Replies to post #11 on Never Lose Money Investment Strategy

[cjam]

Hi Ken.

Over the longer term, around 38% of cases will, on average, be winning plays, running the full 12 month term. This has been calculated both via mathematical means (Pascal Triangle) and is consistent with that measured over various Indicies over considerable length time periods.

On the basis that the 5% cover is sufficient to cover all 12 months runs, then obviously if 38% of those were winning runs, then their proportion of that 5% cover is surplus.

We could therefore run with 38% more plays (or as in our case a higher per run stake level) and anticipate that the 5% cover would still be sufficient. But of those 38% of plays, 38% of them will also on average be winners (14.4%). So we can increase the level by that 14.4% and still expect the 5% cover to be sufficient. Of those 14.4 extra, 38% will be winners (5.472)... and so on.

38 + 14.4 + 5.5 + 2 + 0.8 = 60.7 So we can run with a 1.6 leverage factor (60% higher amount) and still anticipate on average that the 5% cover will cover the overall position.

So with a $12K pot, instead of $1K per month we could go to $1.6K per month. Making an effective leverage p.a. play of 12 * $1600 = $19200.

Of the 12 month runs, I would expect on average 38% to run full term and the remaining 62% to be stopped out with a 5% loss. $19200 * 0.62 = $11,904 (which is covered by 5% on $12,000)

In practice, the figures rarely come out in such a balanced way. Typically one year may have all losing runs and end 3% down as a result whilst others may have 50% or more winning runs. Over time however the effect should balance out. So whilst the Core strategy is more or less guaranteed not to lose any in any one year, the Standard strategy does have an element of downside risk (3%), but in return the average gains rise to around that of a comparable level to the long term Index Tracker/Fund. Often, with selection of good quality stock, that 3% risk can be offset through better dividend yields or stock performance. Even by itself, having Index Fund comparable longer term returns with maximum draw down of 3% in any one year is a lot better than full Index downside risk exposure.

Regards.