Monday, June 8, 2009

2009 Investment Program & Methods

Based on my current general Asset Allocation of 33% each for Bonds, REITs and Stocks (exREITs) posted earlier, my investment program is generally broken down to:
  1. EPF--> Bond Funds --> Equity Funds quarterly
  2. 77% of Cash from Net Income's apportioned for investment (see Reloaded & back to basics) --> Direct REITs (ie. Stocks in REITs) based on value
  3. 23% of Cash from Net Income's apportioned for investment (see Reloaded & back to basics) --> Foreign focussed Equity Funds Quarterly
Please note that I consider $ in EPF to be part of Assets held in Bond.

EPF Methods:
There are 2 methods which I'm utilizing for EPF-based investments into Equity mutual funds / unit trusts. Why 2 methods? Simple - to test with real $ and see whether one is much more effective than the other OR similar returns. Nothing beats tracking and managing when it comes to your own money on the line :D.
Please note that I have tested these two methods theoretically via random data and actual historical data + real money in but I've never used both methods on the SAME mutual funds / unit trusts for the same period.
The 2 methods are:
  1. Combo of Dollar Cost Averaging (DCA) + Value Cost Averaging (VCA)
    a. Buy Rules
    Problem for executing a continuous & stable apportionment for this program was solved by taking as much money out of EPF every quarter, ascertaining the average that I can sustain "perpetually", and using that amount as the allocation to Equity funds every quarter
    EPF ---> Public Select Bond Fund:
    $XX,XXX fluctuates due to bonuses, EPF's "age formula" vs. what's left in A/C1
    Then, Public Select Bond Fund ---> Equity Fund:
    $10K every quarter allocated to use in Combo method for Public Index Fund + Public Sector Select Fund (50/50).

    With this Buy Rule, I execute less buy amount ($) when the funds are running high but I still participate in-case of a long crazy bull-run
    + I execute more buy amount ($) when the funds are down and battered using the unused money accumulated in the Bond fund. See the links below:
    Dollar Averaging Vs. Value Averaging Vs. Combo - Concept
    Dollar Averaging Vs. Value Averaging Vs. Combo - real data using Public Far East Select Fund (PFES)

    b. Sell Rules
    As I track each transaction individually, reallocating dividends reinvested based on dates and amount of units held at the date the dividends are distributed, I can track each transaction's Net Profit / Net Loss Per Annum.
    With this tracking + based on experience, historical data and risk appetite - my expectation of "normal profit" is 10% per annum and if any of my transactions' profits are way above my normal expectations, ie. 20%+ pa, I look to switch back to Bond fund and lock-in my capital + expected profits, letting the abnormal profits to continue running. However, I now temper this Sell Rule by checking against my own trend tracking for that specific fund before switching.

    c. Bottom Line
    The Buy Rules above lowers my need for cut losses as it automatically buys less when the market is running high + buys more using unused allocated funds when the market crashes.
    The Sell Rules enables me to take expected profits while allowing me to participate if the run continues upward.


  2. Trend
    Over here, I'm using my ex-DCA funds accumulated until 2008. Here's where I jump into PIX & PSSF or out into PSBF (same funds as the ones using the Combo aproach).
    a. Buy & Sell Rules
    I use my own Trend tracking based on Current NAV Price in relation to the 200 Days' Moving Average (long term) and 50 Days' Moving Average (mid term). Based on Trend, there are 6 phases, 3 "positives" & 3 "negatives":
    "Positives": Recovery, Accumulation, Bullish
    "Negatives": Warning, Distribution, Bearish

    Thus, the "cycle" is
    Recovery --> Accumulation --> Bullish --> Warning --> Distribution --> Bearish;
    where at each phase, the Trend usually stays where it is, goes forward or backwards
    at Recovery, it will usually stay or go forward into Accumulation phase OR backwards into Bearish phase
    at Bullish, it will usually stay or go forward into Warning phase OR backwards into Accumulation phase

    Thus, the most logical rewards-to-risk ratio would be to:
    Buy-in at Accumulation phase
    Sell-off at Distribution phase

    Yup - no 15 or 20 Days' Moving Average (short term) used as I think mutual funds are mid to long term commitments, not a fling/trade as the cost as a % is higher than stocks' trade.

    b. Bottom Line
    Purely based on Trend, this approach does not "stay in the market" for fun or opportunity. It's either In or Out, thereby very useful to avoid large drops and only participate when the investment is picking-up steam. However, there won't be a huge returns expected here as Buy-in is only after the investment has picked-up steam AND Sell-offs are not at the height as well.


Cash Investment Methods:
Holy kaka - long stuff above, to be continued on next posting yar.

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