Inspiration
Our strategy is largely inspired by the approach of John Maynard Keynes and, to some degree, of Mark Shipman.
Our strategy is largely inspired by the approach of John Maynard Keynes and, to some degree, of Mark Shipman.
Strategy
We hold only a small number of shares at any time. We buy shares that ar rising, and sell when they start to fall. If we get a tip about a share that is going to sparkle, we keep watch on it, and invest when the sparkle is well established. If it is not rising, we don’t buy. This way we aim to hold a portfolio that is always performing.
We hold only a small number of shares at any time. We buy shares that ar rising, and sell when they start to fall. If we get a tip about a share that is going to sparkle, we keep watch on it, and invest when the sparkle is well established. If it is not rising, we don’t buy. This way we aim to hold a portfolio that is always performing.
Rising means on an upwards-trend.
Falling means on a downwards trend.
Of course, as
well as trending up or down (or not trending), a security will also swing up and down within the trend parameters. We judge where the trend
paramaters are by drawing a Resistance Line joining all
the peaks and a Support Line joining all the bottoms. When a security hits the Resistance Line, we
often reduce our holding, and increase our holding again when it bounces off
the Support Line.
When a share crashes through the Resistance Line, or, more importantly, the Support Line, the alarm
bells sound. Sometimes, the event only stretches the Line, but when it is clear
that the Support Line is truly breached, we sell.
Keynes
Keynes had an
exceptional career as economist and Government adviser. He was the first
economist to become a best-seller. However, his greatest fortune was
accumulated by trading in shares and forex.
Unlike his
forebears, who invested in a wide basket of shares as an insurance against the
occasional failure, Keynes limited his investment to a small number of shares.
These he watched and traded in and out as the price rose and fell. Early in his
career, he borrowed money from parents, relatives and friends to start off an
investment fund. This fund was wiped out, but he went back to his relatives and
friends again to set up a second fund, which was extremely successful.
By holding
only a small number of shares, it is easy to keep watch on their progress and
dispose of any share that starts to fall, before too great a loss is suffered.
Similarly, one can buy back in when the share starts to rise again.
In Keynes’
day, trading was done through brokers, with rather hefty fees. Dealing in small
quantities of shares was not economical. Now, however, with automated exchanges
and brokers, an account can be started with a few hundred dollars.
Shipman
Mark Shipman,
in his book Big Money,
Little Effort presents a strategy for
determining when a share (or a market) is beginning to take off and when it is
heading into a decline. Shipman was the first Brit to start a Hedge Fund; he
was an extremely successful adviser and fund manager, until he decided to retire
and spend his days on a yacht in the Mediteranean. Well, he says he could
easily manage his Hedge Funds and give advise from his yacht, only that his
clients would expect him to be in an office from 9 to 5.
In his yacht,
he plugs in his laptop once a week, on Saturdays, and looks at the markets. It
takes him an hour to do his trading, placing his orders for opening on Monday
morning. He doesn’t look up prices on any other day, so as not to be influenced
by the “noise” that besets the market as speculators try to make a short-term
profit. He goes for a long term, or investment, strategy, rather than a trading
strategy, which means he sets out to judge the general trends rather than the
day-to-day fluctuations. He uses two Moving Averages (One longer and one shorter-term) to judge when a trend is starting and
ending.
He strongly
distrusts human judgement, and recommends that one always uses a system. The system
described in the book is suitable for an Investment Approach. A trading
approach would use shorter-term indicators.
As for keeping a balance, instead of selecting a
basket of shares, he trusts the fund managers to do the selection for him, and
investes in Exchange-Traded
Funds (ETFs).
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