|
PureBytes Links
Trading Reference Links
|
Al, in the last few minutes, I created an
explore for my FidoMFs with 65day ATRs and SDs, and 252 day ATRs and SDs.
I am not sure which if any of these to use. What length would you pick?? While
many (most) MF entries this year have been almost buy and hold, that is not necessarily
the case in the future. While I do not and will not trade MFs like stocks
(and the early redemption penalties are seeing that it is expensive to do so),
it is not clear which length of ART is suitable. It is also not clear
whether SD plays any part here.
Further, would you agree that 3*ART (of
whatever length) is one way to establish a potential stop and thus be able to calculate
money at risk and hence positionsize. However, an oft used technique with
the less volatile funds is to eyeball a nearby support level as a stop point,
and do the calculation from there. Do you see anything “wrong”
with this approach and would you also look and see how many ATRs the support
level is away from the entry price?
Ken
-----Original Message-----
From: Al Venosa
[mailto:advenosa@xxxxxxxxxxxx]
Sent: Monday, December 01, 2003
8:19 PM
To: amibroker@xxxxxxxxxxxxxxx
Subject: Re: [amibroker] Mutual
Fund Money Management
Yes, I agree. I'm not a mutual fund guru by any stretch of the
imagination. Don't know that much about them. But your insight about MFs
holding vastly similar stocks is dead on wrt similar volatilities and price
action. Better to diversify into totally different MFs with different
objectives (large cap, small cap, value, growth, etc.) to fill out your capital
needs. My example simply picked 3 MFs with similar volatiliites. However, if
another fund you wanted to trade had a much higher volatility, you'd buy less
of it to preclude the price movement from getting you out too soon. And, of
course, the corollary is buying a lower volatility MF would require you to
plunk down more capital to risk your 1% (or whatever) because of its lower
price movement. So, depending on the volatilities, you could wind up buying
more than 3 or less than 3 MFs.
----- Original Message -----
<span
>From:<font
size=2 face=Arial> <a
href="" title="closeks@xxxxxxxx">Ken Close
To:<font size=2
face=Arial> <a
href="" title="amibroker@xxxxxxxxxxxxxxx">amibroker@xxxxxxxxxxxxxxx
Sent:<font size=2
face=Arial> Monday, December
01, 2003 8:06 PM
Subject:<font size=2
face=Arial> RE: [amibroker]
Mutual Fund Money Management
Al: thanks; I was counting on hearing from
you on this—almost sent you a private message but hoped I would hear from
others trading funds and willing to share their perspective on this issue vis a
vis MFs.
One thing I have to give some more thought
to is the “overlapping” that might occur with mutual fund holdings
and what the “combined” volatility of several highly correlated
mutual funds might be. Don’t you agree that if the three MFs are
holding many of the same stocks, that their volatilities are not
“independent”. (Not sure that is the proper word….) It
seems then one would be buying one “larger” equivalent fund rather
than three more or less uncorrelated funds. Seems riskier. Feels
riskier.
More on this later.
Ken
-----Original Message-----
From: Al Venosa
[mailto:advenosa@xxxxxxxxxxxx]
Sent: Monday, December 01, 2003
7:54 PM
To: amibroker@xxxxxxxxxxxxxxx
Subject: Re: [amibroker] Mutual
Fund Money Management
Well, Ken, I'm not experienced, but I can take a shot at your
question (remember, the only dumb question is the one not asked). The principles
of money management (MM) are the same regardless of whether or not you are
trading stocks, futures, real estate, mutual funds, or snails. Risk is defined
as the amount of money in a particular trade that you are willing to lose on
that trade. It's not the amount of money you invest in that trade. Suppose your
risk tolerance is 3%: that's how much you are willing to lose on a trade if you
are wrong about the direction of the price action. If a particular MF's
volatility over the last, say, 20 days is, say, also 3% and it's NAV is 25,
then if you bought it at 25, you would sell out for a loss of 3% if the price
declined by 75 cents (3% of 25). How many shares and therefore how much would
you invest to risk that 3%? Assuming your capital is $50,000, your risk is 3%
of 50,000 or $1500. Divide 1500 by 0.75 = 2000 shares. So, you would invest
your entire capital on one MF if you risked 3% (2000 shares * $25/share).
That's why the experts say 3% risk is next to gunslinging. Using a more
rational 1% risk model, your risk is now $500. Dividing 500 by 0.75, you get
667 shares or $16,667 invested in the MF. You can now afford to buy more
mutual funds in order to diversify. The number of funds to own at a particular
time will be determined by the volatilities of the MFs you are buying. If you
used the example above at 1% risk, you could buy 2 more MFs at the same
price/volatility relationship. Your total portfolio heat would be 3% (1% per
MF), which is fairly low. but unfortunately all your capital has been used up
in the purchase of the 3 MFs. If your starting equity were $1 million rather
than $50 K, then you would risk $10 K per MF for 1% risk. Your proportionate
amount invested in each mutual fund would still be about a third of your equity
($333,333 per MF, assuming each MF had a 3% volatility). So, with this
volatility, you would still only buy 3 MFs. These relationships are
percentage-based, so it makes no difference how much equity you have to start
with. It all works out the same way. If it were me, I'd go with 3 funds
rather than 1 fund at 100% allocation. I hope this at least partially answers
your question.
Al Venosa
----- Original Message -----
<span
>From:<font
size=2 face=Arial> <a
href="" title="closeks@xxxxxxxx">Ken Close
To:<font size=2
face=Arial> <a
href="" title="amibroker@xxxxxxxxxxxxxxx">AmiBroker
List
Sent:<font size=2
face=Arial> Monday, December
01, 2003 <span
>5:07 PM
Subject:<font size=2
face=Arial> [amibroker] Mutual
Fund Money Management
<font size=2
face="Courier New">Excuse me for asking a
potentially dumb question, but what are some<font size=2
face="Courier New">
"accepted" rules of thumb for money
management AFA mutual funds are
concerned.
I can see that you might risk say 2%, on a
position, and know what your
stop loss would be, and then divide the price per
share of the fund by
the loss level to approximate the number of shares
to buy.
But what about some of the other rules of thumb,
like do not risk more
than 3% of total equity on a position. Or
does this apply to the stop
loss? Seems like 3% might be a small (too
small?) amount for a mutual
fund position. I do not know. It depends on
the size of your portfolio
of course. What if you have a $20,000
portfolio? What if you have a
$2,000,000 portfolio. A $60,000 MF purchase
out of a $2M portfolio does
not "seem" to be the right
"proportion", or is it?
Also, what about the inherent volatility reduction
that occurs with the
multiple stocks in a fund?
What about the number of funds to own at a single
time? How would you
go about figuring this out, given high correlation
among the funds?
....or given low correlation among the funds?
Is it better to divide a given amount (say $100K)
among two similar
funds ($50K each) ,or is it better to plunk the
entire amount into the
one fund? Would you increase the number of
different funds given
increasing size of total portfolio funds?
Again, maybe a whole series of dumb questions but
what do some of you
more experienced money management folks have to
say for this?
Thanks,
Ken
Send
BUG REPORTS to bugs@xxxxxxxxxxxxx<font size=2
face="Courier New">
Send SUGGESTIONS to suggest@xxxxxxxxxxxxx
-----------------------------------------
Post AmiQuote-related messages ONLY to:
amiquote@xxxxxxxxxxxxxxx
(Web page: <a
href="">http://groups.yahoo.com/group/amiquote/messages/)
--------------------------------------------
Check group FAQ at: <a
href="">http://groups.yahoo.com/group/amibroker/files/groupfaq.html
Your use of
Yahoo! Groups is subject to the Yahoo!
Terms of Service.
---
Outgoing mail is certified Virus Free.
Checked by AVG anti-virus system (http://www.grisoft.com).
Version: 6.0.543 / Virus Database: 337 - Release Date: 11/21/2003
<font size=3
face="Times New Roman">
Send BUG REPORTS to bugs@xxxxxxxxxxxxx<font size=2
face="Courier New">
Send SUGGESTIONS to suggest@xxxxxxxxxxxxx
-----------------------------------------
Post AmiQuote-related messages ONLY to:
amiquote@xxxxxxxxxxxxxxx
(Web page: <a
href="">http://groups.yahoo.com/group/amiquote/messages/)
--------------------------------------------
Check group FAQ at: <a
href="">http://groups.yahoo.com/group/amibroker/files/groupfaq.html
Your use of
Yahoo! Groups is subject to the Yahoo!
Terms of Service.
Send
BUG REPORTS to bugs@xxxxxxxxxxxxx<font size=2
face="Courier New">
Send SUGGESTIONS to suggest@xxxxxxxxxxxxx
-----------------------------------------
Post AmiQuote-related messages ONLY to:
amiquote@xxxxxxxxxxxxxxx
(Web page: <a
href="">http://groups.yahoo.com/group/amiquote/messages/)
--------------------------------------------
Check group FAQ at: <a
href="">http://groups.yahoo.com/group/amibroker/files/groupfaq.html
Your use of
Yahoo! Groups is subject to the Yahoo!
Terms of Service.
<font size=2
face="Courier New">Send BUG REPORTS to
bugs@xxxxxxxxxxxxx<span
>
Send SUGGESTIONS to suggest@xxxxxxxxxxxxx
-----------------------------------------
Post AmiQuote-related messages ONLY to:
amiquote@xxxxxxxxxxxxxxx
(Web page: <a
href="">http://groups.yahoo.com/group/amiquote/messages/)
--------------------------------------------
Check group FAQ at: <a
href="">http://groups.yahoo.com/group/amibroker/files/groupfaq.html
Your use of
Yahoo! Groups is subject to the Yahoo!
Terms of Service.
Yahoo! Groups Sponsor
ADVERTISEMENT
Send BUG REPORTS to bugs@xxxxxxxxxxxxx
Send SUGGESTIONS to suggest@xxxxxxxxxxxxx
-----------------------------------------
Post AmiQuote-related messages ONLY to: amiquote@xxxxxxxxxxxxxxx
(Web page: http://groups.yahoo.com/group/amiquote/messages/)
--------------------------------------------
Check group FAQ at: http://groups.yahoo.com/group/amibroker/files/groupfaq.html
Your use of Yahoo! Groups is subject to the Yahoo! Terms of Service.
|