Generating Income From 200k?
Discussion
shopper150 said:
The bulletin board data concept sounds interesting, what do you mean?
Are there any opportunities around at the moment ?
The bulletin board trade is long gone. It arose because people would publish the orders they had placed with their new, state of the art online broker but had no idea that all these early trading platforms were were emailers and that dockets were still being printed in a dealing desk and manually executed one by one by a dealer. So, over a weekend a tip on a tech stock would appear on the Internet, the bulletin boards would go into a frenzy and everyone would publish how much stock they had ordered for the Monday open. All their orders sat in huge reams of dockets on Schwab et als dealing desks from 8am until they were finally filled by as late as 10am. What I would do is actually telephone the dealing desk ( I had the mobile numbers of several dealers I used to work with) and give my order at 8am the old fashioned way. I'd be filled instantly and be happy in the knowledge that for the next two hours the backlog of retail orders would drive the stock up and then I'd sell into the end of that flow. For about 18 months it was the easiest money I've ever made. One trade on a Monday morning and then all week free. The most daft thing I ever saw was that the people on bulletin boards would see my order when it was published later and start telling everyone that it was an institutional trade and that the 'big boys' had finally caught up with their retail genius and piling in late. Are there any opportunities around at the moment ?
The arb I've been doing the last couple of years is on XD payments on UK blue chips. But the recent market turmoil has blown that apart plus the yields are getting too low now to make it worthwhile.
Jon39 said:
My story of 2015 is shown in the chart further up this page.
Fund = + 7.56%
FTSE All-Share = -2.50%
To achieve that sort of differential you must surely have been making a big bet of some kind - for instance being completely out of, say, oil/commodities or emerging markets??Fund = + 7.56%
FTSE All-Share = -2.50%
And I guess I should point out your figures aren't comparing like-for-like - which you have, to be fair, mentioned in a tiny note under the graph. "Fund" includes dividend income whereas the published FTSE index figures exclude about +3.5% of dividend income.
Ozzie Osmond said:
To achieve that sort of differential you must surely have been making a big bet of some kind - for instance being completely out of, say, oil/commodities or emerging markets??
And I guess I should point out your figures aren't comparing like-for-like - which you have, to be fair, mentioned in a tiny note under the graph. "Fund" includes dividend income whereas the published FTSE index figures exclude about +3.5% of dividend income.
And I guess I should point out your figures aren't comparing like-for-like - which you have, to be fair, mentioned in a tiny note under the graph. "Fund" includes dividend income whereas the published FTSE index figures exclude about +3.5% of dividend income.
Well done for noticing my figures include dividends received. This of course is a helpful cheat, but does represent the actual overall result.
Although my holdings are mostly FTSE 100 companies, I do use the All-Share Index for comparison.
On one hand I am being helped by including dividends, but interestingly during 2015, the comparison would have looked much better against the FTSE 100.
FTSE All-Share = -2.50%
FTSE 100 = -4.93%.
You are quite right, I have never invested in Commodities or Emerging Markets.
For a long-term fund, Commodities are just too cyclical. There is no need for Emerging Markets, because many of the large FTSE 100 companies are already doing business in those markets, so shareholders already have exposure.
I do hold one of the oil majors and also an explorer. The major lost 13.87% last year so not too bad under the circumstances, but the explorer may be doomed. Oh well, you cannot always expect winners, and my luck continues because it is not one of the main holdings, so does not really matter.
The overall performance is now dominated by some of the companies, because they have grown well for a very long time. Many investors would sell when holdings become top heavy, but with gradual progressive performance and large scale businesses, I am able to carry the additional risk.
The indicator that works for me, is repeatedly running ahead of the market index. When that occurs, the holdings within any fund must be about right. Trying to buy and sell short-term, attempting to guess the market, is not something that I am capable of.
Edited by Jon39 on Sunday 31st January 21:09
DonkeyApple said:
shopper150 said:
The bulletin board data concept sounds interesting, what do you mean?
Are there any opportunities around at the moment ?
The bulletin board trade is long gone. It arose because people would publish the orders they had placed with their new, state of the art online broker but had no idea that all these early trading platforms were were emailers and that dockets were still being printed in a dealing desk and manually executed one by one by a dealer. So, over a weekend a tip on a tech stock would appear on the Internet, the bulletin boards would go into a frenzy and everyone would publish how much stock they had ordered for the Monday open. All their orders sat in huge reams of dockets on Schwab et als dealing desks from 8am until they were finally filled by as late as 10am. What I would do is actually telephone the dealing desk ( I had the mobile numbers of several dealers I used to work with) and give my order at 8am the old fashioned way. I'd be filled instantly and be happy in the knowledge that for the next two hours the backlog of retail orders would drive the stock up and then I'd sell into the end of that flow. For about 18 months it was the easiest money I've ever made. One trade on a Monday morning and then all week free. The most daft thing I ever saw was that the people on bulletin boards would see my order when it was published later and start telling everyone that it was an institutional trade and that the 'big boys' had finally caught up with their retail genius and piling in late. Are there any opportunities around at the moment ?
The arb I've been doing the last couple of years is on XD payments on UK blue chips. But the recent market turmoil has blown that apart plus the yields are getting too low now to make it worthwhile.
Jon39 said:
DonkeyApple,
I assume that we must be using completely different investment strategies. I have never used futures or derivatives, so have hardly any knowledge.
Having been very fortunate to beat the market over a long period, with an almost unchanged fund, I do appreciate it not being time consuming. Fifteen minutes at the end of each business week, to do a valuation is fine. After reading your last post, I expect you would even want to automate that process, but I do need to have some involvement!
If you are happy to do so, I would be interested to know what are the real long-term returns (percentages not money), that are achievable by participants of the futures and derivatives market.
Using the measurement system that I use, and looking just look at 2015 (I know one year may not be representative). Starting the year equities + cash for use. Ending the year, equities + cash + dividends.
With derivatives I presume it would be; Starting the year with contracts open + cash for use. Ending the year, Contracts open + cash + dividends (would there be any?).
My story of 2015 is shown in the chart further up this page.
Fund = + 7.56%
FTSE All-Share = -2.50%
What result would the average derivatives trader have obtained in comparison?
Thank you.
It's a near impossible question to answer. The reason why most people lose when trading derivatives is due to the gearing. They over leverage and often combine that with over trading and it just becomes gambling at that point. I assume that we must be using completely different investment strategies. I have never used futures or derivatives, so have hardly any knowledge.
Having been very fortunate to beat the market over a long period, with an almost unchanged fund, I do appreciate it not being time consuming. Fifteen minutes at the end of each business week, to do a valuation is fine. After reading your last post, I expect you would even want to automate that process, but I do need to have some involvement!
If you are happy to do so, I would be interested to know what are the real long-term returns (percentages not money), that are achievable by participants of the futures and derivatives market.
Using the measurement system that I use, and looking just look at 2015 (I know one year may not be representative). Starting the year equities + cash for use. Ending the year, equities + cash + dividends.
With derivatives I presume it would be; Starting the year with contracts open + cash for use. Ending the year, Contracts open + cash + dividends (would there be any?).
My story of 2015 is shown in the chart further up this page.
Fund = + 7.56%
FTSE All-Share = -2.50%
What result would the average derivatives trader have obtained in comparison?
Thank you.
Edited by Jon39 on Saturday 30th January 16:36
What I mainly do is arbitrage. For that particular strategy as you were trading the index then you have to use futures. The key is to not wind up the exposure. I'm using derivatives for all their benefits other than leverage. In this case I used the spread bet firms to acquire additional liquidity from their books as there isn't/wasn't much volume in the futures market at Best at many times.
With the dividend strategy it's essential to use OTC equities as the 0.5% stamp duty kills any arbitrage opportunity.
But the kind of arbitrage trades that I historically do are ones created by institutional flows and are only opportunities in small size so your pot can never be all that big.
For example, another type of arb that I've done over the years is to trade investment trust NAV discounts when they get widened or shortened by a pension fund moving in or out of a more illiquid fund in size. There is only very limited liquidity and you are locking the differential by hedging with a comparable trust or index. This strategy will produce 20-40% a year but only ever on a small pot. It's non scaleable.
The dividend trades will produce a similar return but you are also beholden to best bid and offer liquidity and returns fall as yield falls and it requires a stable market to be able to guage the flows so you would be using it now or any time soon.
The futures trade based on the tick up of the most dominant ftse100 stocks is long since dead. Proper electronic trading and massive algo vols have changed the way the market works and no retail system could ever be quick enough to spot that kind of opportunity and capitalise on it. And the bulletin board stuff was an accidental moment in time but the biggest and easiest opportunity I've ever seen in my life.
In a market like now I will simply be sitting and waiting for the sentiment change and then I will go long on leverage the core holdings that I have in my investment portfolio and accelerate the bounce on the oversold markets. That might be this year, it might be next.
For the last 20 years my personal strategy has been to use up PEP/ISA allowances and pension contributions and to simply invest in trackers on key markets. I certainly don't have either the time or the ability to select individual equities for investment. It's just too full time. And I feel quite comfortable in the knowledge that the average drunken, over lunched, under brained retail investment manager is not likely to better the index over time either. I then have a smaller cash pot that is used to take advantage of various short term activities that while they may produce large double digit annual returns their size will only impact on the portfolio by a couple of percent on average.
I don't quite get the 'automation' bit though. I'm pretty hands on but only when the conditions are right for what I want to do. At all other times, such as now, I am doing nothing. Most traders seem to increase their activity during times of volatility and they certainly seem to increase their relative deal sizes and so their risk goes exponential. I don't really think I'm a trader as I never do anything in volatile markets. My use of derivatives only really works to create returns in stable markets or trending ones. But that is also when my business is quiet so I actually have time to look at the market beyond just buying monthly.
Jon39 said:
Trying to buy and sell short-term, attempting to guess the market, is not something that I am capable of.
DonkeyApple said:
.... my personal strategy has been to use up PEP/ISA allowances and pension contributions and to simply invest in trackers on key markets. I certainly don't have either the time or the ability to select individual equities for investment. It's just too full time.
I'd certainly agree with those principles, albeit I prefer mainstream actively managed funds over trackers, which is probably about evenly balanced.Most specifically I see myself as an investor, not a trader or a gambler.
Ozzie Osmond said:
Jon39 said:
Trying to buy and sell short-term, attempting to guess the market, is not something that I am capable of.
DonkeyApple said:
.... my personal strategy has been to use up PEP/ISA allowances and pension contributions and to simply invest in trackers on key markets. I certainly don't have either the time or the ability to select individual equities for investment. It's just too full time.
I'd certainly agree with those principles, albeit I prefer mainstream actively managed funds over trackers, which is probably about evenly balanced.Most specifically I see myself as an investor, not a trader or a gambler.
We all are agreed then. Long-term is the wise strategy.
Thank you for your reply, DonkeyApple.
After reading your contributions to this topic and looking at your profile, I had the image of a person with tremendous analytical skills, doing split second deals using algorithms written by university professors.
You now tell me, that world is all rather a gamble. Well, I know hardly anything about it, but I had thought that the risks might be too high for me. It must presumably involve making both profits and losses, with the hope that there are more of the former.
You were uncertain about my reference to 'automate'. I enter share prices, indices, etc. manually at the end of each week. I just thought you might think that way is rather old fashioned, because I know it could be automated. I quite look forward to doing it though.
Considering the image I had, I was most surprised to read that you use trackers.
I am sure you could select suitable businesses for long-term term holdings.
You both indicated the time consuming aspect of managing your own fund. I don't find a 15 minute working week (maintaining the spreadsheet, entering data, and printing the league table report) too much of a hardship.
After my initial misguided phase of buying and selling, particularly new issues (it did produce modest profits, but that was time consuming), I gradually bought shares in companies to keep long-term. I wanted the steady plodders that could still be successful during economic downturns. At that time, it had to be largely intuitive, but now with so much more information, that process would be much easier. Finding which FTSE 100 companies have achieved continuous steady EPS and dividend growth, is almost a touch of a button these days.
Fortunately my initial selection beat the market, so I mainly kept everything unaltered, apart from increasing the holdings in the same companies. Most changes since have followed corporate actions.
You might be interested in the following chart.
Each green bar includes the dividends received only in that year, so the following years are not benefiting by any dividend reinvestment effect.
I am proud that every market downturn has been weathered well. That is when the 'steady plodder' non cyclicals really help.
The average of all that lot is 13.83% per annum over 28 years (market just over 5%). That figure is obviously gradually declining now, because inflation no longer has such an effect.
One final chuckle for you both - I am still using the Lotus 123 spreadsheet!
Edited by Jon39 on Tuesday 2nd February 21:33
I'll let my 80 year old father know that he isn't actually the only person still using Lotus! 
I think keeping track of what you do is important, I don't think it matters how fancy or plain this is done. For me, I avoid individual stocks for long term investments as I feel the need to analyse them and keep up to date with changes and I haven't the time. Likewise with funds that rely on star managers. I don't have time to keep abreast of their drug addictions or marital catastrophes
Simple trackers keep me in the market and I'll wait for events like this oil sell off to go overweight in oils when the sentiment has turned and they are clearly going to outperform for a while.
Otherwise, I mostly find myself doing arbitrages of various types. But when the market is like this I'm rarely doing anything as I don't really have a shorter's temperament. But also trading PA isn't my job. My job is to look after other traders so when the market is moving I have no time for my own stuff if that makes sense?
I think keeping track of what you do is important, I don't think it matters how fancy or plain this is done. For me, I avoid individual stocks for long term investments as I feel the need to analyse them and keep up to date with changes and I haven't the time. Likewise with funds that rely on star managers. I don't have time to keep abreast of their drug addictions or marital catastrophes
Simple trackers keep me in the market and I'll wait for events like this oil sell off to go overweight in oils when the sentiment has turned and they are clearly going to outperform for a while. Otherwise, I mostly find myself doing arbitrages of various types. But when the market is like this I'm rarely doing anything as I don't really have a shorter's temperament. But also trading PA isn't my job. My job is to look after other traders so when the market is moving I have no time for my own stuff if that makes sense?
DonkeyApple said:
I'll let my 80 year old father know that he isn't actually the only person still using Lotus!
I am very pleased to know that your father uses a spreadsheet.
There probably cannot be many people aged 80, who even know what a spreadsheet is.
Working with all those cell formulas, might be a very good therepy for keeping an older person's brain agile.
Jon39 said:
DonkeyApple said:
I'll let my 80 year old father know that he isn't actually the only person still using Lotus!
I am very pleased to know that your father uses a spreadsheet.
There probably cannot be many people aged 80, who even know what a spreadsheet is.
Working with all those cell formulas, might be a very good therepy for keeping an older person's brain agile.
I suggested to a client the other month that divi payers were punching above their weight. If you're chasing dividend, go under the bonnet and check for any disparity between the actual payout and disproportionate draw on cash flow.
http://www.moneyobserver.com/opinion/alternative-i...
http://www.moneyobserver.com/opinion/alternative-i...
Good weekend blog. Yield chasing will ultimately, cost you more as companies appease shareholders. We have an unhealthy fetish about dividends and yield. Get rich slowly, research throughly, pick the steady 3.3-4.5% payers and stick to them like glue.
http://blogs.wsj.com/moneybeat/2016/02/26/the-u-k-...
http://blogs.wsj.com/moneybeat/2016/02/26/the-u-k-...
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