dry years can get somewhat frustrating and testing, but then suddenly a good healthy jump usually occurs and re-invogorates you. That's part of the parcel, for the longer term benefits you have to tolerate the sour in order to taste the sweet. As is evident from the likes of the Nikkei's bad run over the last 10 years+ which still generated one or more good years during the period. Sustained sideways or downward moving markets over a number of years usually have such one or two up years during that Bear phase, enabling you to step up a level or two (see the Nikkei graph towards the bottom of page http://www.cjam.pwp.blueyonder.co.uk/html/historical.html).

I too had considered AIM for many years having purchased the book in the 1980's, but could never actually come to utilise it as a real holding. This strategy did in part however evolve from the basic AIM concepts and after many years of evaluation of those concepts.

In having an indicator of how much exposure you should have at any one time, in effect automated buy and sell indications, leaves you free to concentrate on which actual stocks to hold. If so inclined, you can take the easy option of selecting a diverse set of stocks, even randomly chosen, and probably fair as well as the market over the longer term without having that downside risk fear. Investing is a matter of when to buy, what to buy and when to sell. This strategy clears two of those and if you opt for a spread of stocks then the whole matter becomes simplistic. You automatically avoid the common tendency of many small investors to buy high and sell low or that of spending too much time analysing stocks in total disregard of the competition such as the likes of investment houses that have seriously more data and resources readily to hand.

This reply has grown much larger to that which I anticipated at the offset, so I'll sign off with best wishes.

Regards.