No. of Recommendations: 4
Rayvt (241560)

You have raised lots of points and I will do my best to answer them.

My Sell-to-Buy system might be relevant to this thread, as it deals with the selling dilemma:

This set of rules is almost completely hindsight bias and Look-Ahead Bias, and hence useless.

The rules were developed in hindsight 5 years ago on the basis of analysing the previous 5 years of data.

Since then they have continued refinement and I am currently using them with great effect on four real

portfolios with great results.

8. Sell all on market crash (10/10/2008 and 3/3/2009).
Define "market crash" -- in such as way that it can be identified at the time, and not just in hindsight. Do

you mean to sell _before_ the crash? Good luck being able to predict the near-term future.
Or do you mean to sell _after_ the crash? Which means that you lock in your loss and miss out on the gain if

you've sold at the bottom.

I identify a market crash by tracking the trend of the index value. I declare a crash when the trend of the

previous 20 days reaches the -0.5% per day mark. You then start buying again from the bottom of the market.

So after you've sold, how do you know when to buy again? These rules don't say anything about that.

Just carry on with whatever stock picking system you use, but apply the rules I have given about whether to buy and what to sell.

To buy your 4th holding, only do so if you best holding is showing at least 5% profit.
Huh? What does stock #1 (hest holding) have to do with stock #4?
Where does the money come from to buy stock #4?

There is no connection between the stocks. The purpose is to take profit when available at the time you

want to buy another, so stock#4 is bought from the proceeds of selling the best of the three holdings (all

stock purchases are made to the same purchase value). Profits are retained and grow so that you can buy an

additional holding. I continue to update the dataset for my 5-year-to-date model each day and the current

results now have 11 holdings from the original 3 stating holdings.

Track your stoploss companies (including those you did not buy) and rebuy if they fall below 50% of

original price.
What does "those you did not buy" mean? Is this (these?) the #4(s) that you didn't buy because nothing went

up 5% (#3)?

Yes, keep track of ALL those that fall to 40% loss (those you had bought and those you could not buy either

because you had no holdings at >5% profit or because you had not accumulated sufficient in bank.)

And why, oh why would you buy a stock that lost 50%???? Some sort of belief that what goes down must come

up? 'cause that's not true at all.

Are you sure they don't recover? Except for a few disasters that has not been my experience and, contrary

to popular belief, modelling has demonstrated the very significant benefit of rebuy on 50% loss. The 5year

model currently shows 7 holdings without the rebuy, but 11 with rebuy. All the rebuys made a profit of between 16.4% and 47.3%.

How long do you keep track of the #4 stocks that you haven't bought yet? Do you periodically re-evaluate?

If not, why not? It doesn't make sense to buy a stock _now_ just because you liked it a year ago. IF you

periodically re-evaluate the desirability of the (unbought) #4, why wouldn't you also periodically re-

evaluate the other 3 stocks that you did buy?

I have tried to develop a simple system which avoids the difficult issue of re-evaluation. That is a

fundamental part of the system. It may not make sense but it works.

These rules only say to sell if a stock loses 40%, or if the market crashes. That seems rather

incomplete. What if a stock goes nowhere, or goes down 10%=20% and stays there?

If a stock goes nowhere it simply remains a current holding until such time as it meets the sell criteria.

This means that some stocks are held for a long time. The longest held in the 5-year model, Kazakhmys,

lasted 707 days. The shortest was 4 days and the median 111 days (a total of 71 were bought).

Interestingly, Kazakhmys is a case in point as it was sold on 26 September 2011 as a 40% stoploss, but later

created a rebuy on 50% loss on 28 August 2012 which was sold at 18.2% profit after 22 days on 18 September

It is also worth pointing out that as a long-term stock, Kazakhmys added significant dividends to the bank.
Incidentally, I only apply the rebuy once - if the rebuy hits stoploss cash it in but do not rebuy again.

I hope this makes the process clear enough for you to try it.

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