New Investment System V1.0 – Part 1
After reading about 25 books on investing, trading and automated trading, I finally came up with an investment system. Hopefully it will help crystallize your own investment philosophy.
Although there is an unlimited amount of information available about investing, it is a real challenge to find the good stuff. What is the good stuff, anyway? I think “good” information about investing (and in general) has the following characteristics:
- Clear and easy to understand
- Actionable
- It actually works, not just theory
- Inspiring and motivating
There are a few books that meet these criteria. One that is particularly applicable to today’s post is Van Tharp’s Trade Your Way to Financial Freedom
I will explain this system with a hypothetical account size of $20,000. It can be scaled smaller without affecting the results very much. It is an investment system in that the goal is to generate income passively and with relative safety. It is also a trading system. It will take short positions and use options.
As far as trading systems go, this one is pretty long term. I think the average hold time may be 3 to 6 months. That makes it useful for retirement accounts that limit the number of trades that you can make.
So far, I have identified 11 trades that I want to make. They are based on my view of global trends. These views include:
- Falling dollar
- Rising precious metals
- Rising Chinese and Indian currencies
In addition to betting on these global trends, I am also going to use an Automated Trading system from Collective 2. This makes a very good addition to the portfolio because it is uncorrelated with the above three trends. This will help offset the fact that the above 3 trends are fairly well correlated.
Here are the first 3 of the trades that I plan to do:
| ID | Investment | Amount | Max % Loss | Max $ Loss |
|---|---|---|---|---|
|
1
|
Gold – Long |
$2,000
|
25%
|
$500
|
|
2
|
Gold Option – Long |
$500
|
100%
|
$500
|
|
3
|
Silver – Long |
$2,000
|
25%
|
$500
|
How did I come up with the Max % Loss? I just choose a percentage that I think is unlikely to be hit. Is it scientific? No. But I can adjust and improve it with experience. The Max $ Loss is simply the Investment Amount times the Max % Loss.
The actual vehicle I will use for gold will be an ETF, probably GLD. There are several reasons for this. GLD is the largest and most traded ETF, making it possibly safer than other gold ETF’s. ETF’s are good because they have small spreads and can be purchased in a retirement account. They are quicker and easier to buy and sell than physical gold.
The gold option will be a call option, probably be on GLD as well, because it is the largest and offers options. It will be 6 months or 1 year out. I haven’t figured out what the strike price will be. But I will choose it to make a good complement to the long position.
Silver will be an ETF as well, probably SLV, because it is one of the largest and most traded.
Well, that’s the start of the new investment plan. I’ll keep you updated as I finalize the details.
Related posts:
- New Investment System 1.0 – Part 2
- If You Meet an Investment Guru at the Side of the Road… Kill Him
- Gold Investment Ideas
- Is Transocean a Good Investment?
- How To Start Your Own Hedge Fund
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I'm George Ulmer. Matt and I started this blog and launched the Online Investing AI business. Our goal is to develop the technology to allow anyone to retire after working for 10 years.
is one of my favorite financial books of all time. It's an allegory about a guy who has a terrible job, and how he overcomes challenges to achieve his dreams.
