Investing Challenge - Speculative vs Couch Potato

[danibbler]

Ok, in reference to the other thread (I'll try to input the link here)

and given that msog has made his recommendations I am going to make up a model portfolio so that we can track how it all shakes out by April of 2013. I will also set up a Couch Potato Portfolio.

So, msog has the following recommendations but I don't know in what percentages unlike with the Canadian Couch Potato site:

Allana Potatsh is now C$0.57
Spanish Mountain Gold is now C$0.405
Wildcat Silver is now C$0.76

On the Couch Potato site they have:

XIC (20%) price is C$18.71
XWD (40%) price is C$23.35
XBB (40%) price is C$31.43

 

[johnnyone1]

^^^

This is a great idea, and I'm hoping, quite educational.

 

[danibbler]

Just a slight update:

Allana Potatsh is now C$0.46
Spanish Mountain Gold is now C$0.305
Wildcat Silver is now C$0.90


XIC (20%) price is C$18.66
XWD (40%) price is C$23.21
XBB (40%) price is C$31.58

Note that the ETFs have a distribution yield of well over 2%.

 

[danibbler]

A month later:

Allana Potatsh is now C$0.455
Spanish Mountain Gold is now C$0.30
Wildcat Silver is now C$0.79


XIC (20%) price is C$19.47
XWD (40%) price is C$24.25
XBB (40%) price is C$31.41

Note that the ETFs have a distribution yield of well over 2%.

 

[backrubman]

I don’t want to be negative and I think something like this could be a good exercise, but Mr. Speculative is being a Couch Potato also as there is no scaling in and out of positions based on price action and those are penny stocks (by definition as they are less than a dollar) whereas the ETFs are poor choices but at least do give some diversification and global exposure, so he is immediately more disadvantaged then the Couch Potato. Most institutional traders aren't even allowed to own these penny stocks as they are under $5. In both cases I see no “plan” here other than the dinosaur buy and hold and hope for the best (for both). Of course the choices aren't even remotely related, and no position sizes are given, even with these crazy limitations the speculator could do better by making the ratio weighted to whatever is performing and selling twice as much as they hold (to get net short) when the position starts to give up money.

To be more realistic the Couch Potato portfolio should be 20 positions or so, some dividend paying stocks, some fixed income, corporate bonds, etc. and the speculator should be able to scale in and out of as many positions, trade from the short side also and even use derivatives for leverage and risk management.

Or maybe I just completely missed the point of this?

 

[danibbler]

You`re missing the point because I did not put in the link to the other thread.

In the other thread, msog87 suggested the speculative stocks for johnnyone whereas I suggested the Couch Potato portfolio. This is supposed to end by April of next year. Let me find the link to the other thread.

Here it is:

https://terb.cc/vbulletin/showthread.php?391995-Investing-Assets-Held-in-a-TFSA

 

[Prophet]

To be more realistic the Couch Potato portfolio should be 20 positions or so, some dividend paying stocks, some fixed income, corporate bonds, etc. and the speculator should be able to scale in and out of as many positions, trade from the short side also and even use derivatives for leverage and risk management.

Or maybe I just completely missed the point of this?

No disrespect but no Couch Potato portfolio has 20 positions in it. The scholarship behind the investing approach has shown clearly the portfolio suggested is more than adequate.

It's also an investing approach. Intoducing speculative approaches as you describe would defeat the purpose. It's my opinion that if you became active like you describe, you'd fall behind the Couch Potato Strategy 75% or more of the time. There is no scholarship of which I'm aware that a speculator has the advantage you describe.

I'm more than curious to see if the stock picks net out positively percentage-wise by April.

 

[backrubman]

No disrespect but no Couch Potato portfolio has 20 positions in it.

And no disrespect to you but it really does have that many positions now with what is in those ETFs... Difference is you are paying a small MER on the ETF for consolidation and nothing more. The ETF will hold the course no matter what. Coming soon (well actually they are already here but expect them to get popular fast) are actively managed ETFs where someone will actually step aside or even take up short positions on your behalf when appropriate.

I love the idea of testing different strategies but even after reading the thread this seems like comparing randomness with randomness.

It's my opinion that if you became active like you describe, you'd fall behind the Couch Potato Strategy 75% or more of the time.

The skills of a an active professional trader will always yield more than a Couch Potato approach.

 

[Prophet]

The skills of a an active professional trader will always yield more than a Couch Potato approach.

Show me some proof. There is none.

 

[johnnyone1]

I'm tending to agree with Backrubman, It really isn't a very level playing field.

I did say back in August that I thought it was a great idea, but I wasn't thinking that the excercise was going to be quite so passively managed.

Back then I knew very little.

Now, having taken some courses, and done some research and active trading, I know a little more.

The flaw that I see in the challenge is that all three of the penny stocks are, at least, 3 to 5 years away from actual production. There are many milestones to pass before they start digging anything out of the ground. The share prices will rise and/or fall as each stage in the process passes. But the only chance, in the shorter term, for the share price to rise dramatically, is the revelation of some impressive exploration results or a merger or aquisition by another company.

The ETF's on the other hand have no such encumbrances. The holdings in each ETF have been chosen because there is a fair degree of certainty by the Fund Manager that they will perform in a positive manner and therefore.increase the value of the fund.

I still think it is a great idea to see how different investment strategies stack-up against each other, but it would make more sense if each portfolio was actively managed.

Just my rookie opinion.

J1

 

[danibbler]

And no disrespect to you but it really does have that many positions now with what is in those ETFs... Difference is you are paying a small MER on the ETF for consolidation and nothing more. The ETF will hold the course no matter what. Coming soon (well actually they are already here but expect them to get popular fast) are actively managed ETFs where someone will actually step aside or even take up short positions on your behalf when appropriate.

That would actually not be in the spirit of a Couch Potato Portfolio.

I love the idea of testing different strategies but even after reading the thread this seems like comparing randomness with randomness.

Not "random" because the speculative stocks were picked by someone who has done all of research necessary to back up their choice. If it was truly random, I'd ask a cat to do the choosing.

 

[danibbler]

I'm tending to agree with Backrubman, It really isn't a very level playing field.

I did say back in August that I thought it was a great idea, but I wasn't thinking that the excercise was going to be quite so passively managed.

This is a very scary thing to admit because it shows that you did not read the information provided in that thread.

The flaw that I see in the challenge is that all three of the penny stocks are, at least, 3 to 5 years away from actual production. There are many milestones to pass before they start digging anything out of the ground. The share prices will rise and/or fall as each stage in the process passes. But the only chance, in the shorter term, for the share price to rise dramatically, is the revelation of some impressive exploration results or a merger or aquisition by another company.

Bravo! And you must also have realized by now that if the results are bad or something else happens that the share price goes down, right?

The ETF's on the other hand have no such encumbrances. The holdings in each ETF have been chosen because there is a fair degree of certainty by the Fund Manager that they will perform in a positive manner and therefore.increase the value of the fund.

Ok, I don't know what you've been reading or who's been teaching you but apparently it's not anything to do with ETFs. What you have wrote is more in line with what a mutual fund is, not an ETF.

I still think it is a great idea to see how different investment strategies stack-up against each other, but it would make more sense if each portfolio was actively managed.

No, it does not make more sense. The Couch Potato Portfolio is meant more for those who cannot or should not actively manage their portfolio beyond simply choose which ETFs should be in the portfolio. This challenge was developed entirely in response to the fact that you did not have knowledge nor the time to do more than that.

The April deadline was because of something that msog said in that other thread. By that time, QE3 should be in full flow and other developments would help the speculative portfolio.

I'd like to know what you've done in the meantime since August.

 

[johnnyone1]

This is a very scary thing to admit because it shows that you did not read the information provided in that thread.

Hi danibbler,

As I said "it's just my rookie opinion".

I admit that I know very little about ETFs, because that hasn't been what I've been focussing on.

I'd like to know what you've done in the meantime since August.

I guess I have leaned more towards msog87's approach and gone with a more speculative strategy to this point.

I know that the majority of the advice in my TFSA thread was to play it safe and go the ETF or Mutual Fund route, and although I think this is good solid advice, it didn't really get my juices flowing. I've always been somewhat of a risk-taker -- calculated, not obliviously reckless. So I decided to take my $10k+ and invest it across a range of 10 fairly-advanced junior mining stocks. Most of these were purchased at, or within 25% of, their 52 week low sp.

To date: one of them was bought out, returning me an 87% profit; another I sold at a 12% profit, as I'd fallen out of like with it; A third has recently gone into limited production, which will increase to full steam ahead through 2013.

The other choices are all 1, 2, 3, 4 + years away from paydirt, but having done the research, I am happy with the choices I have made.

I will probably continue to add to my positions in these companies, and maybe others, as more funds become available.

I'm not really ready for any more specific public disclosure at this point.

J1

 

[backrubman]

Ok, I don't know what you've been reading or who's been teaching you but apparently it's not anything to do with ETFs. What you have wrote is more in line with what a mutual fund is, not an ETF.

Most ETFs can be thought of a Mutual Funds, the same holdings... The only difference is they are exchange traded (like stock) so better liquidity and lower MERs for the same exposure. Of course although they are the same at their core, you can't do covered writes on Mutual Funds to increase your yield, or use bracket orders or hedge or collar a large position or do many other things like you can with something that trades like stock.

The Couch Potato Portfolio is meant more for those who cannot or should not actively manage their portfolio beyond simply choose which ETFs should be in the portfolio. This challenge was developed entirely in response to the fact that you did not have knowledge nor the time to do more than that.

If their knowledge of the markets is that limited I don't think they are in a position to even choose and should leave that to someone else. Both these portfolios only consider the long side, one has global and diverse exposure and the other is a penny stock gamble of picks that if they do succeed would require more time than you are giving them to come online as these junior companies need time to develop but I agree they could rise for other reasons (the tide raises all ships).

I'd like to know what you've done in the meantime since August.

I been regularly taking money out of the ForEx market, being long or short various crosses EUR, AUD, CAD, USD, NOK, JPY as it suits me (and from minute to minute, day to day). But I also trade futures and options. Before I put on an options position I already know just when and how I will have to adjust it for every possibility so it is exceptionally rare to exit at a loss, the worst I usually do is break even and have a lot of fun. Oddly it is still possible to find zero risk collars and this is where most capital goes for consistent income and even that outperforms the market and the outcome is a mathematical certainty as it was when the trade was created. Of course this requires holding the stock and I almost never buy stock directly, I would rather sell naked puts and be paid to buy it (or do risk reversals). Once I have the stock put to me, I want a zero (or very low cost) collar on it as I'm not interested in the alpha from a stock position, just give me the dividends without the market exposure risk, thank you and when I tire of it, I will aggressively write calls (collecting the premium) again and again until it's called away. It's a elegant strategy that works. Last week I went mostly flat (except for long term positions where the outcome is a mathematical certainty) as I will be on an extended vacation with poor connectivity and better things to do with my time. I also find it difficult to trade when away as I am used to 6 monitors for a total view of the battlefield.

 

[danibbler]

LOL, backrubman, you should start a new thread on how you got into this. You've only given hints in various threads here and there.

 

[danibbler]

And, time for another look:

Allana Potatsh is now C$0.55
Spanish Mountain Gold is now C$0.27
Wildcat Silver is now C$0.96


XIC (20%) price is C$20.10
XWD (40%) price is C$25.35
XBB (40%) price is C$31.25

Note that the ETFs have a distribution yield of well over 2%.

 

[danibbler]

And, time for another look:

Allana Potatsh is now C$0.475
Spanish Mountain Gold is now C$0.155
Wildcat Silver is now C$0.70


XIC (20%) price is C$20.35
XWD (40%) price is C$27.09
XBB (40%) price is C$31.22

Note that the ETFs have a distribution yield of well over 2%.

 

[danibbler]

Ok, this is the last time we will be looking at this. Why? Because msog said to put money down on the speculative stocks and hold them until April so the time is up.

How did things go? Frankly, if anyone went the speculative route, they got crushed badly by over 50%.

Allana Potatsh is now C$0.37
Spanish Mountain Gold is now C$0.115
Wildcat Silver is now C$0.37


XIC (20%) price is C$19.05
XWD (40%) price is C$26.83
XBB (40%) price is C$31.65

Note that the ETFs have a distribution yield of well over 2%.