Hopefully you have read the proposal I set out. There have been comments but nothing specific to change the details. Their has been support from a number of members to take this forward, so here is a poll to decide whether or not we take this step. The poll is open for 7 days but please vote as soon as you can so we can wrap this one up.
There is no "none of the above" option on this one as you either need to agree or disagree with the proposal. A vote for neither is in effect a no vote anyway
A reminder of the proposal:
(i) Buying and selling strategy
The Club will build towards a portfolio of up to ~8 shares, consisting of:
- a foundation of 4 or 5 long-term shares
- up to 4 short- to medium-term shares at any one time
The strategy is to build income from the long-term shares and make quicker gains from share value increases on the short- to medium-term shares.
Long-term shares
The long-term shares should:
- be bought on the basis of generating income of ~5% or greater, per year, via dividends
- be bought on the basis of having good potential for long-term growth
- each be from different market sectors to protect against poor performance
- generally be held for a number of years
- generally be exited from should the value increase by 25% or more from the purchase price
- generally be held even if the price decreases by up to 25% from the purchase price
The Club should look to increase stakes in long-term shares. This should be approached so as to ensure as evenly distributed investment as possible. Investment should be targeted when prices are favourable, thus aiming to ensure the continued long-term growth potential. Therefore, once the Club is ~3 years old, it should aim to have at least four strong long-term holdings, each of at least £1000+ in total.
Short- to medium-term shares
The short- to medium-term shares should:
- be bought on the basis of having a very good potential for short- to medium-term growth
- each be from different market sectors to protect against poor performance
- be held for a period of up to a year
- generally be exited from should the value increase by 15% or more from the purchase price
- generally be exited from should the value decrease by 15% from the purchase price
- be exited from should the share no longer be deemed to meet the brief of a short- medium-term share or could alternatively be converted to a longer-term share if it meets that brief
In general, the Club should look to sell short- to medium-term shares for profit and within a year of purchase. Therefore, by the time the Club is ~3 years old it should have made a number of short- to medium-term share trades, hopefully for profit. Each investment made should be no more than £600, including costs at this point in time to prevent undue risk.
Selling shares
Every share has an exit price, even those considered as a longer-term investment. There is nothing wrong with taking the profit when it meets your requirement earlier than expected. Likewise, there comes a point when a losing share cannot be kept any longer for risk of further loss. The Club needs to use limits to capture these and other scenarios.
There are three automated limits available to the Club to control sales. These are:
- limit:sell – used to sell shares when the value increases to a target sale price
- stop-loss:sell – used to sell shares when the value decreases to the lowest allowable price
- tracking:sell – used to track the peak share value upwards and set a stop-loss:sell price at a fixed margin below
Each share should have at least one sale limit set. It is suggested:
- each share has a limit:sell set at a price deemed realistically possible, according to historical value analysis and forward forecasting
- each share has a tracking:sell set (25% for long-term investments and 15% for short- to medium-term)
By setting a limit:sell for each share the Club puts in place a static price that represents an agreed return for the investment, which is automatically triggered when the current share value breaches the threshold. This is an important automation as it removes the need for a manual sale, which might not be implemented quickly enough to take advantage of a spike in share value.
Long-term shares should have their tracking:sell limit decreased to 15% if the share reaches a +15% value. Short- to medium term shares should have their tracking:sell limit decreased to 5% of the purchase price when the value of the share hits +5%. By rolling-up these limits the Club can attempt to minimise a loss and attempt to build a profit in the case of every share.
Selecting shares for potential purchase
As a Club, we need to be able to identify potential shares for purchase, assess their merits and determine what the entry and exit prices might be. This needs to be done so that there is a reason to purchase, otherwise we greatly reduce the ability we have to make a profit on our investments. Previously we have been a bit too anxious to get on with the purchase, which is understandable seeing we were just starting out and wanted to have some shares in our portfolio. Now we have a number of shares we need to learn from the experiences to date and become more strategic in our buying practices.
Firstly, we need to split our efforts into longer-term and short- to medium-term. Each has a different set of requirements and our selection process needs to take them into account. Secondly, we need to identify a number of different shares to monitor for each type of purchase. If we are able to judge sensible entry and exit prices before purchase we will be able to bide our time and purchase at the right price.
Buying shares
Before buying any shares the Club needs to make a decision about which type of share should be bought. This may be either a long-term share or a short- to medium-term share. Which will depend upon the current makeup of the Club’s portfolio and the attractiveness of the share price.
Through the process of selecting shares, the Club will have set out target entry prices for each. If the Club can also agree on prioritising this list of shares it will make the buying process easier. We can then simply buy the highest ranked share on the appropriate list that meets the target entry price. There would be no need for a vote as it would have been pre-agreed. This method would allow purchasing to be efficient, timely and provide the Club with increased opportunity to make a profit. If no shares meet the target buying price the investment would not need to be made and further discussion could take place.
Reviewing market conditions
The markets can change very rapidly. An investment made one day for a specific return can be quite sensible only for the outlook to be completely different the following week. In this sense the Club must monitor all shares within its portfolio and re-assess whether the objectives for each share can realistically be met. Similarly, the same review is needed to ensure the details about potential shares to purchase reflect current market conditions.
Extraordinary circumstances
There can be occasions where extraordinary circumstances can significantly depress the prices of shares in general (such as the Chinese stock market depression) or within a specific market sector (such as experienced within the UK supermarkets). When such circumstances occur it may be prudent to suspend some, if not all limits, until a normal situation is resumed. This is similar to when stock markets suspend trading because of knee jerk reactions. When such circumstances arise discussion can take place to decide on the appropriate course of action.
