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The Simple Weekly Income system

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So_Cynical

So_Cynical

The Contrarian Averager
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In need of a simple system to take advantage of my talent for stock picking and entry timing, i have decided to paper trade (test) a weekly system using discretionary stock picks and a fixed total investment starting point, and some weekly rules that are not set in stone just yet.

The Basics
  • 100K starting money that will not be added to from outside the account.
  • All buy orders will be for $2000+ rounded up to the nearest even number ending in 0
  • All dividends will be reinvested (not DRP)
  • Broker will be NAB trade with $14.95 brokerage and 4.25% p.a interest.
  • Will be withdrawing 1K per month after 90 weeks, every month while the account balance is over 104K, with the minimum balance rising by 3K every new year.

The Trade Rules
  • 1 Trade (entry or exit) per week as long as system and funds permit.
  • Dividends and credits not included in winning and losing % calculations.
  • Maximum of 2 parcels per ASX stock.
  • First 39 parcels (weeks) will be buying only.
  • Week 40 will see the biggest (trade %) loser sold, repeating every 10 weeks (loser must be at least 20 weeks old)
  • At week 42 and every 2 weeks following i will sell the 4th or 5th biggest winning Parcel as long as the selection is in profit by at least 12% and not within 5 weeks of an approaching or past ex div date.

My goal is to create an account that will live on in perpetuity and give me an income of 1K per Month, every month in perpetuity...comments and suggestions more than welcome. :)

-------

Trade #1
  • PRG - Programmed Maintenance
  • 1070 Shares @ $1.86
  • Week 1 - 08/01/2013
 
I'll watch with interest. Your exit criteria look very unforgiving - any plans for dealing with a market rout with that system?
 
Good you are paper testing this. I fail to understand how the week-based rules relate to your return objectives.

With $14.95 per trade and $2k parcels, you are looking at a fee of 1.5% round trip. You are only targeting 12% total return so spending 1.5% on brokerage seems like a heavy burden.

The first suggestion I'd have is to at least double your parcel size.

The second suggestion is to allow a quicker build up of the portfolio. What's the point of earning 4.5% interest if there are good cheap shares to buy next month? If you must have a hard limit make it 15 trades a month or something at least.

Lastly, there should be a manual override / kill switch - whatever the criteria is.

Good luck anyway. It's always good to play around with new strategies.
 
Firstly I presume you dont have a history to refer back to on performance.
The rules are best intended.

The Trade Rules

•1 Trade (entry or exit) per week as long as system and funds permit.

Bit confused does this read either a trade or a sale will take place not both?
If a screaming buy comes up or the market falls 200 pts? what do you do then?

•Dividends and credits not included in winning and losing % calculations.


Why?

•Maximum of 2 parcels per ASX stock.

Ok

•First 39 parcels (weeks) will be buying only.

Ok

•Week 40 will see the biggest (trade %) loser sold, repeating every 10 weeks (loser must be at least 20 weeks old)

so after 50 weeks there will be atleast 40 trades 50 weeks old. your not cutting losers.

•At week 42 and every 2 weeks following i will sell the 4th or 5th biggest winning Parcel as long as the selection is in profit by at least 12% and not within 5 weeks of an approaching or past ex div date

Yet you will sell winners at a ration of 5:1

Fine in bull runs.
I hope you get one.
So at 1000/ mth thats 12% a year.
I doubt youll get close but will watch with great interest.
Are you going to report your profit as closed only trades OR inclusive of open trades. Big difference.
 
So_Cynical said:
In need of a simple system to take advantage of my talent for stock picking and entry timing, i have decided to paper trade (test) a weekly system using discretionary stock picks and a fixed total investment starting point, and some weekly rules that are not set in stone just yet.
Click to expand...

Will it not take about 5 years to validate a once a week system you are forward testing.
 
A few general answers to comments and inquiries.

I spent a lot of time over Xmas thinking about my future and decided i needed to come up with a rules based system that was scalable, a system that could deliver a reasonable return by taking advantage of my stock picking and timing ability's while eliminating some of the extremes of my current strategy..some strict money rules are required to do this.

One trade only per week, either a buy or sell but never both and only if rules and funds allow, if the cash component of the portfolio isn't above the minimum 2K required to buy a parcel then no buy will happen for that week.

5 losers will be cut per year, the biggest losers, so that's a big chunk of the losing trades culled, its mechanical and will be somewhat brutal and some of the losses may be substantial in % terms but due to the smaller parcel size wont hurt the overall portfolio to much.

This testing process will be 100% transparent, updated in real time (EOD) ok cos its weekly anyway...for me this system will work or not work based on my ability's to pick stocks at the right time, if there are obvious flaws then im open to rule changes to help correct that, in the end i would like to trade a system like this with confidence in it working.

--------------

To retire early, i need a system that can get me 1K per month from a 100K (closed) portfolio (12%)...a system that's scalable and reliable, a system that grows to accommodate inflation.
 
if there are obvious flaws then im open to rule changes to help correct that,

If your long only So C
The biggest flaw I see is the overall world market.
I cant see a way around it for you.
Other than ignore it---which most do.
Could decimate a portfolio---in fact a capital base.
If that was a crucial part of funding retirement it could
be a disaster!!

But for the purpose of the exercise Id like to see it ignored so you are left to
see how it goes.
Just be aware that the yanks are in the background with a Meteor aimed at your portfolio.
 
I can see the benefit of giving yourself some rules to keep emotions out of the buy and sell, but a bad trade is a bad trade.

Golden rule - don't let your purchase price become an anchor. A bad trade can turn into the gamblers I've got to win my money back.

There is a huge opportunity cost for holding onto a stock that wont go anywhere for an extended period, especially if there's some undervalued shares you could move across to.

having said that, I still feel like banging my head against the wall after buying AAC last year, sitting on the loss for as long as I could bare, only to see the shares jump back up to near my purchase price less than a month later.

Just console myself with the big rewards from M2 that could use up the capital loss from that trade.
 
I just can't see the sense in this So Cynical, you say your strength is timing and picking the right stock as a discretional investor, yet your trying to come up with a whole bunch of largely unecessary rules that could only hinder your ability to do so surely. The rules have an element of 'randomness' to them... Surely restricting yourself in terms of when and how much you can purchase is going to absolutely remove any ability you have to actually time things?
 
RandR said:
I just can't see the sense in this So Cynical, you say your strength is timing and picking the right stock as a discretional investor, yet your trying to come up with a whole bunch of largely unnecessary rules that could only hinder your ability to do so surely. The rules have an element of 'randomness' to them... Surely restricting yourself in terms of when and how much you can purchase is going to absolutely remove any ability you have to actually time things?
Click to expand...

Ill try and explain my thinking on some of the rules and why i think they are necessary and how they will help the system.

1 Trade (entry or exit) per week as long as system and funds permit....every week i see stocks that i think are good buying 'in the buy zone' so a weekly system would make sure i have the opportunity to buy something almost every week...and would smooth out bull runs and sell off's...buying bottoms and tops.

5 losers will be cut per year, the biggest losers, 1 every 10 weeks....i need a mechanical way to cut the biggest losers because im just not good at doing that, and it really needs to be done even though some will turn around.

Maximum of 2 parcels per ASX stock. ..this allows me to take only 1 average down and since the system is parcel based, will also allow me to sell the biggest losing parcel in a stock with 2 parcels that has gone against me.

Note to self...i need a 'do not re-enter' rule on losers, perhaps? i mean after 1 parcel has been sold for a loss.

sydboy007 said:
Golden rule - don't let your purchase price become an anchor. A bad trade can turn into the gamblers I've got to win my money back.

There is a huge opportunity cost for holding onto a stock that wont go anywhere for an extended period, especially if there's some undervalued shares you could move across to.
Click to expand...

In general i have no problem with the gambling aspect of what i do, its calculated, form based gambling with time as an advantage, wanting to get your money back is a good thing and should be encouraged...opportunity cost is something that's real but cant be calculated so i try and not let that influence my thinking to much.
 
Maximum of 2 parcels per ASX stock. ..this allows me to take only 1 average down and since the system is parcel based, will also allow me to sell the biggest losing parcel in a stock with 2 parcels that has gone against me.

Note to self...i need a 'do not re-enter' rule on losers, perhaps? i mean after 1 parcel has been sold for a loss.
Click to expand...

This is another aspect of this style of trading I just cant get my head around.

Why on earth dont you buy on a pull back during a sustained up trend say on your biggest winner or so?

If you take an early loss why then dont you alter your mantra to.
"note to self---Look for new buying opportunity if stock turns in the direction I first anticipated"

Just seems Arrsed about to me.
 
tech/a said:
This is another aspect of this style of trading I just cant get my head around.

Why on earth dont you buy on a pull back during a sustained up trend say on your biggest winner or so?
Click to expand...

I'm not for a minute saying i wont, i have done it a few times in my real Portfolio (PFL, ALZ, SND, CLV) and with this test system having so many stocks, i would expect to take an average down one week and an average up the next week..no big deal just no more than 2 parcels per stock (single stock risk/no stops)


tech/a said:
If you take an early loss why then dont you alter your mantra to.
"note to self---Look for new buying opportunity if stock turns in the direction I first anticipated"

Just seems Arrsed about to me.
Click to expand...

Note to tech / your a technical trend follower, everything other than technical trend following looks arrsed about to you. :)

I'm only selling the biggest losers and only after they have had a bit of time to (20 weeks min) move , assuming that the winners will out number the losers by 4 or 5 to 1 as per my experience.
 
So C

You now have me interested.

How are you going to profit without trend ( price increasing above previous price )

80 % winners after a 20 week hold period
Now that's a trend!!
 
The concepts that I like in these plans are that you know what you do well and are determined to continue doing it. You also understand what you do poorly and want to improve.

I think a simple rule based approach will help you so long as they don't restrict you. One entry per week seems a little restrictive to me. How about altering your condition to an average of 1-2 per week. This would allow you to buy 3 over two weeks.

There are times to buy and times to sell. You've heard the phrase, "Sell in May and go away, but remember to buy in November". A bit simplistic, but does remind one of the market cycles.
 
peter2 said:
There are times to buy and times to sell. You've heard the phrase, "Sell in May and go away, but remember to buy in November". A bit simplistic, but does remind one of the market cycles.
Click to expand...

Exactly, just be consistent with something that works most of the time...my Super gets re-balanced in November, again in April...

CanOz
 
So_Cynical said:
Trade #1
  • PRG - Programmed Maintenance
  • 1070 Shares @ $1.86
  • Week 1 - 08/01/2013

Trade #2
  • AAC - Australian Agricultural Company
  • 1740 Shares @ $1.14
  • Week 2 - 15/01/2013
Click to expand...

Trade #3
  • UGL - UGL LIMITED
  • 190 Shares @ $11.01
  • Week 3 - 23/01/2013

-------

So far so good, open profit of 3.08%
 
Goal. 12% annual return per annum on $100k investment. You could have bought TLS a year ago and you would be getting 12% return with franking credits. But the river moves on... My point is that dividends are a wonderful thing for people looking for income. There are still some little gems out there that are still yielding well. I would have a serious think about allocating some of that capital to long term holdings in dividend paying stocks.
 

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