Hi Geoff.
Thankyou for the detailed reply.
Will look at esuperfund, Icare Super as my circumstances are different due to starting Pension phase 1 July.
Has anyone else had dealings with Quick SMSF Accountants in Melb?
SMSF Auditor | Self Managed Super Fund | Quick SMSF Accountants
Cheers Mark
Hi All
Further to Retirement . After now deciding to look after my own superfund .I am now confronted with phasing out my existing portfolio, on exits signals to create 2 equal weighted by 9 position sized portfolios .
My Question is , Strategy? I’m looking for suggestions (disclaimer not advice )
An example say $1,000,000 . i would start off with $15,000 position sizes until all position are filled and on each exit, i would then re enter with sum of $25,000 and follow the same process all the way to $55,500 purchases ,to fill the portfolio’s .
I know what your thinking ,just take $55,500 positions and fill your Portfolios and be done with it!
The short answer is I’m scared.
I await trembling for your responses
Terry
This is a common dilemma. The way to get to feel unscared is to trade with what you are comfortable with and increase the amounts you become comfortable with as your confidence grows. Currently, your ‘scarediness’
outweighs your logic and it becomes virtually impossible for you to start off with what you would consider to be large position sizes. The fact you are starting with 2 portfolios of 9 (in ASX stocks I presume) means that you figure that you are spreading your risk. This actually degrades the edge, as the sweet spot is 6-8 or 9 positions in 1 portfolio. So in your example the position size should be around $110k (really scary). You will (or should) still make good money with what you propose, however, if it makes you feel any better, most investors suffer from the same thought processes and until you become comfortable with being totally mechanical, you will, with most others, feel this way. I know I do, but the path to liberation is by religiously executing with position sizes that you are comfortable with until the fears subside. The example you cite may work but will take a long time, and a heavy drawdown may (probably will) be worse on the more recent positions as they will have greater value, so a larger drawdown than all equally weighted.
Thanks Phillip
I shall ponder your response
Hi Terry,
I thought I’d jump in here to help provide some context for what is a very good question that all members will need to address at some stage.
Since you’ve retired, your current investment horizon may well be another 20+ years, so there’s plenty of time to develop the necessary mindset skills to find your own “comfort zone”.
As Phillip points out for optimal performance a portfolio of between 6-10 stocks could be used, with the longer term aim of outperforming the benchmark by 4-5% p.a. over a rolling 5 year period.
Curating a portfolio like this requires some effort with respect to skills acquisition, mainly around mindset and overcoming any fears that may impact your ability to follow your plan.
It is certainly more challenging psychologically learning to curate a 6-8 position portfolio than it is a 10-12 position portfolio, or even a 12-15 position portfolio when investing $1,000,000. This is mainly due to the trade size of each position.
So, I think the question for all members to address is, “What is my comfort zone with individual position sizes and how do I find it?”
Just like the car we drive has a top speed, it doesn’t mean that we should drive it at those speeds. Whilst being unsafe, we’d also find that we’re lacking in key driving skills which would unfortunately only become evident when it meant the most.
Successful investing is about careful planning so that you can arrive at your destination without taking unnecessary risks at your current level of skill. The risk to SWS members is that they overestimate their “driving skills” and start their journey with a fully loaded car and put the pedal to the metal……figuratively speaking.
So the safest way to begin, is to think about your destination….your investing goal for where you are currently in your life.
Bearing in mind the number one goal of SPA3 Investor is to avoid large Bear markets, then a suitable goal might be to just avoid large Bear markets.
Experiencing a large Bear market might be the equivalent of driving off the side of the road and rolling a car. How do you lessen the chances of that?
Start slow and learn to “drive”……take some “driving lessons” and learn to be a patient and safe driver.
What is a safe driver? (What is a successful investor?)
(The driving analogy could be expanded to define your goal as a driver. Is it to be a safe F1, touring-car racer or suburbia driver? Skill level requirement would be different.)
Someone that can calmly and safely follow a process that is in alignment with their current skill set relative to the goals to be achieved. Years ago, L-Plate and P-Plate drivers used to only be allowed to travel at 80kmph as a maximum whilst they developed their driving skills.
This is a prudent way to start, by reducing risk and the potential to cause harm until their breadth of experience, and skill, increases.
A formula 1 race car driver spends countless hours practicing and refining their skills. They didn’t start off as a formula 1 driver, many starting as youngsters with a go-kart before working their way through the various racing grades. Each grade requiring learning new skills and procedures and always with a focus on safety.
So, What is your goal? Is it to be a formula 1 race car driver? Perhaps being a competent and confident suburban driver is where you operate best? It doesn’t matter as long as that’s in alignment with your goals?
Even formula 1 drivers started off with L-plates.So, as a learner or P-plate investor what approach could you consider to take some risk, but still operate in a relative field of safety?
Here are a few suggestions:
Start with only 10% of the capital that you might have available to invest with SPA3 Investor.
Start a portfolio with 10-12 positions to begin with…….even 12-15 if it helps you to feel safe and in control and reduces any feelings of fear. More positions reduces trade size per position.
Whilst curating a portfolio of 10-12 positions mightn’t provide quite as high returns as a portfolio of 6-8 stocks, it should still provide plenty of growth and less drawdown.
(Drawdown for most equals pain. You could reduce that “pain” further, by running a 12-15 position portfolio albeit with slightly less performance but still achieve returns of around 2% p.a. more than the benchmark over a rolling 5 year period)
Measure your effectiveness as a “driver” by keeping a record of your progress. Get someone to check your records and provide feedback……noting market conditions as well. (Complete the 20 trades exercise in the SPA3 Investor Mindset lessons)
A key learning from this self-monitoring is to help you become aware of your current thoughts, feelings and emotions, since these will drive your actions. If you are feeling worried, stressed, anxious and fearful it is important that you acknowledge that and try to uncover the reasons behind that.
Often it is a matter of having position sizes that are too large. Even well experienced investors can have limits when they too start to feel a little on edge. It’s just feedback that we all need to be aware of as it is telling us we’ve reached the limit of our current skill set……we’ve still got some more work to do.
Gary included some great tips on how to do this in his recent forum post which I’ve included here:
The trick is to redefine what we allow to be harmful to us so that we can overcome the potential emotional pain on an ongoing basis. This means defining ‘right’ and ‘wrong’ acts with respect to trading.
‘Right’ is following the rules of your Investment Plan, ‘wrong’ is breaking them, regardless of the outcome of each and every trade.
You will do this if you have a big picture perspective that firstly understands and then trusts the Edge over a large sample of trades.
How can you grow this trust? Initially from empirical evidence. And then from flawless execution of the Edge yourself.
The easiest and best place to study the empirical evidence is the real-money public portfolios that I trade on the ASX and US markets (which you can download into your instance of Portfolio Manager in Beyond Charts).
The second best place is the training, education and historical research to truly understand the importance and magic of what a Statistical Edge is and what it means.
Then it’s up to you to surrender to the consistent process that produces the Edge. How? By completely accepting the predefined the risk of each and every position that is opened and that remains open in a portfolio. And then objectively exiting positions when exit signals occur.
If you have difficulty doing this with your current portfolio, then execute a portfolio with a smaller amount of money that is big enough to mean something to you but not too big that it causes you to fear the outcomes of each trade, that is, allowing the 4 primary fears to affect the execution of your objective mechanical rules…
Your most important task for the long-term is it to acquire the mental skills of consistency and objectivity - these will liberate you to execute the Edge as is.
To summarise:
- Know your investing horizon.
- Successful investing is about finding your own comfort zone.
- It will take time to establish this. Be patient and surrender to the process.
- It will require some effort. Be accountable.
- The long term is a continuum of rolling 5 year periods.
- Start small. Monitor your progress and be patient.
- Continue learning.
I hope this helps.
Regards,
David.
Hi.
Just wanting to add that I have been using the Core & Satellite strategy. I have found that this has been good learning for me over the last couple of years in that it has reduced my position sizes in the satellite portfolio while still having all my superannuation funds invested. I feel I have been a P-plater.
That said, I am now thinking of moving it all to equal weighted stocks. I have found that I am no longer worried and thinking of how ‘things’ will develop. I actually trust the system - Hooray!
Lindy.
Great work Lindy!
It can take a little while to find that zone where you trust the system, and the approach that you’ve used is exactly the right way to do it.
Start small and use the Core-Satellite portfolio model as a guide and then as you become a little more skilled, you can start to re-weight the portfolios.
Well done on your journey so far, and if you haven’t done so already grab yourself a copy of Mark Douglas’ Trading in the Zone. It’ll really help to cement your learning so far.
Regards,
David.
Thanks David
Thanks for reinforcing my thinking.
and well done Lindy
terry
Another question with Core satellite strategy.
IJH has a volume 593 on the 15th june .If the market suddenly turned Bearish would the low liquidity make the stock hard to Sell? As opposed to Seek with 848908 Volume.
Terry
I would say that if the market became bearish and volatility rose, then volume would rise as well. If you had a relatively large position (1000 units +) in one index ETF like IJH on the ASX then your position take some time to sell (not ideal if the price is dropping) You could always split into 2 or 3 index ETF’s. Also, as IJH is a US index ETF the price you pay for buy and sell is also affected by the aud/usd exchange rate at the time of transacting. If you want to diversify in the US with a large sum, you may be better off researching to do it directly in the US with US dollars. Volume in the US averages a volume around a million per day.
Hi Terry.
I invest in IJH on the US market through Saxo. I also have an SPA3 Investor portfolio in the US, and another in Australia.
Lindy.
The market maker usually has to provide liquidity with a lot of these ETFs so it’s not usually as bad as it appears. That said I never transact on ETFs first thing in the morning or in the closing auction.
Nick, It seems to be that in an illiquid market, when you try to buy/sell at the current price, the price changes just ever so slightly by the time you hit the button. Just sayin’