The "Stock Trading Riches" Investment System

[ls7550]

Hi Praveen

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%
2011, -5%, 2.11%
2012, +13.3%, 13.4%

In your book you say that there's no reason why you have to use one constant value. Given that, your approach is very similar to a Harry Browne Permanent Portfolio that allocates 25% to each of stocks, gold, long dated treasury and cash. i.e. instead of a constant value, the Permanent Portfolio utilises constant weighting (percentage of total portfolio amount).

Each year stock dividends, interest from bonds and cash, and perhaps some profit taking proceeds (reduce-high) are added to the cash pot. Some of that expanded cash value is likely deployed into whichever of the asset(s) had relatively lagged (add-low). Targeting a constant 25% in each of the four assets automatically sees to that.

The Permanent Portfolio is quite a stable investment, but perhaps a bit too conservative. Extending that to be comprised of 20% stocks, 80% Permanent Portfolio results in a combined 40% stock exposure together with 20% in each of gold, long dated treasury and cash.

From a UK investors perspective where BRK (Berkshire Hathaway) is held for the 20% stock allocation (provides 'foreign' stock exposure (and additional GBP FX risk hedge), holds shares in or outright owns a number of other companies - so is somewhat stock index like, and pays no dividends - so avoids US withholding taxes), and the 80% Permanent Portfolio allocations stock holdings are invested in the UK FT250 (mid/small cap), then since 2005 that had total % gains (dividends reinvested) of :

2005 +18.3%
2006 +10.5%
2007 +12.4%
2008 +4.4%
2008 +12.4%
2010 +20.1%
2011 +3.7%
2012 +9.6%

That does reflect gains in GB Pounds. Interestingly however the results are broadly comparable to that of your own. Your portfolio however dipped more in 2008 (and subsequently rebounded more in 2009).

The concept of expanding cash via income streams and via profit taking out of those assets that had performed relatively well, to reinvest some of that cash into assets that were relatively good value, and doing so repeatedly over time, appears to work well.

Regards. Clive.