1. I was an investor before I was a trader. So for me, the learning curve has been the other way around. Pairs was such an excellent strategy for this reason - because I feel it gives you a much easier way to get out of a trade. There is no legitimate way to convince yourself to stay in a trade that needs to be exited. If the rolling mean is back to 1.00 or whatever your target is - your out. Obviously as a more developed trader, there are other stops involved, but this works for illustrative purposes.Questions if I may...
1. You are also a trader. Any thoughts to share on how you handle the much slower feedback cycle involved with SMSF investing?
2. Have you considered whether you should deploy more capital in trading rather than split it between trading and SMSF? While trading income isn't nearly as tax effective, it is potentially more scalable at an earlier stage? I know if I wasn't trading other people's money then I probably wouldn't be putting much money in SMSF (or hold investments in my family trust).
For the 2014/15 FY alone, the probability of a 47.1% year total pre-tax return outcome is crudely estimated at 0.5%.
On the basis of a fully invested, unlevered, buy-hold portfolio (days held average for realised positions is well above this period) with an effective diversification of 8 stocks (to allow for concentration into a smaller number of names within the portfolio) drawn from the ASX 200 which survived the year.
Rinse and repeat, roughly, eleven more times. ASX 200 Accum 11 years to FY2014 compound approx 10% per annum, realised approx. 35% pa. Very very rough likelihood per year 2-5%. No more than 15%. Allows full rebalancing each year. Fully invested...
Indeed. Welcome back.
2. Have you considered whether you should deploy more capital in trading rather than split it between trading and SMSF? While trading income isn't nearly as tax effective, it is potentially more scalable at an earlier stage? I know if I wasn't trading other people's money then I probably wouldn't be putting much money in SMSF (or hold investments in my family trust).
I can't afford a SMSF but i do have an IB account.its kind of a super fund because the plan was to just build it until i needed the money at some point in the distant future, i have only deposited twice into the account at the very start, a very small amount of cash and 3 shares, no deposits since and no withdrawals ever.
Wrote some covered calls and received a few dividends, mostly trading profits and open profit.
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Myon calculating return because I have been studying recently and I have it to hand (the below is paraphrasing of the CFA Institute text): a unit price calculation should give you a total rate of return (which is really what you are left with at the end of the day - ie increase in wealth due to investment income and capital gains). But then do you calculate the investment-related growth rate in the account's value by focusing on a single unit of money invested in the account or by focusing on an average amount of dollars invested? Because calculating the return on the average amount of money in the account is sensitive to the size and timing of cash flows into/out of the account, it seems sensible to focus on the single unit of money measure which reflects how you would have fared over the period if you had placed funds in the account at the beginning of the period. This is the time-weighted rate of return approach (TWR).
The approaches will produces similar results under normal conditions but differences can be significant where external cash flows occur that are large relative to the account's value and the account has significant volatility during the period.
The downside is that TWR requires account valuations on every date that your external cash flow takes place and then the returns need to be linked (to account for compounding), while MWR can just be calculated at the end of the period.
To show how the differences work: if your account is worth $100k at the start of the month, on day 10 it is valued at $220k after receiving a $120k contribution and at the end of the month the account is worth $300k:
For MWR, solve for R:
$300k = $100k(1+R)^30 + $120k(1+R)^30-10
By trial and error, R = ~0.01265. That is a monthly return of (1+0.01265)^30 - 1 = 46%
For TWR:
subperiod 1: [($220k-$120k) - $100k]/$100k = 0%
subperiod 2: ($300k-$220k)/$220k = 36.4%
Then return for total period = (1+0)x(1+0.364) - 1 = 0.364 or 36.4%
Apologies for the rant!
Questions if I may...
2. Have you considered whether you should deploy more capital in trading rather than split it between trading and SMSF? While trading income isn't nearly as tax effective, it is potentially more scalable at an earlier stage? I know if I wasn't trading other people's money then I probably wouldn't be putting much money in SMSF (or hold investments in my family trust).
This is a question that I have pondered over quite a bit.2. Have you considered whether you should deploy more capital in trading rather than split it between trading and SMSF? While trading income isn't nearly as tax effective, it is potentially more scalable at an earlier stage? I know if I wasn't trading other people's money then I probably wouldn't be putting much money in SMSF (or hold investments in my family trust).
Great points Craft. For me, in the developing stages of my 'trading business' it has all been about ensuring that what I can do is sustainable, repeatable and scalable. I think that should this continue to be proven over the next 24 months that things like SMSF contributions, PPOR investment etc will become heightened considerations.
Passive income from a stockpile of capital seems to be much more enduring.
A trading business is never going to generate goodwill on its sale ( A potential benefit of investing in other types of businesses) – however you will be able to recover your working capital when you quit trading, so that will be a stockpile of capital for the future outside of super - how big will it be? Depends how much working capital your trading business was able to accommodate.
I ‘think’ I think that even a successful trader earning great returns should consider allocating at least a part of his/her current income (as should any other sort of income earner) towards a stock of capital [other than just the working capital of the trading business] to generate passive income for the future and the superannuation system is a pretty tax effective place to do that.
But what mix? Isn't the old nugget 10% of your net income will do the trick.
But what mix? Isn't the old nugget 10% of your net income will do the trick.
A trading business is never going to generate goodwill on its sale ( A potential benefit of investing in other types of businesses) – however you will be able to recover your working capital when you quit trading
Just for the sake of inverting the question.
Why don't you trade your capital along side other peoples money? If its a scale issue why not substitute your capital for some of the other peoples capital and save the expense(profit share) you incur for using their capital?
Over the long run, I hope to have a bigger investment portfolio and I understand that the earlier that it is contributed to, the longer that compounding can work its magic. But I also know that at an early stage, when earnings are below say $180k that tax is less of a drag on trading and the most efficient use is going to be directing the capital there -- allowing bigger total dollar amounts to be directed towards investment capital at a future stage (rather than smaller amounts sooner).
Over the long run, I hope to have a bigger investment portfolio and I understand that the earlier that it is contributed to, the longer that compounding can work its magic. But I also know that at an early stage, when earnings are below say $180k that tax is less of a drag on trading and the most efficient use is going to be directing the capital there -- allowing bigger total dollar amounts to be directed towards investment capital at a future stage (rather than smaller amounts sooner).
If I were you (at your age) I'd think about this differently.
The thing is... when you grow your trading size you also grow your vision - vision on what can be achieved in trading. There is no real upper bound in trading income. While you may sacrifice the next 5-10 years of tax effective compounding, it is off a relatively low base (and at most $25k per year with the new regulation). But to grow your trading, you are not only increasing your present income, you are investing in your trading career that can have a very high potential payback.
In 8 years time, would you rather have the trading skills and ambition to make $1m a year, or have a $350k super balance that was tax effective? I am not saying that the two must be mutually exclusive, but I know which one I'd skew my capital towards.
And once you start trading OPM, you are free to deploy your trading capital into super so you get both the active and passive streams going. That's where I'd be aiming.
I read vc's paragraph as a well considered view picking up both the pro's and con's.
Okay, so here is my contribution to the thread.
After all the talk about how everyone is measuring their returns I feel a little embarrassed to provide my method.
I am simply calculating end of current month value divided by end of last month value to get a % return for the month. The end of month figure is normalised by subtracting deposits and adding back withdrawals. Return is being measured on total securities value + cash balance. I tend to run a portfolio that is 80%+ invested at all times, so the cash drag is never too large. The monthly % return is then applied to an indexed line (I chose $100k) and compared against XJOAI and XSOAI. There is error using this method, as the method above shows a FY16 YTD return of 38.002%, while taking the current value divided by the beginning value (normalised for dep/withdraw) gives a return of 38.98%.
The performance must also be taken into context that the deposits to the fund have been ~50% of the starting value, primarily due to adding in a new member - so position sizing has had to evolve as the fund has grown. The SMSF was actually established a bit earlier than FY15, but due to some data issues I just started it from start FY15.
One note: I have found tremendous value since being in charge of multiple portfolios. I have used the SMSF as a way to express a slightly different view than the way I have been managing my retail portfolio. The result is that the SMSF has vastly outperformed my own portfolio
Enough chat, heres the chart:
View attachment 66710
Some other things that I have found to make it easier, is to have the investment stuff completely separate in as many ways as possible from trading: different broker, different spreadsheet layouts etc - helps to keep it separate in my mind. I think you already spoke a bit about this in another thread, how you like that your investment broker takes a few extra clicks to slow you down etc. Updating the equity curve monthly is another good one, "Fooled by Randomness" is a great book which has a bit on how checking your returns less frequently as an investor can be beneficial for the psyche.
Thought I'd tie some of my SMSF results to this thread.
Current annual costs is approximately 0.4% - purely trend-following (100% invested):
View attachment 68136
You can't post a chart like that and not offer an explanation! What's the secret sauce?
No secret sauce, just dedicated disciplined systematic trading.
See: https://www.aussiestockforums.com/forums/showthread.php?t=30641
You can't post a chart like that and not offer an explanation! What's the secret sauce?
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