3 legged stool

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Feb 5, 2010 10:24 pm
ok, warning - this is gonna be long.
 
I'm curious to know members thoughts on the Dorsey Wright Methodology. I am a casual user (sounds like a pre-drug addict). I recently started reading the Daily Equity Report, and intend to read the book. I know it is a methodolgy that takes years to really master.

but I think i have a good grasp of the relative strenght approach, using their DALI ideas. I like the relative strenght approach, i think it makes sense.  It wont get you in at the bottom or out at the top, but I think over time it will save you a lot of angst. Especially during sh*tstorms like 2008.


So starting off with a handful of clients and we'll see where it goes. (and i am putting some of my own money into it) - here is what i have been doing


Core - Satellite
Core- strategic asset allocation, using Mutual Funds  This is 60-65% of the portfolio and the allocation depends on the client i am doing it for. I'm struggling with the 60-65%. Should it be 50%? I have tried to buy the Strategic AA story, over and over, it makes our lives easier, but i am a tactical guy at heart and i think its the right thing to do for the client, its how we EARN our money, and it allows for a great story to prospects.
 
Satellite - all ETF's-
3 legged stool (or three slice pie)
Leg 1 & 2-  6 asset classes - US Equity Intl Equity, Fixed Income, Currencies, Commodities, and Cash (Money Market). The first two legs, or two thirds of the Satellite piece - are the two of those 6 that have the best relative strenght, based on the DWA DALI Model.
Right now, those two legs are US Equities, and Cash. (the cash is recent, it came from Intl Equities going negative on RS this week.)
 
The third leg is a tactical Sector Rotation model, again using RS.
On the DWA website, they offer sector rotation models using many different ETF fund families, that they "manage", from IShares to Vanguard, to Wisdom Tree, etc. You can plug in the$ amount, choose the model and it will tell you how many shares to buy of each.
 
Thats it. I am trying to do the right thing for clients and balance it with trying to streamline and build scale into my investment process, so i can have more time to tell this story to prospects.
OK, load your guns, start shooting. Except for the few assholes who use real bullets, you know who you are.
Feb 5, 2010 11:21 pm

You can simplify and do everything you want with mutual funds.  DON'T use DALI for a satelite and certainly don't use it for asset class rotation.  If you can block trade, idea #3 is good.  If you can't block trade, you will never be able to do it with scale.

Feb 5, 2010 11:32 pm

I used to do everthing on a block trading system. But when i changed B/D's i had a tough time with it because 1. i wasnt able to learn the block trade system quickly enough, and 2. accounts coming in at diff times. Between thses two issues, accounts went out of wack. My plan is to eventually, maybe at years end, do some further restructing , call it rebalancing, to models on the block trade system that i will set up


Expand on why you wouldnt use DALI. The three legged stool is based on DALI and i think it makes sense. Gets you out when things really break down. Looking at the DWA website, using Level 1 as a tactical portfolio by itself (which is legs 1 and 2) returned a cumulative 121% in the 10 years ended December 2009.


I looked at multiple examples  of the 3 legged stool performance over the last 10 years and it is scary, which i have to admit is making me nervous, we all know there is no black box.
As an aside, i am not using multiple etf'S for the first 2 legs. So if one of the legs is US Equities, i am not using a basket of sector etfs for this representation, i use SPY or RSP.
Feb 5, 2010 11:47 pm
Sportsfreakbob:

I used to do everthing on a block trading system. But when i changed B/D's i had a tough time with it because 1. i wasnt able to learn the block trade system quickly enough, and 2. accounts coming in at diff times. Between thses two issues, accounts went out of wack. My plan is to eventually, maybe at years end, do some further restructing , call it rebalancing, to models on the block trade system that i will set up


Expand on why you wouldnt use DALI. The three legged stool is based on DALI and i think it makes sense. Gets you out when things really break down. Looking at the DWA website, using Level 1 as a tactical portfolio by itself (which is legs 1 and 2) returned a cumulative 121% in the 10 years ended December 2009.


I looked at multiple examples  of the 3 legged stool performance over the last 10 years and it is scary, which i have to admit is making me nervous, we all know there is no black box.
As an aside, i am not using multiple etf'S for the first 2 legs. So if one of the legs is US Equities, i am not using a basket of sector etfs for this representation, i use SPY or RSP.

DALI is too volatile, you will end up trading accounts at the wrong time, suffering from market whiplash.  Personal experience.  Do you look at PTMU0?  (zero not oh) 
Feb 6, 2010 1:17 am

what is that?>

Feb 8, 2010 7:51 pm
Sportsfreakbob:
ok, warning - this is gonna be long.
 
I'm curious to know members thoughts on the Dorsey Wright Methodology. I am a casual user (sounds like a pre-drug addict). I recently started reading the Daily Equity Report, and intend to read the book. I know it is a methodolgy that takes years to really master.

but I think i have a good grasp of the relative strenght approach, using their DALI ideas. I like the relative strenght approach, i think it makes sense.  It wont get you in at the bottom or out at the top, but I think over time it will save you a lot of angst. Especially during sh*tstorms like 2008.


So starting off with a handful of clients and we'll see where it goes. (and i am putting some of my own money into it) - here is what i have been doing


Core - Satellite
Core- strategic asset allocation, using Mutual Funds  This is 60-65% of the portfolio and the allocation depends on the client i am doing it for. I'm struggling with the 60-65%. Should it be 50%? I have tried to buy the Strategic AA story, over and over, it makes our lives easier, but i am a tactical guy at heart and i think its the right thing to do for the client, its how we EARN our money, and it allows for a great story to prospects.
 
Satellite - all ETF's-
3 legged stool (or three slice pie)
Leg 1 & 2-  6 asset classes - US Equity Intl Equity, Fixed Income, Currencies, Commodities, and Cash (Money Market). The first two legs, or two thirds of the Satellite piece - are the two of those 6 that have the best relative strenght, based on the DWA DALI Model.
Right now, those two legs are US Equities, and Cash. (the cash is recent, it came from Intl Equities going negative on RS this week.)
 
The third leg is a tactical Sector Rotation model, again using RS.
On the DWA website, they offer sector rotation models using many different ETF fund families, that they "manage", from IShares to Vanguard, to Wisdom Tree, etc. You can plug in the$ amount, choose the model and it will tell you how many shares to buy of each.
 
Thats it. I am trying to do the right thing for clients and balance it with trying to streamline and build scale into my investment process, so i can have more time to tell this story to prospects.
OK, load your guns, start shooting. Except for the few assholes who use real bullets, you know who you are.
 
Good stuff! A plan that can control downside risk while getting the lions share of the market's upside. A way to get the innocents off the tracks.
Gotta subscribe to DW, become an expert in the DW models, and point and figure charting. Extra work!!! Hey isn't that what you are getting paid to do? YES!!!!!