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chang
Valued Contributor

Re: R48 - pyramid up

As an aside, PRIJX just crossed the 200dma on Thursday or Friday. So if I read R48's method correctly, I should not have made that first purchase last month when the NAV was well below the 200dma, and I should now make a second purchase, even though it's shot up almost 10%.

Right?

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racqueteer
Participant ○○○

Re: R48 - pyramid up


@chang wrote:

As an aside, PRIJX just crossed the 200dma on Thursday or Friday. So if I read R48's method correctly, I should not have made that first purchase last month when the NAV was well below the 200dma, and I should now make a second purchase, even though it's shot up almost 10%.

Right?


Mostly...  Below 200-dma, you only buy if the asset has become a "compelling value".  That is, obviously, a target which involves something other than a mechanical set of rules.  But yes, PU would suggest that a buy would be ok (and, of course, a break above the 200-dma is a positive anyway).

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racqueteer
Participant ○○○

Re: R48 - pyramid up


@FD1001 wrote:

I have tried to understand this method for years but I can't get it all. 

1) I never start from cash.  This means I have to sell something I don't like and buy something I like more.


It's definitely not as simple in all its manifestations as a set of rules to follow blindly.  Basically for accumulators/new money, so this doesn't really apply.


@FD1001 wrote:

2) Suppose I bought 3 buckets of 5 and now this fund is actually going down, do I keep it?   

Simplest answer is yes, but you COULD sell a little on a downward cross of the 200-dma if the 200-dma is also headed downward (I think).


@FD1001 wrote:

4) Suppose I sold 2 buckets and now it started to go up, do I buy again?

I think we're now looking for "Compelling value", but I would think we'd be looking for the 200-dma to turn up?


@FD1001 wrote:

I have tried to understand this method for years but I can't get it all.

5) Suppose I select bond OEFs and the NAV hardly moves, do I look now at TR instead of NAV?  and what happens when I own a stock fund that had a 10% distributions and the NAV is 10% lower?

 I don't think I've seen anything about this situation; I THINK 'bonds' are not a part of PU?

I've always felt that PU was best applied (simplest) for newish investors and accumulators.  It gets you IN, keeps you invested, gives you a way to invest and accumulate.  The more esoteric things (your questions) require more investor skill and analysis.  As a basic system for someone accumulating, who probably hasn't a lot of time or inclination to analyze, it's a workable system.  As you quite correctly note, (and, imo) there are any number of confounding issues which cannot really be reduced to a set of rote rules.  Too, many confuse PU, a method of getting novice, accumulating investors INTO the market, with some kind of system which covers all aspects of investing.  THAT'S where all the little nuances come in, and THAT'S where TIME, SKILL, and EFFORT start becoming paramount.    How'd I do R48?  ;-)


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PatMorgan
Explorer ○

Re: R48 - pyramid up


@FD1001 wrote:

I have tried to understand this method for years but I can't get it all.

You are not the only one who doesn't "get it".

Pyramid up is not useful for someone who invests in the broad market for a long term. Pyramiding up 5 buckets with each additional bucket bought on an increase of at least of 5% would result in the average buying price of the buckets being at least 10% greater than the price of the initial bucket.

I suspect that the broad-market will go up at least a cumulative 20% over the long term. I am not inclined to take a 10% reduction in the cumulative return by using pyramid up.

Someone who is sufficiently worried about short-term loses to want to avoid investing a lump sum can use the simplier approach of dollar cost averaging (DCA). Using the daily historical S&P 500 index price data at Yahoo up to the end of 2018, the average buying price of 5 DCA purchase with each purchase 20 market days apart was 1.3% greater than the price of the ‌initial purchase. That is much less than the premium paid by using pyramid up.

retiredat48
Participant ○○○

Re: R48 - pyramid up


@chang wrote:

So I’m too late (again) for my second buy. My initial buy is now up 9.1% as of today. By waiting too long, I have reduced the margin if safety (profit) I will enjoy after my second buy.

In this case, do you buy and keep your fingers crossed, or wait for a drop?


It's not too late.

First, you were not using PyrUp or you would have made that second (successful) purchase earlier.

However, you haven't lost any margin of safety.  If you bought the second bucket today, you would be up on average about 5%.  This is a great margin, for the next and subsequent buys.

Further, I see this Emerg Mkts fund has been in the doldrums recently, now turning back up, and just crossing back up through its 200 day Moving Average.  This is a strong bucket buy time.  IOW the chart pattern is in your favor.

More in my reply to Racqueteer's post.

R48

retiredat48
Participant ○○○

Re: R48 - pyramid up


@racqueteer wrote:

@chang wrote:

As an aside, PRIJX just crossed the 200dma on Thursday or Friday. So if I read R48's method correctly, I should not have made that first purchase last month when the NAV was well below the 200dma, and I should now make a second purchase, even though it's shot up almost 10%.

Right?


Mostly...  Below 200-dma, you only buy if the asset has become a "compelling value".  That is, obviously, a target which involves something other than a mechanical set of rules.  But yes, PU would suggest that a buy would be ok (and, of course, a break above the 200-dma is a positive anyway).


Excellent, racqueteer.

If PyrUp is so complex, how come raq remembers it so well.

PyrUp is a buy-in strategy.  You, the investor, decide WHEN to start...your first purchase.  Just like dollar cost averaging, or lump sum do not tell you "when" to start.

Racqueteer is correct that I want to buy only funds  in uptrends, usually identified by fund NAVs being above their 200 day MAs.  If not, the exception is, if you consider a COMPELLING VALUE EXISTS  (like at bottoms of bear markets) then it is OK to make that initial bucket purcahse.  Then go with Pyramid Up purchases.  At least one of those purchases should be as the NAV moves through the 200 day MA on the upside.  For Changs fund, that is NOW.

But operating rule is:  You decide when to start.  Pyr Up is the buy-in technique to employ.

R48

 

 

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archer
Participant ○

Re: R48 - pyramid up

IIUC, Pyramiding up/down is a way of getting in/out of assets kind of like getting into cold water slowly rather than diving in and getting it over with. What investments to choose and when to invest is another topic completely. That might seem obvious but it is an important point in measuring the efficacy of PU. PU might not work out to ones advantage, but that can be for a number of of other reasons. Having looked back in time and hypothetically bought/sold on different TA triggers, I find a lot of whipsaws which cancel out to a large degree any advantages over B&H. It does serve well though in cutting off the lower portions of the V shaped loss/recovery. I haven't found a TA method that isn't late. The earlier it is the more false signals there are. My sense is that it can reduce PF volatility but often at the expense of total gain, but perhaps favorably when measuring risk adjusted returns. I'm still hoping to find the holy grail to make a killing without much risk, but don't think there is one. :-)

Edit: I guess I was incorrect to say PU is completely separate from what and when to invest. R-48 did state that it is "performance based".

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retiredat48
Participant ○○○

Re: R48 - pyramid up


@racqueteer wrote:

 




 I don't think I've seen anything about this situation; I THINK 'bonds' are not a part of PU?

R48 in bold:  You are correct, raq.  I do not use PyrUp for bonds.  Reason is: Bonds are contractual instruments, not growth like stocks.  Thus OK to average down, or buy at same prices in the future.  However poster CAPECOD , who invested mostly in bond funds, would not average down, and always bought in "buckets."  Thus, even though he would die rather than call this PyrUp, that is what he does...PyrUp.

raq stated:  I've always felt that PU was best applied (simplest) for newish investors and accumulators.  It gets you IN, keeps you invested, gives you a way to invest and accumulate.  The more esoteric things (your questions) require more investor skill and analysis.  As a basic system for someone accumulating, who probably hasn't a lot of time or inclination to analyze, it's a workable system.  As you quite correctly note, (and, imo) there are any number of confounding issues which cannot really be reduced to a set of rote rules.  Too, many confuse PU, a method of getting novice, accumulating investors INTO the market, with some kind of system which covers all aspects of investing.  THAT'S where all the little nuances come in, and THAT'S where TIME, SKILL, and EFFORT start becoming paramount.    How'd I do R48?  ;-)

R48 in bold:  You did great, raq!!

Look folks, there are three types of buying techniques:  Lump sum; dollar cost averaging (incl value averaging) and Pyramiding Up.

In its essence, for Pyramiding Up:

1. Can you calculate how to divide your planned buy into five buckets worth??  Can you divide by five?...and

2.  Can you calculate let's say 3% of an NAV, and add it to your previous  purchase price? Like, if you bought a fund at $10.00/share, the next buy should not be make until the fund share price gets at or above $10.30, the next buy-in price.

Then that's all there is.  There are no exceptions.  Quite simple, no?

R48

 



 

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retiredat48
Participant ○○○

Re: R48 - pyramid up


@FD1001 wrote:

I have tried to understand this method for years but I can't get it all.

1) I never start from cash.  This means I have to sell something I don't like and buy something I like more.

R48 replies in bold:  ??.  PyrUp is a buy-in technique.  If you sell something, then you instantly have cash to reinvest.  401.K investing is small bi-weekly investments where dollar cost averaging is in play.  But most other times, a lump sum cash is involved...even your annual IRA contribution is cash, which  can be put into a fund and divided into five buckets.

 

2) Suppose I bought 3 buckets of 5 and now this fund is actually going down, do I keep it? 

Pyr UP has to be compared to the alternatives of Lump Sum or Dollar Cost Averaging.  Neither of these tells you of whether or not to keep a fund.  You the investor, considering your style, makes such decisions.  But note, with Pyr Up you are likely in a small gain position, and can think straight.  You may decide to sell a bucket.  

But note, if you are lump sum, YOU ARE LOSING MORE;  if you are DCAing, you do not stop. You keep buying even if a losing situation.

So, if a large bear market hits your fund (down 50%), you tip a glass of champagne to R48, because PyrUp saved from losing in the other 2/5 of your lump sum, and if DCA you just bought more and more of a losing position.  You won with PyrUp.

3) if I find a fund I like more, how do I sell? the reverse of Pyramid up?

I sell out of the first fund in buckets...the first such bucket sale dollars going almost same-day into the new fund.  Then I Pyramid Up buy the new fund.  When the percent threshold is reached, I sell another bucket from fund one, and buy fund two.  Note if fund one is up more than fund two during this time, ask yourself if you are making a good move!!  If fund one is indeed a dog, you can sell all, then continue to Pyramid Up.  More experienced investors could incorporate some market timing here between sells/buys, if they like.

4) Suppose I sold 2 buckets and now it started to go up, do I buy again?

Investor call.  But you DO NOT BUY MORE UNTIL YOUR PAST NAV PRICE IS ABOVE RETAINED BUCKET PURCHASES IS REACHED.  Otherwise you are likely buying into a downtrend.  As an investor, I think you should call timeout and ask yourself fundamentally why did I sell, and is the right fund to add to now.

5) Suppose I select bond OEFs and the NAV hardly moves, do I look now at TR instead of NAV?  and what happens when I own a stock fund that had a 10% distributions and the NAV is 10% lower?

Pyr Up is not for bonds...but see reply to racqueteer.

 

=======================

 

 

Basically, I'm saying to myself each time the following....suppose you won a million Dollars now and you must invest it tomorrow in your 3-5 best ideas(=funds), what funds are you going to select?

PyrUp has nothing to do with this fund choice.  But when you do decide which fund to invest in, AND you decide when you want to start, Pyramid Up is a way for most investors to control their behavior, enable them to get started, and to make follow buys with confidence. 

If fact, the case you sight, a large lump sum such as from an inheritance, beneficiaries simply cannot get started buying stock funds...they are so scared to lump sum in.  Their goal is not max performance...it is:  If I lose one dime of this inheritance, my Dad will be rolling over in his grave.  PyrUp enables them to get started...with confidence of not having big losses.

The lady whom I recited her post about using PyrUp was a 60 year old retiree, who pulled her portfolio from her investment advisor (1.5% fee), and used PyrUp as a basis for her Do It Yourself investing and completely new portfolio redo.  I followed her off-forum and she did quite well.  She's a happy camper.

R48

 


 

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cliff
Explorer ○○

Re: R48 - pyramid up

Chang, you’re a smart guy and not an unsophisticated investor.  You also have several market cycles left before you spin off, right?  So just one question . . . . 

What strategy do you think will provide you with the greatest return?  True dollar cost averaging, sometimes buying when prices are somewhat lower, or fake dollar cost averaging, only buying when prices are higher?

Duh.

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retiredat48
Participant ○○○

Re: R48 - pyramid up


@cliff wrote:

Chang, you’re a smart guy and not an unsophisticated investor.  You also have several market cycles left before you spin off, right?  So just one question . . . . 

What strategy do you think will provide you with the greatest return?  True dollar cost averaging, sometimes buying when prices are somewhat lower, or fake dollar cost averaging, only buying when prices are higher?

Duh.


The answer is easy, Chang.

First, here's what you (Chang) posted way back a decade ago, on the merits of Pyramiding Up:

Chang:   I do things differently than R48, but I like this aspect of his approach.  I recently watched an interview with a money manager who quoted one of his mentors: "the hardest time to invest is now".  By tackling this truism head on, R48 has provided an idea of real value to investors.

Second, with cliff posting this brings up perhaps the best case where Pyramid Up saved my rear end from losses: Master Limited Partnerships (MLPs).

You see, MLPs is my worst investment in four decades; however I am still slightly ahead.  Several years ago, I pyramided up into NTG, which holds an assortment of 35 MLPs.  Then I started buying into another such c-corp/fund of MLPs...then started a third fund purchase.  However, the MLP market started in a strong downturn.  I thus bought no more of the third fund...eventually selling quickly as it passed below its 200 day MA.  Then I started selling the second one, which held a great amount of KMI...Got out even (considering high dividend yields)...whew.  I have kept NTG...but buying no more.  With 10% yields, I am slightly ahead overall.

Now, we all know how cliff and certain other posters did owning a much higher percentage of MLPs, and not using controls of Pyramid Up!!  One posted he lost north of $200,000!

Disaster avoided for me.

R48

 

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cliff
Explorer ○○

Re: R48 - pyramid up

 

Like I said, chang, you’re a smart guy. You’ll figure out the math.

 

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Bentley
Contributor ○

Re: R48 - pyramid up


@retiredat48 wrote:

@cliff wrote:

Chang, you’re a smart guy and not an unsophisticated investor.  You also have several market cycles left before you spin off, right?  So just one question . . . . 

What strategy do you think will provide you with the greatest return?  True dollar cost averaging, sometimes buying when prices are somewhat lower, or fake dollar cost averaging, only buying when prices are higher?

 

 

 

 

we all know how cliff and certain other posters did owning a much higher percentage of MLPs,

Disaster avoided for me.

R48

 


 For a 70+-year-old to have 93.7% of their portfolio in energy infrastructure, Alerian products, KMI warrants, and the leveraged MLPL was beyond risky and why investors should temper their stretch for yield. Anybody that holds a portfolio of equity yielding 6X the market's yield has a fairly good chance of suffering the same type of experience the infrastructure guys have been subjected to. It sickens me to see so many members follow a few overconfident leaders into MLPL, KMI, and mlp's.

 The two, three and four fund portfolios of informed Bogleheads have shown that Mr Bogle knew what he was talking about.

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retiredat48
Participant ○○○

Re: R48 - pyramid up


@Bentley wrote:

@retiredat48 wrote:

@cliff wrote:

Chang, you’re a smart guy and not an unsophisticated investor.  You also have several market cycles left before you spin off, right?  So just one question . . . . 

What strategy do you think will provide you with the greatest return?  True dollar cost averaging, sometimes buying when prices are somewhat lower, or fake dollar cost averaging, only buying when prices are higher?

 

 

 

 

we all know how cliff and certain other posters did owning a much higher percentage of MLPs,

Disaster avoided for me.

R48

 


 For a 70+-year-old to have 93.7% of their portfolio in energy infrastructure, Alerian products, KMI warrants, and the leveraged MLPL was beyond risky and why investors should temper their stretch for yield. Anybody that holds a portfolio of equity yielding 6X the market's yield has a fairly good chance of suffering the same type of experience the infrastructure guys have been subjected to. It sickens me to see so many members follow a few overconfident leaders into MLPL, KMI, and mlp's.

 The two, three and four fund portfolios of informed Bogleheads have shown that Mr Bogle knew what he was talking about.


Please clarify you are referring to poster "cliff", and not me, R48.  I have never held such an allocation.

R48

 

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chang
Valued Contributor

Re: R48 - pyramid up


@cliff wrote:

Chang, you’re a smart guy and not an unsophisticated investor.  You also have several market cycles left before you spin off, right?  So just one question . . . . 

What strategy do you think will provide you with the greatest return?  True dollar cost averaging, sometimes buying when prices are somewhat lower, or fake dollar cost averaging, only buying when prices are higher?

Duh.


Cliff: I am an incurable bottom fisher, and I will always do some averaging down. So, rightly or wrongly, I end up “true dollar cost averaging”, albeit not on a strict schedule - I always try to buy on dips. BTD has been spectacularly successful for the last couple of years.

But as I mentioned below, with my McCormick example, and PRIJX, and XBI, and many others over the years, I am terrible at buying on the way up. I mean it - terrible. I guess I need to have more faith in momentum; in which I usually have very little faith at all.

PS.: thanks for the “smart guy” compliment.

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chang
Valued Contributor

Re: R48 - pyramid up


@chang wrote:

But as I mentioned below, with my McCormick example, and PRIJX, and many others over the years, I am terrible at buying on the way up. I mean it - terrible. I guess I need to have more faith in momentum; in which I usually have very little faith at all.


One comment to add to this. Considering that the long-term trend of the stock market is up, it's a miracle that I managed to get a decent sum of money into the market over the years, and find myself in the green. All I can say is -- and I know R48 will agree and FD will roast me -- thank God for volatility! If every asset and fund rose gently upward in a uniform manner, I wouldn't have any money invested! I'm an incorrigible and unrepentant dip-buyer, and for someone like me volatility is a blessing.

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archer
Participant ○

Re: R48 - pyramid up

I'd love to buy the dips but I never have any cash! I would also like to sell at the peaks, but I never know where they are until too late. 

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retiredat48
Participant ○○○

Re: R48 - pyramid up


@archer wrote:

I'd love to buy the dips but I never have any cash! I would also like to sell at the peaks, but I never know where they are until too late. 


Investors can buy the dips using Pyramid Up.

The key is to make sure your next dip buy price is above your previous purchase point.

Otherwise you are likely buying into a downtrend...where each dip gets lower and lower.

How would one have fared buying GE on the dips, the last couple years?  

If anything you are accumulating is trending down, best is to seek opportunities elsewhere.

Nothing is worse than seeing "dead money" freezing investors in-place.

R48

 

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ElLobo
Participant ○○○

Re: R48 - pyramid up


@archer wrote:

I'd love to buy the dips but I never have any cash! I would also like to sell at the peaks, but I never know where they are until too late. 


Yup, that's a problem for those of us who like to maintain a fully invested portfolio, who don't keep appreciable amounts of cash sitting on the sidelines, waiting for the next opportunity, whether it be a new investment or the next tranch in the pyramid.  Also not sure how PU works during retirement, where shares are sold to cover a withdrawal.

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ElLobo
Participant ○○○

Re: R48 - pyramid up

PU is a useful tool for those who invest and focus on funds/investments that they expect to appreciate and to avoid capital losses.  For those of us who focus on the divey/distribution cash flow thrown off by their investments, it makes absolutely no sense to PU, keeping a bucket of cash around earning diddly squat as opposed to all buckets in earning, say, 10%.  Think opportunity cost.

Like bonds, preferreds, or any/all high yield investments where the majority of the return comes from yield, not capital appreciation/depreciation!

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