Following a Consistent and Robotic Approach to Buying and Selling Investments

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Executive Summary

We have begun following a robotic approach to making purchasing and selling decisions.
This is covered in the article.

Introduction

Some of the most critical questions are how to select investments. In this article, we will cover a process we have developed.

*Note

This article is only part of our internal analysis of investing and communicates with people we know. We are not writing this to attract investors, and we are not giving investment advice. This is just a convenient way to document our analysis, which can be easily shared and easily updated.

Our Investment Trading Decision Logic

Our trading decision contains the following basic logic.

AND (Forecast Method = “Yes”, Up Forecast = “Yes”)

We have never found a forecasting method that works for all investment vehicles.

Combining Step #1 + Step #2

We find a number of investment vehicles that show a positive forecast. However, the next step is we determine how that method performed historically in forecasting that IV. We then remove investment vehicles that don’t have a history of being forecasted accurately by our forecast method.

This is not a problem because we find more investment vehicles than we want to invest in. The “forecastability” test reduces this number.

Using a Consistent Approach for Buying and Selling

This is the topic of buying the IV. But there is another equally important topic, which is selling the IV. We use the same forecasting method to sell the IV.

This means repeatedly selling IVs that no longer have a positive forecast, and buying other IVs that do have a positive forecast. This means there is a natural churn to the IV portfolio. Some investors buy and hold investments, but we are using indicators to tell us when to buy and when to sell.

What is Our Churn?

Now having said that, this does not say anything about how frequently this is done. We might buy or sell an IV only once every week. However, we have to review the forecasts for the IVs on a daily or multi-day basis in order to ensure that the forecast has not changed for the IVs that we do own.

Conclusion

All of this is part of creating a repeatable and controllable process for a disciplined way of selecting and trading investment vehicles.