This is a Blog that I wanted to get out ASAP because I hope it will help many Readers think about their Approach to 2015 and help with Planning. Obviously it will be beneficial if you get this before we get too far into 2015 !! At this stage, I won’t dwell on the reasons for having Trading Rules - I am sure I have hinted at this in bits of my Blogs, Website Text and Tweetering, but let’s just assume that ‘Rules’ are a good idea and move swiftly on to the Template. I tend to complete this document in Early January every year - I am never organised enough to get it nailed in December !! OK, it is stretching a point to call it a ‘Template’ - it is more an example of how I tend to do it. Essentially it is a few ‘Parameters’ for my Individual Accounts and then a list of ‘Rules’ which should help give me guidance - this is particularly valuable when markets are tough and you are at risk of losing your nerve and panicking. The Headings forming the Template below are the actual ones I use - I fill in the details that are appropriate for me and I suggest Readers can do a similar thing. You may have other Rules / Parameters that you want to add and loads of my specific fetishes which you may wish to delete - up to you of course and you can do whatever you like with my Headings.
I have just done a quick ‘Copy and Paste’ and a tidy up - obviously removing the Numbers that are appropriate to my Portfolio. The text below is pretty much as per my 2014 Rules Document and includes lots of stuff which I felt relevant back at the start of this year - I have done it this way to give examples of an Approach which Readers can take and because it was very quick and easy for me. I have added some notes into the Original Text and I have put these in italics. I also changed some early dates from 2014 to 2015 - maybe I should have left them as they were !! Rules / Parameters Template (where I put XX, enter your own figures etc. Much of this is specific to me, change as you need. I have done this to give you some inspiration) Name: XXX Date: XXth January 2015 v1.0 Target Annual Return on total Capital Invested for 2015 10% ***Enter whatever you feel is appropriate - refer to my Blog ‘Rule of 72’ for help if needed.*** Note - return on Total Exposure may be lower if using Spreadbet or other Leverage. The realistic minimum target here is 7% to 10% (Long Term gains on FTSE100 Index tend to be around 7% a year). A Target Return over 20% is very ambitious and probably unrealistic, unless you are taking on excessive Risk. Maximum Total Capital Investment for 2015 £XX,000 Note - this amount may be exceeded if new Capital put into Income Portfolio. Maximum Total Exposure for all Stockmarket activities (including legacy Unit Trust positions) but excluding Income Portfolio Total exposure to not exceed £XX,000. Note - this very much depends on how overall exposure grows naturally with profits. This max figure implies that if Total Exposure has reached this level, then new positions should not be initiated. In practice this should mean reduce Spreadbet Exposure if adding to ISA and Unit Trust etc. exposure. Cash could be moved into Income Portfolio (lower risk). Maximum Spreadbet Exposure for 2014 £XX,000 Note - this means do not add any new Exposure in Spreadbets if already have £XXk. It is ok to let Exposure grow naturally above this figure with profits but ensure 10% of any excess of £XXk is held in Cash Buffer in igIndex and at least 10% held elsewhere as cash ready for deployment if markets go nasty. For clarity, only open new Spreadbet positions if Exposure below £XXk. IGNORE THESE RULES AT YOUR PERIL - LEVERAGE CAN HURT BAD !! Individual Investment Sizes These are total exposures - i.e. include Spreadbet positions. Expressed here in terms of ‘Units’ for convenience. A Unit is assumed to be £XXX for 2015:
***NOTE - it may help to refer to my ‘Position Sizing’ Blogs for this bit (go to my Blog page and click on ‘October 2014‘ under ‘Categories‘ ***
Main ISA Portfolio
AIM Portfolio ***Note - this is clearly WheelieDealer specific - I have a funny little AIM account with TDDirect with a few stocks in it - this is more of an admin thing really - all of the stocks are in my Portfolio lists on the website.***
Spreadbets ***Note - Spreadbets and CFDs and Leverage are very dangerous - I have included this section as it is appropriate to WheelieDealer - I suggest you delete if not relevant. Inexperienced Investors should Steer well Clear.***
Unit Trusts ***Note - I left in some text from 2014 here to show you how you can use this Document. You might be aware that I did actually Dump Japan.***
Income Portfolio ***Note, similar to above, I have left in some text from my Document for 2014 to give Readers insight on how it can be used.***
Stop Losses Use Stop Losses on stocks that have the following features:
Hedging
Stock Classifications When a major market pullback is expected, e.g. prior to May and October, it can be difficult to decide which stocks to sell and which to hold. Experience indicates that certain types of stocks do not drop much in pullbacks and once the negativity is over, they tend to make further gains. Selling them and buying back is fraught with timing difficulties and often just increases dealing costs - and with the major risk that you are out of great stocks at the wrong time. To help address this issue, stocks to be classified into several types - it is only the ‘Cyclical’, ’Theme’ and ‘Innovative’ types that should be sold before a market fall - these tend to be the most volatile also. Other types should be considered individually with regard to Cyclical Risk - e.g. a recent IPO may be particularly Cyclical. The remaining portfolio should be hedged against as appropriate. Column created in ShareScope to record types - note, these classifications are also a proxy for volatility:
Risk Types To be fully considered before making any new investment and whilst holding to assessing whether or not to Hold and/or Sell.
Lessons to be Learned from Trading Mistakes ***Note - the text below has some historical stuff in it - I have kept it in but to be honest I might change for my Rules for 2015 - my views have changed on many aspects. This does however, give you insight into how you can use such a ‘Rules / Parameters’ document.***
Other Items to Consider ***Note - the text below has some historical stuff in it - I have kept it in but to be honest I might change for my Rules for 2015 - my views have changed on many aspects. This does however, give you insight into how you can use such a ‘Rules / Parameters’ document.***
Stockmarket Maxims
7 Comments
Mitesh Patel (chemistdude)
2/1/2015 12:28:52 am
Just wanted to say a quick thank you for creating this blog. I'm going to have an indepth read of all the posts. It's extremely nice that you pass your wisdom digitally for all to view on this great blog. I especially like how you strategise to avoid losses and minimise over leverage and set low but realistic expectations. Thanks again.
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WheelieDealer
2/1/2015 09:57:01 am
Hi Mitesh,
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29/4/2016 12:08:58 pm
Thank you for sharing this post. It is very useful of me.
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WheelieDealer
29/4/2016 11:56:55 pm
Hi CSFS - great that you liked the Post - cheers for the feedback, WD.
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Hi Wheelie,
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WheelieDealer
19/8/2016 09:42:57 pm
Hi Jake, thanks for the feedback. On the subject of P/Es, it is difficult when things get up way over 20 - I think it depends on many factors as you suggest to whether or not it can justify the rating - Growth Rate and Moat being key elements. Perhaps a useful approach is to stick a Trailing Stoploss on when things get a bit stretched but you think a Stock can keep going higher. I am planning a blog specifically about P/E ratios and Valuation in the near future.
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