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Invested Share/Managed Fund Test Portfolio

Discussion in 'Managed Funds & Index Funds' started by coopranos, 25th Mar, 2007.

  1. coopranos

    coopranos Well-Known Member

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    With all the recent discussion and debate about particular managed funds lately, I thought it might be an interesting exercise to get a Test portfolio going with input from the forum members at InvestED.
    If people put forward some suggestions as to what this portfolio might consist of, we can get something happening similar to the model portfolios that a lot of the investing newsletters have. If circumstances should change as far as particular investments they can be sold and replaced with new investments.
    We can knock up a portfolio on InvestSmart or etrade or something to keep track of it, and see how well it runs (and see whether perhaps it outperforms our own invdividual portfolios).
    I dont know if anyone will even be interested in this, but if there is any interest perhaps we can get a list of rules and objectives going.
    Say for example we have $100,000 starting capital. We could also allow leveraging if that is what people want. Whether it is leveraged, how much it is leveraged to, whether interest is capitalised or paid from distributions or whatever can also be decided.
    My intention in suggesting this is so we can set up some discussion revolving around some close-to-real-life scenarios, and hopefully put all of our ideas forth in the setting up and running of the portfolio.
    Our objective should be something that we can all relate to: To grow the portfolio as quickly as possible at an acceptable level of risk.
    Just a couple of things that might help guide it:
    - margin calls are unacceptable, if the portfolio ever gets into a situation that would require a margin call, we will consider the portfolio bankrupt, examine where mistakes were made, and start again if desired.
    - if interest on any margin loans (if we decide to take that route) is paid out of income, there must always be income to cover the interest. If interest is capitalised, see the above point re margin calls.

    Look forward to seeing if anyone is interested in this, and am particularly interested in having a number of different viewpoints.
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Sounds like a great idea - could be quite educational.

    It would be nice if I had my portfolio management software setup - but I don't yet ... it would be perfect for this type of thing.

    Without wanting to start a massive debate that drags this a long way off topic ... I thought I'd raise the point that margin calls are by no means even close to "bankruptcy" ... indeed, if you follow the methodology of cutting your losses and focussing on your winners, a margin call is nothing more than a poorly timed exit from some of your badly performing of assets. Ideally, you would have exited your worst assets at a time of your choosing, and thus not face a margin call. Of course, the difficulty one would face is in a severe market correction or crash, where you may not have much notice of the size of the drop.

    The biggest challenge you will have is setting criteria for risk management. Some people are nervous about 50% gearing, others are happy to try 60% or even higher. Others still would prefer no gearing at all. Similarly with the amount of international exposure and the asset classes covered.

    I suggest a portfolio of no more than 8 funds (mostly for ease of tracking).

    We could even have multiple portfolios following different strategies ... although that naturally would lead to more work.

    I'd be willing to use my fund tracking spreadsheet to monitor the performance of the funds and post the status (and stats !!! :D ) regularly if you like ... but happy for anyone else to do it if they are really keen.
     
  3. coopranos

    coopranos Well-Known Member

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    I definitely understand that margin calls are not the end of the world, however I suggested that merely as a guidline for this exercise - if a margin call is made it basically means (to me) that you have been riding too close to the line, or did not have adequate capital protection/risk management guidelines in place. Given that the portfolio would likely be fully invested at all times, no extra cash is available to inject into the portfolio, a forced sale would mean that we have not done our decision making well enough, and is a good point to stop and learn what lessons we can from such a failure.
    Also I would think that given the different tolerance levels for leverage, the chances of everyone deciding to ride the razors edge is pretty slim so it would probably take a drop of 25%+ to trigger such a margin call.
     
  4. iiinvestor

    iiinvestor Well-Known Member

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    Sounds good. Once the ASX/Westpac get their act together, we should also share our progress on the ASX game.

    Only problem is that you need to forego fundamentals to do well at it. Three months is about enough time to pick a few good specie stocks.
     
  5. unthreaded

    unthreaded Active Member

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    I think this is a fantastic idea, but why be concerned with leverage margins etc. Most sites like InvestSmart, DirectAccess etc allow you to set up multiple portfolios. Decide on the base portfolio and then have variants based on %gearing/Margining/Reinvestment etc.
    Run this over a significant time frame and it gets very enlightening. As dissent grows as to structure/strategy, create a new base fund portfolio.

    ?Who does all the work - it they need help, I'm willing to volunteer.
     
  6. bundy1964

    bundy1964 Well-Known Member

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    I would be interested, shares may be a little hard to keep track of so maybe stick to managed funds? We could use a margin lenders list of managed funds to pick from and use their margins as well, bit of a nightmare to manage with loans though and you would to get a consistant result need to reinvest profits.
     
  7. Glebe

    Glebe Well-Known Member

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    Bundy

    Why are shares harder to keep track of than managed funds?

    I'd be looking at Argo, Streettracks & Milton rather than most managed funds...

    low management fees, no adviser costs... just brokerage which is cheap.
     
  8. bundy1964

    bundy1964 Well-Known Member

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    Not so hard if your trading them yourself but on paper the price changes so much where as managed funds have a daily price so much easier to track on paper. Sim may be able to work around the problem and come up with a useful tracking tool.
     
  9. Bantam Roosta

    Bantam Roosta Well-Known Member

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    50% gearing. All in Asia. Let's go hard. You only live once. Although I do agree that companies like Argo are great. I like them right now and I'm trying to butter the wife up for some more right now.

    BR
     
  10. Johny_come_lately

    Johny_come_lately Well-Known Member

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    Anyone interested in starting up this test portfolio idea?





    J.
     
  11. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I've been thinking about the idea of building an investing simulator which would allow you to choose a portfolio of investments (shares, managed funds, etc) and optionally apply gearing to it ... valued daily using actual price data (closing price only), and allowing transactions which take into account costs of brokerage & buy/sell spreads, plus T+3 trade settlement and delayed price quotes for managed funds, etc.

    I see it as an educational tool and could also be used to run sharemarket game type competitions, but expanded to allow you to choose from a wider variety of investments and with the complexity (and risk!) of gearing added.

    It's an idea that's been running around in my head for a while now ... I'm still working on getting some more up-to-date date for Compare Funds :: Managed Fund Comparison Charts and Statistics ... and I could then use this as the base for the trading simulator. There's an aweful lot of programming involved to make this happen - so it will take a while. Would be interested in some feedback about the idea.

    In the meantime, I think this idea is worth looking at in a more simple approach - there's no reason we can't each come up with a selection of shares and/or funds and do regular valuations for portfolio tracking purposes - post the results reglularly.

    I think we do need some basic rules to start with - any thoughts there?
     
  12. Johny_come_lately

    Johny_come_lately Well-Known Member

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    Thanks Sim

    Perhaps, a rule as to the number of shares/funds (10?).

    Your idea for an investing simulator sounds great. It would be benifical to both begginers and experienced investors alike. Also, you could compare two (or more) simulations and get a real feel for risk.

    On top of that, I think it would be a real drawing card for getting new members. What do you think?




    Johny.