  |
|
|
|
|
Stockstips: stock advice, stock market, investing, finance, economics, bonds, brokerage, dow jones
|
|
|
Tweaking BTD theory
|
|
|
|
 |
|
|
Here is the order of how you should invest:
1) THE AMOUNT: O'Higgins recommends an initial investment of $5,000. From this point forward the advice given comes
partly from the book and partly from myself. Whatever the amount you choose, make certain it is money that you can part with.
Keep in mind, a large return must begin with a substantial initial investment.
2) PICK YOUR STOCKS: Pick a day and create a spreadsheet (either on paper or your computer) and make a list similar to
the one seen on the home page. Then you must choose which investment strategy you want to use. My personal opinion is that
the top five high-yield/low price strategy appear to be the best bet, but analyze the data and find out for yourself. I myself
researched the Dow from 2000-2004 and discovered that the two more conservative portfolios (the 10-pick and 5-pick) always
beat the Dow year in and year out. However at the end of the five years, the gains from the PPP portfolios had the greatest
return! Each portfolio has its risks, you again must determine the amount. Below you will find a graph that shows the data.
The data was based on measuring the Dow Jones index and stock prices on January 31st to retain consistent.
As to the exact amount you should invest per stock, the formula is simple. For the 10 stocks portfolio, invest an amount
equal to $500. Combining all 10 stocks will create a $5,000 investment. For the 5-stock portfolio, invest $1,000 per stock.
The amount of the investment is irrelevant, just make certain you are investing the stock in equal amounts. I also recommend
placing a "stop-loss" order on each investment. When a stock loses 7.5% of its value, there is a small chance that
it will reach the price at which you originally bought the stock, meaning it's unlikely to exceed that price for profit when
you are ready to sell. Determining the price of a stock which lost 7.5% is simple. Ex. Stock Y is selling at 10 dollars.
Multiply 10 by .075(7.5%) which gives you .75. Then subtract the original price of the stock ($10) by .75 which will give
you your stop-loss amount of $9.25. If the stock should dip under this amount with a $5,000 investment you will be able to
salvage $462.50 with the 10-stock portfolio, $925 with the $5-stock portfolio, and $4,625 with the PPP portfolio. When I
tracked my portfolios from 2000-2004, the BTD strategy always performed better than the Dow and there was only one year when
all my stocks were losers which was in 2002-2003. However, this occurred after 9/11 which makes an economic recession reasonable.
True to form, the American economy did rebound with the Dow increasing 30%. You can see that all three strategies beat the
Dow again that year.
|
|
|
|
Total Returns 1/31/00-1/31/04
|
|
DOW PERFORMANCE
|
10 STOCKS
|
TOP 5
|
PPP
|
| |
|
0.41%
|
7.68%
|
13.20%
|
16.82%
|
Once you pick your stocks you should wait one year and one day before you do anything else with it. Here is O'Higgins' explanation:
"The question now arises, how do I start the new 12-month period with equal dollar amounts without getting eaten alive
with transaction costs to cover odd lots? Ideally, the capital gains and dividends from the stock you sell should enable
you to start the new 12-month period with equal dollar amounts in all five or all ten stocks. Chances are, though, it won't
work out that way. Here I advise being practical. Aim for rough dollar equality, but don't get obsessive-compulsive about
it."
In addition you will be able to lower the capital gains tax if you wait a year as well so don't get impatient! Throughout
the year you can chart your gains and losses and prepare yourself to revaluate your position at year's end. On the next page
are examples of potential spreadsheets you can utilize to measure your stock's progress. Now comes the most important step,
finding a broker to buy from!
3) STOCK BROKER: The whole point of this stock strategy is to cut down on costs that cut into the profits your stocks
reap for you. You should only do business with a discount broker who is called that because they are much cheaper than a
full-time broker. I advise using Scottrade which appears to do all it can to keep administrative costs low. AGAIN, I AM
NOT CONNECTED TO SCOTTRADE IN ANY WAY AND WILL NOT PROFIT AN IOTA FROM THIS WEBSITE.
4) Once the purchases have been made, simply track your stocks using your own devices or various websites that track the
stocks for you. Any sites that will be of help will be listed on the LINKS page. Please do some stock research by yourself
if you have any doubts. I promise you that all the data on this site is reliable. Good luck!!
|
|
|
|
|
|
