Alrighty then... I'm not sure how far we're going to get beyond some of the recurring themes here, but I am getting some good things to think about, so pressing on.
Yes, I can see my language is a bit inconsistent - that would be the beginner tag I lumped on myself from the start, combined with the fast pace of this thread and the continual reassessment and learning that is going on... I expect that to continue for some time as I learn more... does that mean I should quit until I've learned everything? Not a chance - where's the fun in that
(you can't succeed by sitting on the sidelines... ready, fire, aim).
Now for my trading strategy/plan... at one point during the already fast pace of this thread I was thinking of adding a lot of different elements into this plan, but the best course of action is usually to keep things simple - not only is it easier to understand, but easier to execute. I have also trimmed back a couple of the numbers from my original thoughts... so here it is - critique away.
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Total Amount of Available Funds: $100k, consisting of:
Line of Credit: $70k (interest on balance @ 6.73%)
Cash*: $30k
(Note: In this instance 'Cash' is not 'free cash', it is a combination of money sitting in an offset account and advanced payments on the mortgage. It has the same liquidity as cash i.e. I can access it immediately, but using it does come as a cost i.e. mortgage rate of 6.63%).
* Maximum position size when purchasing a new company: 7% (i.e. $7,000)
* Maximum funds invested in one calendar month: 17.5%
* Maximum funds to be used for share purchases: 70%
Note: this equates to $70k being used as capital (LoC). The remaining $30k in cash is a reserve amount that may be used for short-term funds if fully invested (e.g. take advantage of a SPP etc.) but must be restored through the sale of other shares in the portfolio within two weeks of use.
* All purchases will have documented entry and exit criteria before purchasing.
* All purchases will have a 20% stop loss set below the average purchase price. If the share price rises, this stop will be raised with it until it reaches the average purchase price. This stop loss is in addition to the documented exit criteria.
* All purchases will be made with an investment time frame of 1-3 years (though will obviously continue longer if the exit criteria conditions allow), with the exception of:
* Up to two positions at any one time may be for a shorter-term investment time frame (up to 6 months). These purchases must include a specific catalyst that determines the time frame. The maximum position size for these purchases is 3.5% (i.e. $3500).
* Metrics to monitor: Total capital invested; Total capital at risk (based on stop losses); Total realised gain/loss; Total portfolio value; Total portfolio gain/loss.
* Continually monitor and reassess my strategy
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Ok, a couple of things that aren't there - most notably how I pick the stocks and how I arrive at entry and exit criteria... none of which I'm going to set in stone at this point as that is one area that will change over time especially early on... I realise that's not going to sit well with a few people, but I feel it is the best course of action. Keep in mind that I will be documenting these decisions for each purchase I make and in many cases I will document them here BEFORE I make the purchase.
It also doesn't factor in how holdings will grow above the 7% level (e.g. dividend reinvestment etc.) and what that means to the overall portfolio mix. This isn't a month one problem and will be added in time - as will other situations that need to be defined... this is one aspect to the monitor and reassess, I can see that there will be many questions that need to be added over the coming months.
Goals... at this stage my goals are pretty simple. Do not commit more than 7% on a single purchase, do not purchase more than 17.5% in one month.
What else is there, what parts don't make sense, what parts could be better?
Finally, if I don't take your advice on something, don't be offended... you'll get a chance to say "I told you so" at some point if things don't work out I'm sure
...and if you think I'm bonkers, I honestly don't mind you saying that either. While it's extremely unlikely you're going to convince me to stay out of the market (and yes I'm well aware that my 'plan' hasn't been tested by 17 virgins and anointed by the dalai lama and verified to give me a positive expectation of returning 34.721 cents per dollar invested), but I am listening and thinking about everything being said, in fact the conversation to this point has definitely reigned in my risk perception a notch or two.
...and finally, I do appreciate the concern about using borrowed funds (in fact a lot of the companies I'll be investing in will have low debt levels), but I am comfortable with the risk that I am taking on. Even if I were to lose the entire amount it would not cause me to lose my house or anything overly extreme... yes the wife will be pissed (ok, more than usual) and my chances of retiring before 65 will take a hit, and yes - that is easy to say *before* it happens... but there is also the upside to consider, and it is that upside that bring us all here.