Hey guys,
Firstly, thank you to peter2 for the amazing job you have done with this comp, and of course, Joe for the place to hang out! Hopefully I've said that enough in the past for you to know I really am appreciative, peter 2. I couldn't have done it - without you the comp never would have happened!
Secondly, I'm going to try and be dot point and real brief in this...please don't take it as a curt response, it's just being pressed for time and trying to put something down so that Joe can move on to finalising. Okay?
THE IDEA BEHIND IT ALL
My whole idea is based around being real world. Stuff like the monthly comp can be FUN, totally nothing wrong with that. But this was a "stock picking" comp for people who love stock picking. 5 stocks, 1 year - who gets the trophy? Of course it could be 5 years (but that might get a little boring) or it could be a weekly or daily trading comp. But as anyone who'se been around knows, there's a lot of difference between picking an illiquid stock for a monthly comp (that could never have been bought in real life) and real trading / investing...call it what you want.
To be real world...liquidity should be taken into account (which is why I suggested at the very least a floor of liquidity). In 2016 we had a simple $10k daily trading rule. Any simple scan could provide a list of appropriately liquid stocks - or just use an index (which is why I even suggested the ASX300 - the widest index that still takes float into consideration).
Ideally divs would be included. Often they don't make much difference, but sometimes they do. From memory, last year (or mid-year) magic formula thread...without looking it up I think the divs took the return from something like 12 to 19 per cent!
The 5 stocks / 1 year thing is just a matter of practicality.
1 year: not just in Australia, several countries give tax advantages to holding for one year. That, and the effects of things like brokerage start to get insignificant (whereas we all know people come up with daily trading systems that are profitable on paper only to be destroyed by real world slippage and brokerage).
5 stocks: the more concentrated, the more it comes down to "stock picking". To use a silly example: if we all had to pick 200 stocks...our results would be a lot closer to each other! Again, as a matter of practicality, if some value investors with 9 or even 10 figure funds can have something like half (or more!) of the fund in their top 5 to 10 picks...then somewhere around 5-10 seems about right for the average, small (say, <$10M) individual investor.
So - to some that up...for me it's all about having and holding a portfolio that would have been real-work implementable.
With that, comes a desire for real-world rules. The re-balancing suggested does not make sense to me. Someone losing 100% on DSH doesn't HAVE the funds to re-invest in another stock! (By the way, peter2, yes I had
2 stocks taken over, and I asked to be able to replace them. But in this case there would have been money to invest!)
I just don't see the suggested rules (replacing stocks a couple of times at previously designated points, being able to replace losers with fresh funds that didn't exist etc) as matching the idea of being real-world.
The div idea seems fair enough. As in, on a matter of practicality, using divs only to separate close winners.
MY SUGGESTIONS...
So my suggestions are:
Initial set up
5 stocks with a minimum liquidity filter. I'd make this higher than before. Either use an index, or run a filter for stocks that sufficient weekly volume for a $100k account to easily invest. e.g. $100k portfolio / 5 stocks = $20k per trade. Using something like a rule of no more than a quarter of the daily volume...you'd want stocks that have had an average daily volume of at least $80k
Rebalancing options
- Hold for one year, allowing take over funds to be re-invested (otherwise they'd be sitting in a bank account)...
only a slight change to 2015/2016
- Or, if there must be more action, change the comp to something like a rebalance once per quarter. Complete sale and purchase of all stocks (of course, someone can select the exact same again). Everyone resets, once per quarter - but with the funds the've got! i.e. Based on a 100k portfolio, someone who lost 50% now only has $50k to invest. Otherwise you might as well rename it to a 3 month comp rather than a Full Year comp.
- Allow people to buy / sell every month. This is a more ideal situation that is real-world, but from comments made I would imagine this is way beyond too much work. The option here means, allow people to sell out of losers or winners, re-investing as they go (into stocks they currently hold or new stocks)...just as you would in real life. Again, I know this option is too much work...I mention it to emphasise again my belief that this comp should be made to be real-world like.
The best of both worlds?
The final, more unique solution I have that:
- keeps to the spirit of a one year comp (where brokerage becomes negligible and tax is maximised etc)
- whilst at the same time allows for more members to join in and have a go
- and at the same time gives you a chance to lose some and win some(!)
- is kinda more work but not actually more COMPLICATED than the current comp
...is the following idea:
Final Idea
Pick 5 stocks to hold for 12 months.
Only sub-rules are: minimum liquidity filter, takeover funds can be reinvested into a new stock rather than go into 'the bank', divs either ignored, included or simply used to separate close winners.
The twist is...set this comp up at the start of every month (12 comps running)...or if that's too much - at least to start with - how about once every quarter?
Using the idea of quarters...
We have a comp that runs from 1 Jan 2017 to Dec 31 2017, another one with the above simple rules commences 1 April 2017 and runs to 31 March 2018, another one commences 1 July 2017 running to 31 June 2018 and finally another one starts 1 October 2017 running to 31 September 2018.
Eventually we'll have 4 comps running at any given time with a new one starting and ending every three months.
Of course, if quarterly was still too much, it could be done 6 monthly.
Or if it was easy to run and more action was wanted it could be run from the start of every month.
Thanks for listening. At least I've put my idea out for consideration. I'm not the one offering to run it, so as before, I'm happy with whatever Joe and whoever is going to help (e.g. peter2) to make the final call - along with the majority opinion etc...and go with that.
Let me know your thoughts