Wednesday, July 8, 2009

Investing Tactics

Below I provide you with a summery table I made for different tactics to manage an investment portfolio that I found through reading books and researching on the internet.

I urge people to read on about: "Tactical Asset Allocation" and about "Strategic Asset Allocation".

The table below mixes between the two, in essence, any asset allocation which includes rules for when to buy one thing and when to sell another is tactical/active. On the other hand, any asset allocation approach which is built upon defining risk tolerance and strive for a certain risk adjusted mix is said to be "Strategic". When managing a strategic portfolio, one occasionally rebalances to meet his initial goals.

I have before created several pages to address strategic asset allocations, and I intend to recreate these pages (based upon on the ashes of my former blog).

tactic pro con risk grade
(1 to 10, 10 the riskiest)
down side protection Income Yield notes
1 Index
fund a year
No brainer, trust the long term averages and a rising economy.
Low fees
Bear markets and stagnant economies such as Japan. 2000 to 2008
- flat returns! 2008 - belly up returns
5 Entire market cannot fall to 0 1.50% only works well when there’s a flow of new money. Cost average
and eventually fade into a balanced income/index portfolio to preserve
capital towards retirement.
100% cash
when index under 200 days avg, 100% index when above
"avoid" the bear until it’s over, simply hold cash,
join the "bull" and enjoy long-term average 9% returns
"only" 9% upside? Fake outs of bear markets touching
200 days avg, requires acting immediately on buy signals. Will miss out on
the biggest "pops" while accepting huge drops
3 strategic activism 2% Proven by research to be superior to just buy and hold the index
reduced risk, still allow enough upside on index ACG has no upside. A leveraged cef can lose value on credit
4 ACG is stable 4%
50% cash,
25% momentum stock, 25% income etf
balanced approach with a twist - instead of index, hold a high
risk, high gains momentum
no diversification produces a 25% risk on the single momentum
5 large cash hedge 3% A good source for momentum picks is available for free on’s profit from the pros newsletter
Currency, Commodity Index, Gold, Index mix; %30, %30, %15, %10, %15
Hedge your holdings, not necessarily grow them. gold has no upside (except inflationary). Commodities are due
for correction, foreign currency is subject to foreign central bank decisions
based on economic parameters
5 non equity holdings 5% Follow pro-s to guard your capital. See random roger
mish mash
of strategies while holding 5 to 15 different equities
Flexibility, diversification too confused, no discipline, mostly downside 6 mix and match 4% upon neglecting discipline can lose your shorts. Bad decision
lead to this - it’s not a strategy but an outcome of being unfocused
5 to 10
stocks at 80%, 20% cash
Full control and diversification. Fully exposed to market swings, experience huge bear raids at
narrow markets. Rely on being "correct" enough times. Mediocre
returns compared to index funds by most amature investors as well as pros
9 diversification 3% as suggested by many money manager books including Cramer’s
dividends close to purchase date+covered call
stream of income very active. tactic involves finding "value" - which
could mean entering a waterfall or falling knife pattern and never
recovering. Exposed to stock value breakdowns
7 continuously reduction in cost basis 8% both
require offline cost basis calculations
mergers + covered call
covered calls provide a stream of income. Mergers provide some
guaranteed premium at an expected date.
rely on merging company’s other value and news. Liquidity of
covered calls on merging companies is in doubt
6 a date is given for merger 5%
short term
acquisition arbitrage
High annualized return at small risk. Gauge the system about 1
to 2% at a time, reach a yearly return of almost 20%
Very active. Very boring. Low liquidity. long periods on cash
only - need to seek proper opportunity, deals can be broken. Not diversified.
Not worth the hassle if position is not big enough!
3 usually sits on cash - not in stocks
focus on one trade at a time, focus on acq and not mergers, buy
about a month prior to final deal, place limit sell close to final price as
GTC. Try
long hold
on high dividends
supposedly achieve better returns than "risky"
investments while "enjoying" an income as the underlying assets fly
up and down.
how far down can a high income go? Very much so. If it gives
high income it’s because the street assumes the dividend is not guaranteed
6 high income 10% this was my strategy from mid Jan to June 2008. It produced
horrible results even though tried to steer clear from financials
3 etfs a
somewhat diversified. Use technical analysis to great returns.
Low commissions
Very active, very volatile. Technical and fundamental research
required. Wrong moves can steer portfolio to early demise
7 NONE! 1.50%
30 value
holds on an annual rotation
Many advantages - most are laid out in the book "The little
blue book that beat the street".
Rely on the average results of the ranking system and not on "gut
On a narrow bear market -
trades with the bear. Painful to watch. Somewhat active.
7 diversification 2% As suggested in the magic formula book. Regardless of the
ranking system/formula. Suggest any value related stock screener. Add some
salt and pepper by incorporating your favorite analyst buy only
recommendations in the screener
weighted etfs allocation
very comparable to index fund. A chance for better returns if
sectors research done correctly and weights aren’t at high deviation
work intensive. No bear market protection unless holding some
sectors short
6 diversification 1.50%
single etf
a week
chance for high returns. Assume that an ETF has many holdings
thus cannot completely lose value.
no downside protection. Very volatile. Very active 8 NONE!
Research better be spot on - the lack of diversification exposes
trader’s ass.
Single etf
a month + buying puts
reduced downside risk with high chance on upside returns a trade begins with a loss - cost of puts 5 puts
momentum plays are suggested
managed etf / strategy etf a quarter
no brainer - trust the PHD-s like a mutual fund investment with less fees. 6 NONE!
Suggest some diversification of ETF-s and ETF companies. Suggest
use liquid ETF-s with low fees
buy the
dividend, sell 10 trading days later
allow the stock price to regain value after the first couple of
days after ex-div
very active trader. Risk of not regaining value fast enough if
at all.
7 income 7% As implemented by the closed end fund AGD - disregard the
trading chart and check their net asset value. It proves that in bear market
- this strategy fails miserably
buy the divdends on 4 high income monthly trusts with different paydays although will lose value on ex-div day, can still capture industry wide trend stock devalued day after pay? Very concentrated in one industry 5 high income 20% ex-div: PVX 20, ERF 6, PBT 27, HTE 20, AWF 6, ACG 6, IGR 21, PHK and PTY 7 to 12, PGP 7 to 9
30 stocks on rotation, each paying divedend between 4 and 7 avg yield of acount ~ 5%, somewhat of a value play rely on stock picking ability 6 high income, diversification, long term 5.5% use technical buy signals on high yielding stocks. Do not sell for at least a year ( to assure avg yield)
Buy 10 days before ex-div for high yield querterly stocks, sell 1-2 days before ex-div. Sit in cash or ACG in between Avoid drop on ex-div, gain from buying pressure of people trying to buy the dividend no diversification, active trading strategy 4 Time Based 5.0% Consider FRO, BPT, NAI, NFJ, HRP, earn income from ACG while waiting for trades (buy the dividend on ACG)
one holding
for day or two, sit in cash a week
Try to capture short term upswings, limit your wins as well as
losses to short time frames.
active trading, time restrictive gains, akin to day trading
without margin or other restrictions
7 Time based
buy close to the end of the day. Put a limit with GTC for the next 2 days. Sell regardless of price on the 3rd. No stop loss on value - only on time
60%/40% IYK/ACG Reduce volatility, good long term chart. are you willing to get stagnant results at periods where the market skyrockets? 2 High Income, stable equities 4% tested on iCarra, the idea is to hold on to consumer staples - goods, which are non cycle and provide secular growth, while getting the highest safest income. These holdings were picked because they allow back testing as far as 2000

* GTC - Good till canceled order
* Risk grade - my subjective estimate

The material posted on this Blog are the opinion of the author and should not be considered professional financial advice. Please consult a financial professional before making any major financial decisions.


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