KISS - Keep it simple stupid

valoren

Hi,
Just looking for feedback as to whether this is a good idea/bad idea.

I like the idea of simplicity and I aim to invest in just one fund over the long term.

My approach would essentially be a trend following model based on long term moving averages. This was based on a book from Mark Shipman a few years back.

I would plan to simply invest an amount in a single distributing etf in EUR currency.

I would subscribe to a fund via an Irish broker (e.g. Davy) such as (Deutsche Bank's xtrackers). I'm interested in the Eurostoxx 50 index.

I would use this single index to trigger buy/sell signals. As in buy when the 30 week closing average is higher than the 50 week closing average and sell when the opposite happens, then wait for another buy signal. I like the idea of having some semblence of control and not simply Buying and Forgetting essentially.

In the meantime as a sort of financial parachute, I would save circa 500-600 per month. This would then be used to cover any losses should they happen when a sell signal happens/increase capital for the next time around.

As I would be saving a set amount each month, when another buy signal occured I would take the inital capital and add in the savings, in a compounding way to increase the holdings. I would then repeat the savings again and passively check the Eurostoxx each week to see if I should be in or out (and pay the CGT, which would be a one time thing so little paperwork)

Is this too simplistic or is it suitable for someone like me who wants his savings invested (working full time) or not invested (back on the dole=in an instant access savings account)?

I understand there is a risk to the capital but the savings per months would be set aside to weather any losses. No risk no reward etc.

Fremen

Hey - I do research for a trend fund as a living. There are two big problems with the approach you've described. The first is that you're not diversified enough. A major trend fund will typically trade around a hundred markets. Sticking with one is a very risky strategy.

The second, much bigger problem is that if you try trend following as a retail investor, you're going to get killed by transaction costs. A typical trend fund will pay one or two basis points (0.01% - 0.02%) of the value of each transaction in costs. Even then, cost control can mean the difference between a successful fund and a failure. As a retail investor your costs will probably be ten to fifty times higher, eroding any benefit you might get from following trends.

If you really want the benefit of a trend following fund, you might be better to go with a UCITS fund via morningstar. Do be careful though, some are opaque and some charge very high fees.

OreaM

Hello Valoren,

If I may add to that, I'm not sure you would have much control if you restrict yourself to the 30/50 weeks moving averages.
We are talking about 6 months/1 years lagging calculations, and you could be knee deep in the red before your crossing MA signal you to get the hell out of there.

Trends will appear again and again and again, whether you are looking at one day, one week, one month, 5 years etc.
If you plan to use charting software to monitor your moving averages, maybe have a look at a set of 3/4 moving averages.

example :
4 weeks
12 weeks
26 weeks
52 weeks

those 4 moving averages would cover the monthly/quarterly/6-month/yearly time frames
if MA 4 < 12 < 26 < 52 you are in a clear downtrend
if MA 4 > 12 > 26> 52 you are in a clear uptrend

it all comes down to the amount of time you are willing to spend to monitor your investment...

Also note that you may want to consider both kind of moving averages :
- Simple (SMA 4 = W1 price + W2 price + ... + W4 price divided by 4)
- Exponential (Gives more weight to the recent prices, better to stay in tune with the current moves)

Everything I just wrote there might over simple for you depending on how versed you are with all this, but if you are not familiar with SMA/EMA concepts, have a look at investopedia

valoren

Thanks for that OreaM.

I checked the following approach. I would be medium, long term time frame.

If the 12 week avg Higher than 26 week avg is Higher than 52 week avg then Invest.

If the 12 week avg Higher than 26 week avg Lower than 52 week avg then Sell.

If the 12 week avg Lower than 26 week avg Higher than 52 week avg then Sell.

The extra filter looks very beneficial and the 30/50 week avg I mentioned would be an additional indicator.

The approach would have generated a buy on 11th Nov 12 - fund price 25.14euro
A sell signal would have been given on 24th Aug 14 at 30.79.

It would have remained in sell mode until 8th Feb 15 buy signal at 34.37euro, and gave a sell signal on 12th Jul 15 at 37.06 euro.

It's currently still at sell. I think this combined with compounded savings is a good approach. Thanks again for the feedback.