This is my first post. I have been a member here for about 18 months, very happy with the system, I have all my SMSF and a private portfolio which I manage following the rules as mechanically as I can (after a few costly deviations which I have since ironed out!).
The question I have for members, and Gary and David if they would comment, is that I will be topping up my private portfolio shortly and as such will have a cash injection which I want to get into the market and aligned with the system and in the market “following the rules”, but I am struggling with the best approach. Numbers as follows -
Current portfolio - 10 equal (roughly) weighted positions, 99% invested,portfolio value ~$56,000.
Cash injection - $100,000.
The funds should be landing in about two weeks.
The way I see it, there are a few options;
- Top up all open positions to get the capital into the market ASAP. Keeps positions equal weighted but doesn’t follow entry rules. Gets capital into the market ASAP.
- Top up only the BAP positions as these are the current buys. Follows entry rules but dramatically skews the weighting in favour of BAP positions. Then open new positions at the new equal weighting (after following sell signals when they land). Gets some new capital into the market, skews the equal weighting for a while.
- Top up only BAP positions, liquidate everything else. Then follow entry rules for new positions, equal weighted. Takes capital out of the market but keeps weighting equal and follows entry rules.
My thoughts are either 1 or 2 above, but I would be interested in other’s opinions or alternative ideas.
My method would be to add to the open BAP positions up to the 1/10th target level and keep the balance available in cash until the sales occur and then act on the available signals. The equal weighting for me would be a lower priority than following the signals.
I have just added $60k capital to an existing $140k SPA3 Investor equal weighted portfolio (now total $200k)
Please note that the method you choose is up to you, this is just what I have done.
The method I am using is the same as your Option 2. In the past 3 weeks I have added capital to 3 existing stocks which had current BAP’s and I had 1 sell, so the new buy is at the new equal weighting amount. This has used approx. 37% of the $60k additional capital (in 3 weeks). Not sure how long it will take to allocate the remaining capital but I’m very comfortable in following this particular method and waiting for the signals to show me the way. I have also added this method to my trading plan should I need to add capital again the future.
Good afternoon Ian,
Welcome to the Forum
In keeping with the mechanical nature of SPA3 Investor, this would mean strictly following entry and exit signals as they occur. This is the same for when starting a portfolio or adding capital to an existing portfolio.
So, in this situation after the injection of capital you could add to your existing positions whilst they are below their respective Action Price, eg, adding 1/10th of the new capital ($10,000) to any open (BAP) positions.
For the remaining open positions, you can wait until they trigger an exit signal and then allocate the relevant amount of new capital and available cash into the next subsequent new entry signal. It might take several months for some of the open trades to close, so you’ll be less than fully invested during that time.
Another option might be to start a second portfolio depending on how you “feel” with respect to your current position sizing. If you’re doubling or tripling your position sizing you might find it more challenging which could open up the door to trading errors in that portfolio. Hence starting a second portfolio with more “comfortable” position sizing might be preferable.
If you did do that, it would create a bit of extra work whilst acquiring the skills necessary to trade a larger account size.
Ideally, you’re Investment plan will document how you will handle the addition of new capital into your portfolio. These are just a couple of suggestions.
Here’s a link to a recent Connect & Grow Webinar in which this topic is discussed in more detail. The exact timing of the conversation is between 1:03:00 and 1:09:00.
Great questions Ian
I have only been involved for 6-7 month I also started like yourself with a 50 K Equal wt portfolio for myself and am at a position of wanting to inject more funds .
- Before expressing opinion on your question i would just like to add that as it happened in the last 6-7 month I had to sale (and Buy new) some 10 or 12 stocks, some sold at a loss up to about 3% loss and some at a gain some were at about 30+% so the “equality” is no longer maintained, because when i Buy the new BUY or BAP i generally buy for the sum i received from the sale. (some up some down),
I wonder if that is what i suppose to do? (especially as i want to deploy all my funds in the market and I do not want to get cash out. I want to keep at the most $ 100 dollars in cash reserve.)
I do not to want to get funds out of the market . I am keen to reinvest and grow the account. ( in the time that i am in this program “paper gain” on the 10 stock portfolio is about 12-15% over all and no other investment give me that sort of return. for such a short time frame )
NOTE i believe there is a Capital gain / loss tax implications on the sale if we have not held the stock for more then a year we pay a much higher tax on gains. (A loss is always carried forward and can be used to offset the gains) But we are NOT in control of the BUY and Sale ( the program is!!! ). With other share investment that i have i am holding stock for longer i sale and buy for different reason / rational and always do so at a relative equal values (same dollar value ), balance one against another.
I Will have to ask my accountant to help me sort these sales when we do the tax return for the year. ( Through the system we use i suspect we are more of a “Traders” not " “investors” and i suspect have different tax implications )
- The other point to keep in mind is that with both BUY options you are considering ( top up of your current holding ) when these shares are sold you will have have to calculate capital gain or loss from 2 different BUY prices !!
so to your 3 options
I will not contemplate or support to cash up any stock that is not a “sale” Status
of the other 2 options to employ will depend on personal priorities.
Buying only BAP and Buy advice will take longer to deploy and have you in “Cash on hand” position for longer. while top all your 10 stock at once will see you fully invested immediately !!.
One thing is definitely using “a fixed cost trade” have minimised the cost of such activity considerably !!! ( that is Selfwealth 9.50 for trade in compression to say CBA where trade is based on % of the dollars value of trade )
Thank you everyone for your considered replies! It seems,according to the Spa3 Investor rules based philosophy, that everyone is of a similar opinion - add to existing BAP positions, and wait until current open positions close before taking the next buy signal at the new position size, which was how I was reconciling it too.
However…as we know it may take quite some time to get the capital into the market, especially in a robust bull market which we seem to be experiencing presently.
As the system does not really have any research and methodology for this quite unique situation, which will involve a transition period during which position sizes are inevitably going to vary, I have thought of another approach which follows the entry and exit signals, and gets the capital into the market sooner, and transitions the position sizes to the new sizes at the earliest opportunity.
4). Top up existing BAP positions to the new position size (~$15,600). (Yes it does create a second buy date and price but that is able to be calculated for capital gains). Purchase, at the new position size ($15,600), any other BAP signals at the time - thereby increasing the amount of positions in the portfolio. Continue to purchase new buy signals as they occur (at the new position size), again increasing the amount of positions, until cash is used up or there are no more signals. Sell positions as they present and re -invest the funds at the new capital allocation going forward, transitioning the portfolio back to an equal weighted, ten position account. Yes it deviates from the usual scenario in that position sizes will not be equal for a period, and the amount of positions will exceed the chosen number (ten) for a period but that will only be for a while until the new position size works its way through the system following the signals, but the portfolio will be following the signals and fully invested more quickly than waiting for sells to get cash into new positions. All other methods also have an unequal weighting of positions during a transition stage.
@ David, thanks for your answer, I am reluctant to start a new portfolio as to me it just seems like extra work and extra reporting, and in essence is similar to increasing the mount of positions in an existing portfolio. As far as trading errors go, I do all my buying and selling at open to simplify trading, and my positions in my SMSF (also Spa3 investor) are far greater than this portfolio so I have experience with placing larger orders.
Interested in everyone’s feedback!
My 2 cents worth.
I would listen more to a David if only that his thoughts would be more aligned to the SWS system and the probabilities. Having 2 portfolios of different stocks is the quickest way to get your money into the market rather than waiting for open positions to replace closed positions. You could top up the bap positions and move them into the new portfolio and if you were only interested in 10 positions max then you could sell a smaller position if an 11th position became available and put the money plus extra to create a new 10th position. Having 2 portfolios brings you closer to the index that is benchmarked, however your money is still earning more than just sitting on the sidelines for an indefinite period earning nothing. Long term it makes little difference, and on the basis of picking 10 positions as the sweet spot, then why not 9 or 8 which is even sweeter? (as researched)
Yes I agree with this Phillip