Tagged: allocating money
Gerry SeibertParticipantDecember 18, 2020 at 12:25 PMPost count: 10
Sean went to refresh my thoughts on allocating money reported in investing basics but is no longer listed. Will this come back? Is there an update?
GerrySean HymanKeymasterDecember 18, 2020 at 12:47 PMPost count: 7046
It is there. It’s on the 2nd page of the Members Area, because I don’t want that seen by non-members. I scrolled to it in last night’s weekly video.
Here’s the direct link. Hope that helps. https://logicalinvestor.net/members-only/my-complete-investing-system-how-to-allocate-your-money/
The Investing Basics area is free to anyone, even non-subscribers. The Members Area and Members Forums are for strategy specific stuff, like my investing system.Gerry SeibertParticipantDecember 19, 2020 at 11:37 AMPost count: 10
Thanks Sean Have a Merry ChristmasSean HymanModeratorDecember 19, 2020 at 11:42 AMPost count: 3386
Y’all have a Merry Christmas too.GerardoGParticipantDecember 31, 2020 at 1:20 AMPost count: 24
I saw refreshed myself with your video on allocating your money (https://logicalinvestor.net/members-only/my-complete-investing-system-how-to-allocate-your-money/) but still had this question: Since many of our positions are above the entry level price and I have more money to allocate into these two last defensive picks (IBM and XOM) than when I first started investing (and have already averaged down 3 times for some of those stocks), should I divide the money I currently have to invest into 15-17 parts (the number of stocks in our portfolio) and then divide again into 3 tranches in order to average down, or should I divide the money I currently have to invest in half or in 5ths or 10ths etc, before I divide in thirds for the 3 tranches in case I need to average down?
I imagine if the market crashes, I may want to have lots of many in case you have many more pics, but at the same time, I’m not sure the money I have should just be waiting in my credit union or in my account with little or no interest, especially if the dollar will be falling.
Just looking to pick your (and other members’ brains as well) on how to proceed. For newbies, the division is simple, just follow the video above, but for us with money waiting to be invested and already in all the portfolio stocks, what do you suggest?
By the way, Merry Christmas and Happy New Year 2021 to Sean and all the members!!
ChristiaanParticipantDecember 31, 2020 at 5:33 AMPost count: 269
- This reply was modified 1 month, 4 weeks ago by GerardoG.
Very good question, only because you asked for other members brains I’ll give it a try. Warning/disclaimer: I you are a newbie, or want to keep life simple, or don’t want to change anything, or don’t want to challenge yourself, don’t read any further.
Sean’s investment system with 3 equal dollar tranches for averaging down is the best I have seen so far. It’s best feature is the better stock prices in tranche 2 and even better in tranche 3 while in addition having more shares in those later tranches so that the better prices get a progressive heavier weight in your average buy price. That is the main reason behind our stellar returns.
Sean’s system works most simple straight forward when starting from scratch. When working in the system for years things can get a little bit more complex. Especially as you get more money to invest over the years. I have been thinking a lot about how to optimize the system in that situation where I am also in as long time subscriber.
I tried 3 ways last years to handle this challenge:
Option 1: Stick to the system as much as possible, keep it simple, don’t change original tranche sizes, put limit orders in for future tranches, make the system work like a robot, run it like clockwork.
Option 2: Increase the tranche dollar value over time, e.g. 20% bigger each year, enabling more money to flow in your portfolio by spreading the money over new tranches and new picks. This gives some imbalance compared to old picks but if you increase gradually enough (or e.g. per quarter) that imbalance is small. And new picks get a bit more weight which is not strange as the latest market insights are with the starting of new picks.
Option 3: Make the system more fluid than 3 tranches. As transaction costs are zero nowadays who cares about more buys/sells. Reduce your tranche dollar size drastically (e.g. divide it by 2) and start investing in new picks with multiple small amounts (e.g. 6 tranches in total). Keep track of your positions by calculating overall entry weight (% entry value per pick of overall portfolio entry value) to avoid overloading. Keep track by calculating average buy price per pick to make sure you only add a tranche (e.g. at least 5% under the previous tranche or at least under the average buy price as otherwise you are increasing your average buy price (no averaging up).
By executing and trying all 3 options over the years I came to the following conclusion:
Option 1: Most simple, straight forward, easy to manage and automate via limit orders. Less flexible when adding more money.
Option 2: Simple, every year/quarter slight tranche increase. More flexible when adding year on year more money to portfolio. A bit higher returns because of a bit more weight for newest picks and especially with multiple shorter investments times of last year.
Option 3: More complex because the number of tranches increases and you need to track with 2 parameters when and how much tranches to add to each pick. Flexibility is highest because the portfolio in number of tranches grows with your investment money growth fluidly so no imbalance in portfolio. Returns are highest because with the small tranches you benefit most of dips in the stock price (e.g. 6 times instead of 3 times with 3 tranche system) because your average buy price is lower, especially when using limit orders for new e.g. 5% lower future tranches.
What option works best for you really depends on someone’s personal situation and how much money/time you want to spend on this LI portfolio. I spend a lot of money in this system because the returns are so good. So over the years the time spent on the complexity of option 3 pays more than off for me as it increases my returns significantly compared to option 1.
For others option 2 is a good in-between scenario to add flexibility but keep the simplicity of the 3 tranche system. For others option 1 is best because it is most simple and automatable via limit orders upfront in time. This option costs least time.
Hope this helps some people struggling with the same very good question GerardoG posted.
A Great, Healthy and Prosperous 2021 to everyone!Scott PearcyParticipantDecember 31, 2020 at 6:46 AMPost count: 496
Great response Christian…..I believe in the KISS principle…….Keep It Simple and Straightforward……Although I am running a hybrid of your options 1 and 2……I equalize three tranches, but as I have gained confidence and dollar value in my portfolio, I have also increased the size of each tranche…..When I first started, I was investing $1500 per pick (3 tranches of $500 each)…..over time I have been able to increase each tranche size to $1000….and I hope to further increase each tranche to $1500 in 2021…….
I hope 2021 finds each of you and your families, happy and well…and I wish each of you a very Happy and Prosperous New Year!!Sean HymanModeratorDecember 31, 2020 at 7:01 AMPost count: 3386
This is where it’s a bit more art than science. But I’d say to gradually increase money allocated to new positions. Because if you drastically increased it, you’d be too heavily weighted in just a few positions. And you want as even of a distribution across your portfolio as possible because there will occasionally be losers and we don’t know which ones those will be ahead of time and we wouldn’t want an unusual sized amount of money in that loser because it digs too big of a hole in the account.Sean HymanModeratorDecember 31, 2020 at 7:09 AMPost count: 3386
Yeah, a graduated increase is best. Nothing drastic.
Happy New Year to y’all as well.Leslie HarvathParticipantJanuary 1, 2021 at 11:56 AMPost count: 425
Hi Gerardo, congratulations on your wonderful dilemma! Our daughter recently came into a bit of extra investing money, so we addressed this exact circumstance. When she started in April, she only had enough money to be in 4 positions (12 tranches). With her profits, she was up to 5 1/2 positions (she sold half her SLV). [Keep in mind she has tiny tranches, only $83.33/each, but the principle is the same.] I asked her if she wanted her positions to be bigger (like Scott’s progression) or would she rather have more positions @ her current investment ($250/position). She decided to sell off BEN @ 20.82% & KHC @ 15.12% and use those profits + her new funds and deepen all positions by 40%, increasing each position from $250 to $350. This enabled her to buy a single share/tranche of IBM: something she really wanted ($124.22+$110+$100 < $350).
Now to answer your question (how I increased her positions):
For her fully-funded positions (those that already have 3 tranches): I added a 4th tranche & put in a limit buy for 10% less than her 3rd tranche (all new money (in her case, $100) in the 4th tranche). She’ll have uneven tranches, but I thought this would be the simplest way while giving her a terrific new BE point.
For her partially-funded positions (those w/ 1 or 2 filled tranches): I added $33.33 worth of shares to her 1st & 2nd tranches so long as they were at or under the Entry/Ave Down levels (placed market buys) then increased her unfilled limit buys to add more shares = $33.33/tranche.
I’ve attached an Excel sheet of her current positions in case it might help to see it that way.
I’m praying you’ll find a solution that works for the way God wired you! Blessings!
PS She doesn’t have a lot of extra cash, so she is fully invested. I have about 30% in cash at this time. I’d recommend you keep at least 2 positions of cash to take advantage of our upcoming opportunities
- This reply was modified 1 month, 3 weeks ago by Leslie Harvath.
Attachments:You must be logged in to view attached files.Sean HymanKeymasterJanuary 1, 2021 at 12:03 PMPost count: 7046
And if deciding between bigger, yet fewer positions or smaller, yet more diverse positions…lean towards the latter and not the former.Leslie HarvathParticipantJanuary 1, 2021 at 12:59 PMPost count: 425
Sounds good, Sean. We’ll keep that in mind from this point on. I know she wanted to reach that $100ish/tranche depth before spreading out, which likely won’t be an issue for most investors. 😉 Thanks so much for noting that, and happy new year! ps My sis-in-law will be joining soon. I’m excited!
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