what would this strategy yield?

D

DennisR

I really have no way of backtesting this, but hear me out. Say you can generate $1000 a month to invest regularly. Now lets say you buy 1 share of SPY on every down day in the market. At 3:55pm if the S&P is down, you buy 1 share. Sure some months you would not have enough negative days to invest your entire $1000, but certainly other months would make up for it. What kind of returns do you think you would see long term? I know it sounds a little juvenile and oversimplified, just curious...
 
Should have added: I figure this is a good way to average down when in bear markets and a way to get better pricing in bull markets. I'm thinking long term here.
 
Watch out for commissions. Most firms have a 1 dollar minimum.

This is not a strategy though. Buy and hope the markets end higher. I would long the SSO instead if you want market exposure.
 
Quote from DennisR:

I really have no way of backtesting this, but hear me out. Say you can generate $1000 a month to invest regularly. Now lets say you buy 1 share of SPY on every down day in the market. At 3:55pm if the S&P is down, you buy 1 share. Sure some months you would not have enough negative days to invest your entire $1000, but certainly other months would make up for it. What kind of returns do you think you would see long term? I know it sounds a little juvenile and oversimplified, just curious...
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If you just planned on buying without ever selling, then you'd be better off just taking your 1000 a month and buying on the exact same day each month. Your average cost would probably be virtually the same as your plan and would cost far less in commissions.

Basically what you're describing is just dollar cost averaging over a more fine-tuned range. Secondly, your strategy would work better in a bear market. In a bull market, you'd be left behind wondering where to buy.
 
Less than 8%.

What do you do on the up day?

In the end....

You'll end up with a bunch of unallocated cash, which will lower the average return. Better the market does, the less you will be allocating money to ride the bull market.
 
!........ it's still 8%! The purchases "below trend" will average-out the purchases "above trend" to create an 8% annual return.
 
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