How did I pick those 6 investments for January 2015?

I love market days like this when stocks are down 1% plus but 2-3 of my ETFs are positive on the day.  I also love knowing I don’t have to figure out or wonder what to do next because I already know what I am going to do.  On 1/31/2015 I will work my 6th grade math and adjust positions accordingly.

In the interest of getting up to speed on this “6th Grade Portfolio” I want to discuss how I came to recommending these six ETFs for my January 2015 investments mentioned in the previous post.  There are a few places online like here http://www.mebfaber.com/timing-model/ and here http://www.investingforaliving.us/ that I learned from and used to get a feel for this investing style.  I use the GTAA strategy they discuss as the basis for my strategy with a few of my own rules thrown in.  I have learned over time that one must eventually create their own investing style that suits their own comfort levels and risk tolerances.

We start every month with 13 different ETFs to choose from all representing different asset classes.  We choose 6 of the 13 each month to achieve diversification.  If you need to learn what an ETF is go here: http://www.investopedia.com/terms/e/  For a list of those ETFs please read my previous post.

Then using any charting service like http://www.freestockcharts.com I calculate each ETFs 1 month, 3 month, 6 month, and 12 month returns.  Average those together and that’s where I get the “Average Returns” column in the previous post.  Order them from highest average to lowest average return and voila you have the top 6 ETFs to invest in for the month.  Provided the ETF in that top 6 is above its 200 day moving average (also obtained by looking at the stock chart) you buy 1/6 of your portfolio in each.  Sometimes those top 6 will be the same top 6 as the previous month.  In that case (as was this month compared to December) you do nothing, just continue hold the ones you already had.  That’s the goal; to get into an ETF when it starts a reliable upward trend and as long as it stays in that trend it will stay in the top 6 and thus stay in the portfolio.  You never have to make a prediction about where you think its going to go as the 6th grade math will tell you if you need to buy, sell, or hold.  So the next time you hear someone predicting where the market will go you rest easy knowing that if it goes down you will get out and if it continues up you will stay in.

In summary, to execute this strategy you need to be able to read a chart, figure out averages and percentages.  Like I said, so simple a 6th grader could do it!

Here is an example of a chart that I use.  Its of the VGLT Vanguard Long Term Government Bond ETF and one of the best performers in the last three months.

VGLT

I am just writing here for fun so if you have any questions or I missed something please feel free to point it out or ask.  No ego here.  In my next post I will discuss what to do when the strategy recommends a new purchase.  I dont just jump in with both feet and buy, I wait until I get a signal (again obtained by reading the chart) before buying.  This is one of my wrinkles on the basic strategy.  This keeps me from over paying for an etf that is moving up quickly.  I will also touch on risk and returns on a later post.  Its important to know what to expect in terms of returns and its even more important to know what risk you are taking to obtain those returns.  There’s no free lunch.

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4 comments

  1. Erik · February 2, 2015

    Hi! Like your blog. I’m looking forward to follow your progress for the next couple of months. When will you go into detail on your own additional rules of investing?

    Best,
    e

    Like

    • Brucejedz · February 2, 2015

      Hi Erik,

      Thanks. As you can tell I try to keep things simple. I have been there and done that with most “trading” methods and aside from a very small extremely intuitive and disciplined few, trading day in a day out just doesn’t pay as well or that much better than a strategic approach to getting into a sector when its trending higher and getting out when it longer term run is over WITHOUT trying to predict the economy, what central banks will do, what the next big thing will be..etc.etc. I think good traders do make money, BUT unless one is committed to being in front of their screen day after day hour after hour to earn more than 10% plus per year, its not worth it. I mean if you can earn 10% annually by making trades at the beginning of each month or 12-13% trading all day every day, is the extra 2-3% worth the time commitment and risk? I don’t think so. As far as applying a little strategic approach to investing, I wait for an end of month signal and then look for a smart entry in the new asset class. Since there was no turnover in the top 3 Jan to Feb we didn’t do anything but sell off the 4-6 ranked investments because I am only going with the top 3 now. Keep an eye on Gold. That me be the next trending sector and is currently 4th on the rankings. Maybe in March it will be in the top 3 and I will look for and discuss a smart entry. –Bruce

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  2. Brian · February 2, 2015

    Great Blog Bruce,
    How refreshing to see such a simple approach. I’m curious how you gathered the returns on each ETF using Freestockcharts when you said, “Then using any charting service like http://www.freestockcharts.com I calculate each ETFs 1 month, 3 month, 6 month, and 12 month returns.” Could you please elaborate a bit more. What have been your returns using the GTAA 13 method?

    Thanks,
    Brian

    Like

    • Brucejedz · February 3, 2015

      Its very simple an it’s all based on the research and work I found on a few sites mentioned in previous blog posts with my little spin on entries and exits. Essentially you take the 1 month, 3 month, 6 month, and 12 months returns of a particular sector etf, average those results out and then rank the 13 choices 1-13 and either hold (if you are already long) or buy the top 3. I use this link to get my info but its very important to learn how to calculate them yourself. For example: if XXX has 1 month returns of 5%, 3 month 3%, 6 months 10% and 12 months 12%, then its average return for the purposes of this technique would be: 5+3+10+12=30 divided by 4 = 7.5%. Last I checked if you just held all 13, the 40 year average was around 12%. (19% if you only held the top 3) 2014 was around 6.6% and 2013 was 4.47% whereas holding the top 3 returned 28% and 9% in 13 and 14.

      https://docs.google.com/spreadsheets/d/1eXlfuY4g_bLw2tPdIvRZOYELux5FeAcGQjulBqy6Sec/edit#gid=206915515

      Like

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