Long Term (5+ years) Positions via CFDs Questions and Ideas

[monkeymoney]

Hai!

I have put quite a bit of thought into some investment strategies for the long term,such as
dogs of the DOW (averaged 16% for last 15 years).
And considering the quite low volatility of the strategy,ive been thinking of using CFDs in order to be able to use leverage to be able to have instead of a 10-20k position,a 100-200k position.
I calculated it would cost me the following via the brokerage fees (IG markets)
Fed rate + 2,5% + 0.10% per transaction.
Do you think this is a viable long term strategy?
Is it even possible?

Thank you!

 

[tomorton]

But why do you think long-term investment in a single equity / commodity / currency etc. makes financial sense?

We know that the price of an instrument can spend long periods of time below the entry point, regardless of how good your timing. And most prices spend far longer ranging or consolidating than they do trending. Even when they do trend, they could be trending downwards against you, either taking you into loss or at least eroding your profit.

Why not make the capital work harder over your time period by investing it in the most energetic trends, re-locating it when the trend fails and another offers better prospects? You would even be able to re-invest the capital into a short position when you identify a strong downtrend.

 

[Lee Shepherd]

monkeymoney,

Or in other words you could also get 2 cycles of events that drive it up in 4 years to profit and down in the 5th year below your entry.

I reckon that because its over a long time (5+yrs) you think it will be almost a dead cert. This is many peoples perception and many times they are wrong, take into account inflation, interest and what other things you could have done with the money rather than leaving it dormant on a punt that things will be rosey in 5+yrs.
Also, you would have to pay interest on the loan/s, leverage is not free to use nor keep.

 

[Hittfeld]

Hai!

I have put quite a bit of thought into some investment strategies for the long term,such as
dogs of the DOW (averaged 16% for last 15 years).
And considering the quite low volatility of the strategy,ive been thinking of using CFDs in order to be able to use leverage to be able to have instead of a 10-20k position,a 100-200k position.
I calculated it would cost me the following via the brokerage fees (IG markets)
Fed rate + 2,5% + 0.10% per transaction.
Do you think this is a viable long term strategy?
Is it even possible?

Thank you!

Hi monkeymoney,
some will say even the DogsOfDOw strategy is doomed - but I made a lot of money with it! But going via cfd`s might prove sub par at best.

When you start, you need the cash for margins AND for the daily price differences. That makes a lot of cash, on which you hardly get any interest paid. But for positions hold you will have to pay interest, which is deducted from your cash account daily. so you need even more cash in the box. So I think your full interest bearing will be in the range between 12 and 15 % easily.

Marketmakers are NOT in the brokerage business, but they make their money through financing costs charged to their customers. Still, correct me, if I`m wrong.

Regards

Hittfeld

P.S. I do something similar but not with dod, but following the free decisionmoose(dot com) system via cfd`s . But thats a >30 % pa system.Unleveraged!

 

[timaru69]

Hi

Maybe slightly off topic but why would a UK retail punter use CFD's????? I thought that CFD's where a "better" way of trading UK stocks than spreadbets but after trying them for a while have come to the conclusion that Spreadbets are better.

The reason

Commission? IG were smacking me £10 in and £10 out, over 150 trades that's £3,000

A mate of mine bought 100 Apple CFD's and was charge $94 in commission?????? DMA I pay $2 a RT fo 100 shares???

So why do CFD's, does anybody use CFD's in teh UK (retail punters not institution)

 

[monkeymoney]

Hello,


What many of you guys seem to ignore,is the fact that historically the stock market,has been trending upwards,regardless of "volatility".
Of course I am aware that such a strategy would require some cash that I do not earn any interest on in my account,just in case of a margin call,but historically,the dogs of the Dow hasn't had a drow down of more than 20%(Not sure about this figure,can't remember were I read it).
I could also setup stop losses,at exactly the divident yeld of each stock,and afterwords an order to automaticly sell short beyond that and go out of the short position once half of the price drop is recovered.
The financing rates,will be at around 2%+2,5%+0.10%,that's 4.6% a year with the current FED rares,but I could diversify in case the federal reserve screws me with the rates,I could also do a similar strategy with the German Dax,and many many other indices,this way I would be less exposed to sudden interest rates fluctuations,because id get bank of japan,bank of england,ECB,etc rates.


Just think of it this way,I achieve an average of 16% a year,minus 4% in the total costs of the leveraged position,why earn 16% on 10k,instead of 12% on 100k?

What do you think?

 

[monkeymoney]

monkeymoney,

Or in other words you could also get 2 cycles of events that drive it up in 4 years to profit and down in the 5th year below your entry.

I reckon that because its over a long time (5+yrs) you think it will be almost a dead cert. This is many peoples perception and many times they are wrong, take into account inflation, interest and what other things you could have done with the money rather than leaving it dormant on a punt that things will be rosey in 5+yrs.
Also, you would have to pay interest on the loan/s, leverage is not free to use nor keep.

In the event of a stagnating economy,we can assume,the interest rates would be kept low,unless there's also severe inflation to fight.
Even in such an event,the strategy is sufficiently diversified to include stocks that pay dividends,even in the case of no real actual capital gains,the dividends would still be enough,or slightly bellow the cost of capital.

 

[monkeymoney]

But why do you think long-term investment in a single equity / commodity / currency etc. makes financial sense?

We know that the price of an instrument can spend long periods of time below the entry point, regardless of how good your timing. And most prices spend far longer ranging or consolidating than they do trending. Even when they do trend, they could be trending downwards against you, either taking you into loss or at least eroding your profit.

Why not make the capital work harder over your time period by investing it in the most energetic trends, re-locating it when the trend fails and another offers better prospects? You would even be able to re-invest the capital into a short position when you identify a strong downtrend.

Its not a single equity,its a diversified strategy.
Have a look for yourself, Dogs of the Dow - High dividend yield Dow stocks - www.dogsofthedow.com .

 

[monkeymoney]

Also,another thing I could do,is take short positions on my long positions that are going down,positions of equal size,this way losses/gains pretty much equal out,that's what hedge funds are doing,isn't it?
Id end up paying only a slight loss plus the financing rates.

 

[Lee Shepherd]

Hello,


What many of you guys seem to ignore,is the fact that historically the stock market,has been trending upwards,regardless of "volatility".
Of course I am aware that such a strategy would require some cash that I do not earn any interest on in my account,just in case of a margin call,but historically,the dogs of the Dow hasn't had a drow down of more than 20%(Not sure about this figure,can't remember were I read it).
I could also setup stop losses,at exactly the divident yeld of each stock,and afterwords an order to automaticly sell short beyond that and go out of the short position once half of the price drop is recovered.
The financing rates,will be at around 2%+2,5%+0.10%,that's 4.6% a year with the current FED rares,but I could diversify in case the federal reserve screws me with the rates,I could also do a similar strategy with the German Dax,and many many other indices,this way I would be less exposed to sudden interest rates fluctuations,because id get bank of japan,bank of england,ECB,etc rates.


Just think of it this way,I achieve an average of 16% a year,minus 4% in the total costs of the leveraged position,why earn 16% on 10k,instead of 12% on 100k?

What do you think?

Dam, this is sooo easy, why hasn't anyone else thought of doing this. This is amazing with a capital A, no, its better than that, it's brilliant with a capital WTF.


Mate, where you getting your info from. Take the ftse100 for starters, this has been higher in the last millenium than it has been in this one, to put into perspective for you, if you had invested in 1999, you would still be out of pocket let alone interest costs and inflation to bear in mind, if inflation is just 2% per year then this is the minimum you want it to grow just to keep it at the same relative value, its more than double this at the moment if you hadn't realised. Long term trading/investing works similar to small time frame trading, the markets go up, they go down, you put your money in, you take it out. Simple enough.

If you think you've come up with something fantastic that no one else has thought of then well done, stop asking questions from strangers that wont understand your complex but simple equations into investing and get on with it.

Just so your clear here, before moving into trading indices four years ago I traded shares in companies for almost a decade before. What your suggesting bears no fruit me old fruit.

On the other hand, the market needs liquidity so, come on, get off the pot and throw ya money into the market pit. I need someone on the other side of my contracts. Long term, you'll easily make money cos the market always goes up....after its gone down of course

 

[monkeymoney]

Dam, this is sooo easy, why hasn't anyone else thought of doing this. This is amazing with a capital A, no, its better than that, it's brilliant with a capital WTF.


Mate, where you getting your info from. Take the ftse100 for starters, this has been higher in the last millenium than it has been in this one, to put into perspective for you, if you had invested in 1999, you would still be out of pocket let alone interest costs and inflation to bear in mind, if inflation is just 2% per year then this is the minimum you want it to grow just to keep it at the same relative value, its more than double this at the moment if you hadn't realised. Long term trading/investing works similar to small time frame trading, the markets go up, they go down, you put your money in, you take it out. Simple enough.

If you think you've come up with something fantastic that no one else has thought of then well done, stop asking questions from strangers that wont understand your complex but simple equations into investing and get on with it.

Just so your clear here, before moving into trading indices four years ago I traded shares in companies for almost a decade before. What your suggesting bears no fruit me old fruit.

On the other hand, the market needs liquidity so, come on, get off the pot and throw ya money into the market pit. I need someone on the other side of my contracts. Long term, you'll easily make money cos the market always goes up....after its gone down of course

Hay mate!

First of all its nothing new
Im pretty damn sure there's people out there making
great returns on borrowed capital (hint: hedge funds),that
is not what my question is all about
And i am not talking about overall indices,I am taking about a specific
strategy that picks the highest yielding stocks once a year,off a particular index.
Yes,you can make money with such a strategy,and you can even do some capital preservation when the market is actually going downwards,simply by shorting your long positions that are going south,this way you can balance out to some extent the effects of volatility while still being able to reap the long term results of an upwards trending strategy.
Once again,this is not an entire index.

 

[Lee Shepherd]

Hay mate!

First of all its nothing new
Im pretty damn sure there's people out there making
great returns on borrowed capital (hint: hedge funds),that
is not what my question is all about
And i am not talking about overall indices,I am taking about a specific
strategy that picks the highest yielding stocks once a year,off a particular index.
Yes,you can make money with such a strategy,and you can even do some capital preservation when the market is actually going downwards,simply by shorting your long positions that are going south,this way you can balance out to some extent the effects of volatility while still being able to reap the long term results of an upwards trending strategy.
Once again,this is not an entire index.

Hi bud,

I hear what you're saying and you are absolutely right, the thing is knowing when its trending down and making sure you're not wasting your Long profits on bad Shorts due to getting in at the wrong time. Timing in the markets, or any investment to that matter, is what its all about. Timing is everyting.

What you've said so far works totally in principle, like me saying I'm going to buy in at the top and sell at the bottom, or whatever way round, I get confused

To invest this way you'd have to expect the worse then add another 20% for measure, to which causes a huge amount of capital tied up, just in case. It's hard enouh to predict the market in 5 minutes time let alone 1 months time. 5 years plus is an impossibility and leaves at risk to an unprecedented amount of risk.

Risk in its entirety include, but not in no way exhausted:
Political unrest
Trade agreements started/cancelled
Wars
Terror attacks
Hyper inflation
Hyper interest rates
Devaluation of currency
Exchange of currency(ie, joining the euro zone)
Leaving europe/becoming independant again
Unemployment
Immigration, too much/not enough

And of course,
Your own personal predicaments which would be effected outside, but not excluding your investments.

The stress that all this potentially carries is unlike holding contracts for the night, not even for the weekend hoping they go your way or even for a month, we're talking many cycles within cycles that hold no bearing on what could happen next year, let alone half a decade or more.