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URL:  https://boards.fool.com/answer-1-still-beating-the-markets-32512861.aspx

Subject:  Answer 1: Still beating the markets Date:  12/10/2016  6:09 PM
Author:  OranjeMannetje Number:  2391 of 2419

Jason,

The following are answers to some of the questions that you've asked. Please keep some of the comments from my prior post in mind as you read these replies.

1) 1. Please have a look over at my excel file which tracks your results. Is it accurate? I plug in an initial starting capital of $100000 for example sake and get the account balances for the different time frames according to your stated IRR’s.

The end IRR of 10.45% is correct as shown in my Quicken over the entire time period. This would result in the dollar amount of $288,692 you show if you started with $100,000 and left it alone starting in February 2006.

Num DD's Drawdown Recovery Days Drawdown$ Peak1 Peak1Date Valley ValleyDate
1 21.88% $22,822.00 $104,315 31-Dec-06 $81,493 5-Aug-08
2 14.20% 414 $16,732.00 $117,862 14-Nov-09 $101,130 7-Aug-10
3 19.97% 274 $28,791.00 $144,192 6-Jul-11 $115,401 1-Oct-11

I think I've parsed out your table correctly, but it appears a little off. Regardless, this isn't how I've tracked my investment portfolios in the past. This may be easier to break out, and I'll try to do that in another post. It's also made a bit more difficult because as the market was falling I was still putting additional money into the market. Also, I have no good way to pinpoint the exact top and bottom unless it happens to be the end of the month. I only update prices manually, once per month, and don't download any quotes to fill in the rest of the month.

2. Drawdowns: Specifically in 2008 with the market crash, can you check how far your equity curve went into drawdown? The maximum peak to the minimum valley.

I'm going to have to make a rough guess at this point in time and say it was closer to a 30% drawdown starting in 2008. Again, it is kind of hard to tell because of the money added and/or taken out of the account. It also depended on how much I thought I could add to the account. I work in the oilfield, and during 2008 we were laying off people left and right and my job prospects factor in to available capital for future investments. In saying that though, as an example, if I was committed having each tranche set at $10,000 then I would top up if the resulting sales were only $8,000 and if the sales were $13,000 then that additional $3,000 was invested elsewhere. Thus, the starting value of each tranche was $10,000 for each quarter. This starting value has grown over time.

Please respond directly to me and maybe we could find a good way to figure this out using my Quicken data. You can reply to this post and then select the "E-Mail this Reply to the Author" and uncheck the "Post to this board" box. Any results would then be shared at a later date.

3. A question on the strategy, with fixed $ amounts when buying each of the 40 stocks and about not reinvesting the profit. If I use an example of $100000 initial capital, that would represent $2500 investment per stock. You mention you kept this the same, no matter if it had gains or losses.

This is only in regard to the next batch, and kind of alluded to in the prior answer. Say I started year 0 with $100,000. Each batch of 10 stocks would have been for a value as close to $2,500 as possible on date of purchase. Maybe I had a decent year in the market, and job prospects were good, so I decided that for year 1 that I would be able to up my dollar amount per stock to $2,750 ($110,000 total).
If at the end of year 0 the stocks had increased to $115,000 then I would take $5,000 out of the account to use elsewhere. Dividend that were accumulated were not factored into this and were swept out of the account.
If at the end of year 0 the stocks had decreased to $90,000 then I would have to come up with an additional $20,000 to get to my new desired purchase amount.
My target purchase amount has only grown over the years and I've never reduced it. Just to scale it, over the years for every $1,000 I invested in 2006 I now invest $2,300. The increases have not been consistent or steady - depending on job outlook and amount of cash available for investments.

3a. When did you start increasing the fixed amount per stock, or increasing your overall capital to invest? Example you may have started with $100,000 but gained confidence in the method so increased it to $200,000 and started investing $5000 per stock. Did your IRR take this into account?
I started to increase the amount invested per stock in 2007. When I selected a new amount I would stick with that for at least one year. IRR should factor the dates invested, the amount invested, dividends, etc.

3b. I’m trying to see what my results would be in percentage terms if I would have simply used $100,000 and fixed $2500 per contract throughout the whole 10+years. Would the IRR be the same, and equity amounts be somewhat accurate? It’s hard to get a picture if you don’t know how much new capital someone put in and when.

I agree, it is hard to know and I don't have a good answer for this. I suspect the result would have been different if there would have been no addition or withdrawal of funds from the account.

3c. Is there a reason why you chose not to reinvest the new profits or losses each year into the new stocks purchased? I think in the book he mentions to reinvest the new money into an equal set of stocks. Ex if you spent $25,000 for 10 stocks at $2500 each and after 1 year it turned to $40,000, why not invest in 10 new stocks at $4,000 each? I think your performance would be much greater no?

MFI is only one part of my overall investment portfolio.

3d. Do you have an idea of how the equity performance would have been had you done that? If I would have reinvested into the same formula, would it have been better or far worse?

My gut feeling is that my returns would have been higher if I left all the money in the account and just reinvested the entire amount.

3e. Instead you used that money to reinvest elsewhere? Should we assume for the calculation of your IRR that that portion of profits simply went into cash and stayed stagnant?

The IRR calculation doesn't know what happened to that withdrawn money. To my knowledge the IRR calculation only factors in dates, added funds, subtracted funds, and other income in the account. It is similar to the XIRR function in MS Excel.

3f. Obviously you would have had greater volatility, greater drawdowns in 2008 though and greater returns when things went your way.

I do think this strategy is pretty volatile. The volatility doesn't bother me since MFI is only one part of my overall portfolio.

That's it for the time being. I'll get to the rest of the questions another time.

cheers,
j
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