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Purchasing Method

Wider investment strategy discussions not dealt with elsewhere
fugaciouslysober
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Purchasing Method

#177156

Postby fugaciouslysober » October 30th, 2018, 2:48 pm

Hi

Long time lurker. First question. Sorry if its a dumb one ;-)

I have a number of investment trusts (SMT, fundsmith etc..) with anywhere between £50k and £60k in each. I have started to add additional investment trusts to the mix (Marlborough MicroCap etc..) which currently have around £10k to £20k in each. Total pot is circa £300k.

Im adding somewhere between £1k to £2k per month. However, Im torn between:

(1) Putting the full monthly allocation (say £2k) into 1 fund and then the following month the full allocation (another £2k) into another fund in sequence

or

(2) Putting the full allocation into the cheapest fund (the one which has gone down the most or increased the least that month)

or

(3) Putting £500 each into four funds every month for the next year or two and forgetting about it.


Obviously there is additional commission costs with buying four funds but I havent read anywhere about how others tend to allocate on a "drip feed" basis.

Am I over thinking this? ;-)

This pot of cash is in a SIPP and will be invested for the next 20 years. I have another pot in ISA's which is for individual shares (Unilever, Diageo etc. and then some punts like SXX)

Hariseldon58
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Re: Purchasing Method

#177162

Postby Hariseldon58 » October 30th, 2018, 3:11 pm

Over 20 years then all three methods should work just fine. No one will know until afterwards which is the best approach.

1) and 3) are pretty similar, 1) is probably a bit cheaper but I'd prefer 3) its so simple.

2) I see where are you going, but it could become tricky if one asset keeps falling for months and you keep loading up on one investment, it may or not be the best policy with hindsight but it encourages tinkering, overriding and possibly over trading.

I followed 3) for many years and it worked fine, I was buying in late 1999 but also in 2000, 2001, 2002, 2003 at much lower prices, I knew markets were expensive in 1999 ( I was avoiding 'popular, trendy' funds/ITs, but was also buying at the lows, all without thinking)

The other thing is that for all the tinkering one does over the years, mean reversion is in the background, doing nothing is a viable option !

I did some back studies and my tinkering was generally positive, but not as much as one hopes for, the changes often appear very positive over say 1 year but had one left it , say, 5 years, the benefit may be reduced or even negative.

Lot to be said for the simple approach.

Alaric
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Re: Purchasing Method

#177170

Postby Alaric » October 30th, 2018, 3:28 pm

fugaciouslysober wrote:Obviously there is additional commission costs with buying four funds but I havent read anywhere about how others tend to allocate on a "drip feed" basis.


It's been indirectly discussed on this site. Look for posts describing how to exploit Broker offers of cheap dealing days and regular investment on the cheap. Perhaps people are in a position to put a maximum annual allowance into an ISA or SIPP as a single payment, so the monthly drip feed isn't so relevant.

tjh290633
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Re: Purchasing Method

#177244

Postby tjh290633 » October 30th, 2018, 8:28 pm

There is a method employed by followers of the HYP method. It's called something like HYPTUSS, and the spreadsheet can be downloaded from (I think) the Financial Software boards. You could adapt it to suit your portfolio.

TJH

monabri
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Re: Purchasing Method

#177321

Postby monabri » October 31st, 2018, 10:50 am

HYPTUSS

It's in 'Managing Your Finances'....I think you need to be logged in to actually see the directory so here's the link.

http://lemonfoolfinancialsoftware.weebl ... op-up.html

fugaciouslysober
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Re: Purchasing Method

#177373

Postby fugaciouslysober » October 31st, 2018, 2:17 pm

cheers everyone. ill take a look at the spreasheet over the next couple of days.

Backache
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Re: Purchasing Method

#177400

Postby Backache » October 31st, 2018, 4:19 pm

One thing to be aware of is that you refer to Investment Trusts but what you are suggesting is actually a mixture of investment trusts and Unit trusts .
Some brokerages have different fees for the purchase of each which could affect how you buy them.

jaizan
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Re: Purchasing Method

#177688

Postby jaizan » November 1st, 2018, 8:55 pm

Making 4 trades every month will be the worst solution, since that is 4x the trading fees and the underlying performance will also be no better.
I suggest 1 trade per month, but even 1 every 2 months is not outrageous.

How to decide what to add is another issue, but you could just set a target portfolio percentage for each sector & just add to the one that is furthest below it's target holding. So a very rough form of rebalancing.

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Re: Purchasing Method

#178032

Postby BusyBumbleBee » November 4th, 2018, 10:03 am

How to decide what to add is another issue
I have a simple method. When there is sufficient to make the charges worthwhile I simply buy the one on my list that is closest to going ex-div.

swill453
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Re: Purchasing Method

#178036

Postby swill453 » November 4th, 2018, 10:40 am

BusyBumbleBee wrote:
How to decide what to add is another issue
I have a simple method. When there is sufficient to make the charges worthwhile I simply buy the one on my list that is closest to going ex-div.

That seems to me a bit strange. Putting money into the market only to immediately get given some of it back.

Scott.

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Re: Purchasing Method

#178466

Postby BusyBumbleBee » November 6th, 2018, 11:20 am

Well, Scott, It may seem strange to you but "Putting money into the market only to immediately get given some of it back." works for me.

I have a list of shares, mostly ITs, which are high income shares with an average yield north of 6%, a narrow spread, quite a few registered in the Channel Isles (no stamp duty) mostly with quarterly payments. In common with all established companies the SPs go walkabout every year - usually (with this selection) within a a range 10% of the annual average. Usually they do not drop by the whole of the dividend when they go ex-div and also, again usually, they recover quite quickly. I do not care too much if I am overweight in any of them and so I am happy to sell one at the top of its range and buy one which is a) about to go ex-div and b) towards the bottom of its range and c) 'earnings enhancing' for the whole portfolio. I prefer to add incoming dividends to one of the switches I make but if dividends accumulate then they get invested according to a) and b) above. This methodology adds about 2 percentage point to my total return per annum, gives me pleasure but is looked on with disdain by others.

kind regards - John

Hariseldon58
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Re: Purchasing Method

#178587

Postby Hariseldon58 » November 6th, 2018, 5:08 pm

ref
Making 4 trades every month will be the worst solution, since that is 4x the trading fees and the underlying performance will also be no better.


Really... £2,000 a month, trading cost is around an extra £4.50 a month, you get to sample the volatility of the share price 12 times, versus 4 times year, I rather suspect that taking away the 'choosing a share aspect' and just investing month in, month out works best.

Personal experience of investing in this fashion, with 8 purchases a month, was highly successful. The temptation is to tinker, to think you can use your skill and intellect to do better than all the idiots out there...it doesn't work that way.*

When you are accumulating you just need to save, with some diversification of fund,ETF, Investment Trust and keep doing it, through all the ups and downs and market turmoil. I was buying from 1990 every month, including December 1999, just as I was throughout the lows that followed in 2000 and 2003 and through to 2007 when I stopped to take early retirement.

*Every few years a contrarian opportunity does arise, but not every every month !

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Re: Purchasing Method

#179075

Postby runnygum » November 8th, 2018, 10:39 pm

Minimise fee's for sure.
Also consider setting limit orders, you would be surprised how often over a few days shares vary +/-2% etc. Easy to look at the last weeks trading info and set a sensible limit order. I always have mine triggered when doing this sensibly to buy.

Of course you can also set them 10% below and like in late Oct things blow out you get automated purchases at a discount :)

TheMotorcycleBoy
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Re: Purchasing Method

#179093

Postby TheMotorcycleBoy » November 9th, 2018, 6:26 am

runnygum wrote:Minimise fee's for sure.
Also consider setting limit orders, you would be surprised how often over a few days shares vary +/-2% etc. Easy to look at the last weeks trading info and set a sensible limit order. I always have mine triggered when doing this sensibly to buy.

Of course you can also set them 10% below and like in late Oct things blow out you get automated purchases at a discount :)

Which online platform are you with runnygum?

Mel and I did trying setting "trade plans" on our iWeb amount but we were lead to believe that once your stock hits the price it is merely queued to be acted on (sold/bought) and we wondered whether the trade is actually guaranteed at the price when hit.....or whether if the asset price has detrimentally altered between the time of queueing and acting on the trade, and if in the some eventualities the trade does not then proceed.

However as a counter argument I do get share grants from my US employer, which are lodged to the broker ETrade over at Stateside, and whenever I set a sell price I do see this get acted on in time with the market. But I'm probably somewhat more chilled out with my employee share grants....since I always just view it as free money most of the time.

Matt

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Re: Purchasing Method

#179129

Postby Gengulphus » November 9th, 2018, 9:42 am

TheMotorcycleBoy wrote:Mel and I did trying setting "trade plans" on our iWeb amount but we were lead to believe that once your stock hits the price it is merely queued to be acted on (sold/bought) and we wondered whether the trade is actually guaranteed at the price when hit.....or whether if the asset price has detrimentally altered between the time of queueing and acting on the trade, and if in the some eventualities the trade does not then proceed.

I'd be fairly certain that if a limit trade triggers, but the trade is no longer possible at the limit price you set or better by the time that your order would be acted on, it will fail rather than be acted on. But only fairly certain, not absolutely certain, because a broker's systems could be designed in a fairly 'obvious' way that would lead to it still being acted on at the worse-than-limit price, as you've outlined.

The reason that I'm fairly certain about it is that I think that a broker whose systems worked that way would have failed to obey its client's instructions: if the client has said "Buy at 180p or less" and the broker has responded by buying at 181p for whatever reason, they're in a distinctly dubious legal position that would probably have to be resolved by saying that the purchase hadn't been done on any client's instructions, therefore was on a broker's own account and they'd have to keep the shares (with risks that a broker generally won't want) or sell them (probably at a loss), and in addition have to pay the client compensation for the general inconvenience / opportunity cost. That could in principle be got around with a suitably-explicit description of the service they were offering, but it would have to be made very clear - and my guess is that if a broker did offer that, the FCA would rule that it was unsuitable for offering to 'retail' clients.

What I'm nothing like as certain about is what would happen to the order afterwards if an order triggered, went on to the queue to be acted on, then failed to be acted on because the price had moved back to the wrong side of the limit. The two obvious possibilities are that it disappears completely or gets put back on to the "waiting for the limit price to be achieved" queue. The second is obviously more client-friendly, as the first means that the limit order can just vanish from the client's pending orders as a result of a 'spike' in the share price unless the client is paying close attention (and of course, one of the standard reasons for using limit orders is so as not to have to pay close attention). But the first is easily achievable - it just requires the broker to enter a 'fill or kill' type order into the Stock Exchange's systems when the limit price is hit - and I've certainly encountered it in the past. IIRC, the orders concerned were for smallcaps and failed because I wanted more shares than were available at the market price rather than because the market price had moved against me before execution was attempted, but the outcome was a "your limit order has triggered and failed to execute" email and the order vanishing from the broker's systems. (By the way, this is around 10 years or more ago, and a year or two later the broker concerned decided to exit the execution-only online broker business. As far as I can tell, they're now in administration after a number of name changes. So while I can say that brokers' systems might work that way, and one broker's did in the past, I can't tell you whether any broker's systems do work that way right now.)

However, if you want certainty about how your broker's systems work in that particular case, why not ask them directly? They're the ones in a position to give you a definitive answer... It might take more than one go to get past the initial stock answers, but it should be possible with a bit of persistence.

One other point to make is that unless one is buying particularly illiquid smallcaps or particularly large numbers of shares, we're probably talking about electronic queues for execution here, not ones involving human traders. I.e. the sequence of events "price moves to right side of limit, order queued for execution, price moves to wrong side of limit, order comes up for execution" typically has to all play out within a second or two for the situation you're envisaging to happen. Which doesn't make it impossible - share prices can change very rapidly - but does make it less likely...

TheMotorcycleBoy wrote:However as a counter argument I do get share grants from my US employer, which are lodged to the broker ETrade over at Stateside, and whenever I set a sell price I do see this get acted on in time with the market. But I'm probably somewhat more chilled out with my employee share grants....since I always just view it as free money most of the time.

Yes, I remember that feeling! :-)

But note that US brokers are under a different regulatory regime than UK ones - so don't assume that the same rules apply - and that even UK brokers' systems differ from each other in some respects (*). "Different" only means what it says, not necessarily "better" or "worse", of course, so I'm not giving that as an argument either way about how your (presumably UK) normal broker behaves, just saying that your ETrade experience isn't an argument either way about it.

(*) E.g. I use four different UK brokers, all online execution-only. They all have limit order systems, but as far as I can make out, three of them look out for limits triggering on a strictly-electronic-only check: they trigger when the official bid/offer prices indicate that the price is achievable. The fourth has shown clear evidence of doing something more sophisticated - e.g. on a smallcap purchase where I've set a limit price of 125p, I've had it trigger and be executed at a price of maybe 124p when the official bid/offer prices haven't varied from 120p/130p. That could in principle be due to a very short-duration spike down to maybe 115p/123p - so short-duration that it hasn't shown up in what I can see - but it's pretty unlikely for an infrequently-traded smallcap, and things like that happen reasonably frequently when I try for them (which I do occasionally, though by no means systematically).

Gengulphus

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Re: Purchasing Method

#179253

Postby TheMotorcycleBoy » November 9th, 2018, 5:31 pm

As usual many thanks for this Geng....
Gengulphus wrote:The reason that I'm fairly certain about it is that I think that a broker whose systems worked that way would have failed to obey its client's instructions: if the client has said "Buy at 180p or less" and the broker has responded by buying at 181p for whatever reason, they're in a distinctly dubious legal position that would probably have to be resolved by saying that the purchase hadn't been done on any client's instructions, therefore was on a broker's own account and they'd have to keep the shares (with risks that a broker generally won't want) or sell them (probably at a loss), and in addition have to pay the client compensation for the general inconvenience / opportunity cost. That could in principle be got around with a suitably-explicit description of the service they were offering, but it would have to be made very clear - and my guess is that if a broker did offer that, the FCA would rule that it was unsuitable for offering to 'retail' clients.

Indeed I was guessing that to ensure squeaky-cleaness the broker would do nothing rather than "do the wrong thing" which would be, in the above case, to buy the stock at too high a price.

Gengulphus wrote:What I'm nothing like as certain about is what would happen to the order afterwards if an order triggered, went on to the queue to be acted on, then failed to be acted on because the price had moved back to the wrong side of the limit. The two obvious possibilities are that it disappears completely or gets put back on to the "waiting for the limit price to be achieved" queue. The second is obviously more client-friendly,....

My money's on the second option.

Gengulphus wrote:However, if you want certainty about how your broker's systems work in that particular case, why not ask them directly? They're the ones in a position to give you a definitive answer... It might take more than one go to get past the initial stock answers, but it should be possible with a bit of persistence.

Oh aye....have to badger Mel to get on the blower sometime (it's her ISA), and get a hopefully authorative answer.

Gengulphus wrote:One other point to make is that unless one is buying particularly illiquid smallcaps or particularly large numbers of shares, we're probably talking about electronic queues for execution here, not ones involving human traders. I.e. the sequence of events "price moves to right side of limit, order queued for execution, price moves to wrong side of limit, order comes up for execution" typically has to all play out within a second or two for the situation you're envisaging to happen. Which doesn't make it impossible - share prices can change very rapidly - but does make it less likely...

Yeah. Point taken - I was probably being too edgy earlier, we'll give this method "another try" sometime soon I think.

Gengulphus wrote:
TheMotorcycleBoy wrote:However as a counter argument I do get share grants from my US employer, which are lodged to the broker ETrade over at Stateside, and whenever I set a sell price I do see this get acted on in time with the market. But I'm probably somewhat more chilled out with my employee share grants....since I always just view it as free money most of the time.

Yes, I remember that feeling! :-)

Ha ha! It's certainly happy days right now...my Stateside firm is currently cresting (well sort of!) with the rest of the US and we are getting the strong $ buying more £s when it gets back here!

thanks Matt

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Re: Purchasing Method

#179509

Postby TheMotorcycleBoy » November 11th, 2018, 5:24 pm

Gengulphus wrote:One other point to make is that unless one is buying particularly illiquid smallcaps or particularly large numbers of shares, we're probably talking about electronic queues for execution here, not ones involving human traders. I.e. the sequence of events "price moves to right side of limit, order queued for execution, price moves to wrong side of limit, order comes up for execution" typically has to all play out within a second or two for the situation you're envisaging to happen. Which doesn't make it impossible - share prices can change very rapidly - but does make it less likely...

Thanks Geng,

So whilst I understand that the trading is largely electronic (automated?) i.e. by SETS and other systems e.g. https://en.wikipedia.org/wiki/London_St ... Technology. Surely there is still a role played by human actors even now?

What is the function of the "traders" on the trading floor of the LSE, NYSE etc. e.g. like in these kind of images

http://fortune.com/2016/04/14/cme-new-y ... ing-floor/
https://www.malaymail.com/s/1684454/glo ... -oil-falls

i.e. the people you see either on the phone, shouting stuff or keying data into hand held devices?

Are they just representatives of the "money makers", ensuring liquidity between the various different MMs? For example if one MM picks up a lot of let's say Domino Pizza shares.....do they advertise this fact (i.e. spoken word) to others close by, so that other MMs can ensure they have adequate DOM supply if they receive a buy order?

Matt

mc2fool
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Re: Purchasing Method

#179520

Postby mc2fool » November 11th, 2018, 6:08 pm

TheMotorcycleBoy wrote:What is the function of the "traders" on the trading floor of the LSE, NYSE etc. e.g. like in these kind of images...

There haven't been "traders" (actually, jobbers) -- indeed, there hasn't been a trading floor -- at the LSE since 1986.

https://www.bbc.co.uk/news/business-37751599

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Re: Purchasing Method

#179521

Postby TheMotorcycleBoy » November 11th, 2018, 6:10 pm

mc2fool wrote:
TheMotorcycleBoy wrote:What is the function of the "traders" on the trading floor of the LSE, NYSE etc. e.g. like in these kind of images...

There haven't been "traders" (actually, jobbers) -- indeed, there hasn't been a trading floor -- at the LSE since 1986.

https://www.bbc.co.uk/news/business-37751599

Ok....so who are the people with the hand held devices in the images of those links I uploaded, with all the overhead screens with the stock prices?

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Re: Purchasing Method

#179523

Postby mc2fool » November 11th, 2018, 6:17 pm

TheMotorcycleBoy wrote:
mc2fool wrote:
TheMotorcycleBoy wrote:What is the function of the "traders" on the trading floor of the LSE, NYSE etc. e.g. like in these kind of images...

There haven't been "traders" (actually, jobbers) -- indeed, there hasn't been a trading floor -- at the LSE since 1986.

https://www.bbc.co.uk/news/business-37751599

Ok....so who are the people with the hand held devices in the images of those links I uploaded, with all the overhead screens with the stock prices?

That's the NYSE and those are specialists. https://www.investopedia.com/ask/answers/128.asp


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