The worst-known manager essentially follows the "dollar cost averaging" (DCA) principle. In DCA the same amount of dollars is periodically invested in a stock so it really doesn’t matter when it is purchased. If a stock is riding high at the time of purchase, your dollars get you less of it; if the stock is momentarily getting beat up in the market you pick up more of it.
So to a large extent DCA avoids the necessity to time the market to “buy low, sell high” – at least the buy part. Unless you are a day trader, which I am not, timing the market can be difficult.
Also, DCA is much better than periodically purchasing a set number of shares; it doesn’t make economic sense to buy the same number of shares when a stock is trading at $50 and when it’s trading at $20.
I build on the principle of DCA by having a pool of dollars to invest each month. But rather than invest an equal amount of dollars in each stock, I take the pool and slice it to take advantage of seasonal changes.
For instance in Q4 - the holiday season – consumers tend to spend more on tech products. So this quarter I’m likely to put more money in techs and discretionaries – MSFT, EBAY, ADBE, and COST – than in consumer staples – PG or health-care. When the weather is about to get colder or during the summer driving season - when demand for crude oil typical rises - more dollars will be rotated into IGE and SLV.
Furthermore, when the economy slows large caps like PG, EFA, MSFT will see more green than smaller caps and emerging markets – IJR, IWR, and EEM. Large caps do better when the economy slows because they have the market share and resources to weather a slowdown.
As an active investor, this strategy just suits me fine. Since the economy constantly changes it’s only right that the folio take advantage of these changes. So far the strategy has served me well. As of Friday, only ADBE and PBW had posted negative returns to date on a cost basis.
| Stock | FirstBuy | LastBuy | RTD (11/03/06) |
| SLV | 9/12/06 | 9/12/06 | 12.97% |
| EBAY | 9/29/06 | 10/23/06 | 9.05% |
| IGE | 9/12/06 | 10/23/06 | 5.88% |
| EEM | 9/29/06 | 10/23/06 | 4.64% |
| MSFT | 9/12/06 | 10/23/06 | 4.52% |
| EFA | 9/12/06 | 10/23/06 | 3.18% |
| PG | 9/12/06 | 10/23/06 | 2.07% |
| COST | 9/29/06 | 10/23/06 | 1.83% |
| IWR | 9/29/06 | 10/23/06 | 1.36% |
| IJR | 9/29/06 | 10/23/06 | 0.30% |
| ADBE | 10/23/06 | 10/23/06 | -0.84% |
| PBW | 9/29/06 | 10/23/06 | -1.54% |
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