Key #2: Establish the TSO percentage at a level which you believe will not trigger a sale due to normal market fluctuations.
If you get this correct, you will capture all of the upside while protecting the downside.
Key #3: Select good quality ETFs.
This, like much of the investment process, is somewhat subjective. Because of time and space constraints, we will discuss this in a later post.
Key #4: Choose an appealing theme.
Investment sectors, geographic regions, investment styles, etc., fall in and out of favor at various times. For example, I like to buy companies that repurchase their own shares because this increases the value for the remaining shareholders. This is also a theme which is working well.
Key #5: Use a mix of passive and active strategies.
The best choice depends on the particular sector, style, etc., you are considering. Morningstar Advisor magazines February/March 2014 issue [not yet available online] published several good articles which analyzed the areas where active management has a greater probability of outperforming a passive index.
Key #6: Consider tweaking your TSO percentage as market conditions change.
This will also depend on the volatility of the specific ETF and where your TSO price is relative to its market price.
My Results Thus Far?
Last year, the results of using this strategy were mostly positive. I was also doing a lot of tweaking. In short, we earned as much as 10% and lost no more than 2% from late June through mid January 2014. There were two ETFs which had a small loss. In each case, the loss is attributed to not waiting for a decline before investing.
This year, Ive bought six different ETFs from January 31st to February 7th. Each has a nice gain thus far ranging from 3.0% to 5.9%, in approximately three weeks. To summarize, this will be the first full year with this strategy and I like the results to date. Ill keep you posted.
Thanks for reading and have a great week.