Lets trade Warren Buffet's 90/10 index strategy with a twist

This thread is dedicated to share ideas and test legendary Warren Buffet's strategy moving forward.. ...

The good news is you don’t have to pay a dime for Mr. Buffet’s valuable advice. Warren Buffett published the instructions he has left to the trustee who will manage his wife’s trust in a letter to Berkshire investors. The instructions could fit on the back of an envelope and couldn’t be easier to follow.

"What I advise here is essentially identical to certain instructions I’ve laid out in my will. One bequest provides that cash will be delivered to a trustee for my wife’s benefit…My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors"-Warren Buffet..…

Join me to put one of the greatest investors of all time Warren Buffet's investment advice into practice and see how it goes...

I will provide resources and tips later..

Here is the list of the bonds and index funds we will be dealing with.They are in ticker symbols.If you dont know what a ticker symbol is ,google is your friend..


LOW COST S&P INDEX FUNDS
VOO
SCHX
VTI
ITOT
VTV
VO
SCHM
IJH
VB
SCHA
IWM

SHORT TERM GOVERNMENT BONDS.
VGSH
ISTB
SCHO
SHY

More about these ticker symbols
LOW COST S&P INDEX FUNDS
Name: Vanguard S&P 500 ETF
Ticker Symbol: VOO
Category & Style: Large Cap/Blend (Mimic S&P 500 stocks)

Name: Schwab U.S. Large-Cap ETF
Ticker Symbol: SCHX
Category & Style: Large Cap/Blend (Mimic Dow Jones Large Cap)

Name: Vanguard Total Stock Market ETF
Ticker Symbol: VTI
Category & Style: Large Cap/Blend (Total market exposure)

Name: iShares Core S&P Total U.S. Stock Market ETF
Ticker Symbol: ITOT
Category & Style: Large Cap/Blend (Total market exposure)

Name: Vanguard Value ETF
Ticker Symbol: VTV
Category & Style: Large Cap/Value (Mimic MSCI US Prime Market)

Name: Vanguard Mid-Cap ETF
Ticker Symbol: VO
Category & Style: Mid Cap/Blend (Mimic MSCI US Mid Cap 450 Stocks)

Name: Schwab U.S. Mid-Cap ETF
Ticker Symbol: SCHM
Category & Style: Mid Cap/Blend (Mimic Dow Jones Mid Cap Total Market)

Name: iShares Core S&P Mid-Cap ETF
Ticker Symbol: IJH
Category & Style: Mid Cap/Blend (Mimic S&P 400 Mid Cap Total Stocks)

Name: Vanguard Small-Cap Index Fund
Ticker Symbol: VB
Category & Style: Small Cap/Blend (Mimic CRSP US Small Cap)

Name: Schwab U.S. Small-Cap ETF
Ticker Symbol: SCHA
Category & Style: Small Cap/Blend (Mimic Dow Jones Small Cap Market)

Name: iShares Russell 2000 ETF
Ticker Symbol: IWM
Category & Style: Small Cap/Blend (Mimic Russell 2000 Index)

SHORT TERM GOVERNMENT BONDS.
Name:Vanguard Sht Term Govt Bond ETF
Ticker Symbol: VGSH
Category & Style: U.S. Treasury Bonds (Barclays U.S. 1-3 Year Float Adjusted)

Name: iShares Core 1-5 Year USD Bond ETF
Ticker Symbol: ISTB
Category & Style: U.S. Treasury Bonds (Mature in 1-5 years)

Name: Schwab Short-Term U.S. Treasury ETF
Ticker Symbol: SCHO
Category & Style: U.S. Treasury Securities (Barclays U.S. 1-3 Year Treasury Bond)

Name: iShares Core 1-3 Year Treasury Bond ETF
Ticker Symbol: SHY
Category & Style: U.S. Treasury Bonds (Mature in 1-3 years)

Read more about the indexes
LOW COST S&P INDEX FUNDS
https://personal.vanguard.com/us/fun..._redirect=true
https://www.schwab.com/public/schwab...Fsymbol%3DSCHX
https://personal.vanguard.com/us/fun...ect=true#tab=0
https://www.ishares.com/us/products/...ock-market-etf
https://personal.vanguard.com/us/fun...ect=true#tab=0
https://personal.vanguard.com/us/fun...ect=true#tab=0
https://www.schwab.com/public/schwab...Fsymbol%3DSCHM
https://www.ishares.com/us/products/...-sp-midcap-etf
https://personal.vanguard.com/us/fun..._redirect=true
https://www.schwab.com/public/schwab...Fsymbol%3DSCHA
https://www.ishares.com/us/products/...ssell-2000-etf


Read more about the SHORT TERM GOVERNMENT BONDS here.
SHORT TERM GOVERNMENT BONDS
https://personal.vanguard.com/us/fun...ect=true#tab=0
https://www.ishares.com/us/products/...rm-us-bond-etf
https://www.schwab.com/public/schwab...Fsymbol%3DSCHO
https://www.ishares.com/us/products/...asury-bond-etf

How to trade the Warren Buffet strategy with my twist.

Method 1:
Allocate 90% of your funds to one of the LOW COST S&P INDEX FUNDS of your choice in the list I have provided and 10% to one of the SHORT TERM GOVERNMENT BONDS in the list provided.

Method 2 :
This is my twist to the original warren buffet strategy.Buy all the LOW COST S&P INDEX FUNDS plus all the SHORT TERM GOVERNMENT BONDS in the list provided.

We are going to apply dollar cost averaging to both methods but we will invest only on the best trading days of the month or year as researched in the pdf attached(Seasonal Stock market Trends).The pdf contains decades of research that we will use to our advantage with the warren buffet strategy.This will give us an edge....For those who are not familiar with dollar cost averaging this is what means.

WHAT IT IS:
Dollar cost averaging is a strategy in which an investor places a fixed dollar amount into a given investment (usually common stock) on a regular basis. The investment generally takes place each and every month regardless of what is occurring in the financial markets. As a result, when the price of a given investment rises, the investor will be able to purchase fewer shares. When the price of a particular security declines, the investor will be able to purchase more shares.
HOW IT WORKS (EXAMPLE):
Let's assume an investor decides to purchase $1,000 worth of XYZ Corp. at the same time every month for four months. In this example, we'll also assume that the stock first declines in value, but then rallies strongly.
http://d2dp98nruyknlg.cloudfront.net...ollar-cost.png

As you can see in the table above, using a dollar cost averaging strategy the investor would have purchased 272.22 shares for a total of $4,000. His/her average price per share for this period would have been just $14.69 (calculated as follows: $4000 / 272.22 = $14.69). With the stock ending at $18 at the end of this period, the investor's total position would now be worth $4,900 (calculated as follows: 272.22 shares * $18 = $4,900). As a result, the investor would actually show a profit of $900 on his/her overall position despite the fact that the stock declined in value over the full four-month time period (dropping from $20 to $18).
By comparison, if the investor had decided to invest $4,000 in shares of XYZ Corp. all at once at the beginning of this period, then he/she would have purchased 200 shares at a price of $20 per share. With the stock finishing at $18 at the end of the four months, the investor would have shown a net loss of -$400 on the stock.
This example clearly illustrates the benefits of dollar cost averaging, especially during periods of volatile share prices.
WHY IT MATTERS:
Millions of investors around the world use dollar cost averaging because it offers the following benefits:

1. It's an attractive option for investors who want to contribute to their investment portfolios on a regular basis.
2. It eliminates the issue of market timing. As a result, an investor's returns will be determined more by the overall trend in a given stock as opposed to the investor's specific entry price. In addition, it helps investors reduce their cost basis on securities that decline in value.

Source : http://www.investinganswers.com/fina...averaging-1310

Read more about dollar cost averaging here : https://www.investopedia.com/terms/d...taveraging.asp
https://www.thebalance.com/dollar-cost-averaging-356331
http://www.nasdaq.com/article/why-do...ategy-cm354240



So instead investing every month or every week on regular basis my twist is to dollar cost average on the best trading days of the month or year.


My advise:In my humble opinion since this is a long term investment strategy , it makes sense to risk 50% or less of total capital whichever method you choose to go with to make room for drawdowns.So for example , If i was investing in method 1 or method 2 , it makes sense to have a remaining balance of lets say $1000 in my account if I have invested $1000 using method 1 or method. Total capital in this case =$2000...... $1000 invested and remaining balance $1000 in the account to make room for any drawdowns.I hope you get the picture.


I will post examples with screenshots for clarity moving forward..

Your ideas , suggestions , criticisms , all contributions leading to the progress of this strategy are all welcomed.Feel free to contribute your quota.


DISCLAIMER: Futures, stocks and options trading involves substantial risk of loss and is not suitable for every investor. The valuation of futures, stocks and options may fluctuate, and, as a result,you may lose more than your original investment. The impact of seasonal and geopolitical events is already factored into market prices.If the market moves against you, you may sustain a total loss greater than the amount you deposited into your account. You are responsible for all the risks and financial resources you use and for the chosen trading system. You should not engage in trading unless you fully understand the nature of the transactions you are entering into and the extent of your exposure to loss. If you do not fully understand these risks you must seek independent advice from your financial advisor.

It is no secret that Buffett is a huge proponent of indexing for the regular investor. But not everybody here has the access and capital for vanguards...

They might: https://personal.vanguard.com/us/fun..._redirect=true

I would disagree with you based on my experience with the thinkorswim platform(TDAmeritrade)..What most traders dont know is that the thinkorswim platform is a great and friendly platform for retail traders.In the TOS(tHINKorswim) platform you can buy stocks , index , Etfs etc in the smallest unit.You can buy 1 unit(quantity) of index , stocks , etfs etc.I think most traders are not aware of this.Thats the advantage of using the TOS platform..Initially I didnt believe it myself that it was possible to buy 1unit of almost every stock , etf , index you can think of until I had a live chat with the customer support agent and they confirmed it.The TOS platform is great for retail traders with small capital.

I agree. I like the TOS platform better than other trading platforms out there.

According the research in the seasonal stock market trends I have attached to the first post on this thread , the first trading day of the month is one of the best trading days of the month.So I bought all the LOW COST S&P INDEX FUNDS and all the SHORT TERM GOVERNMENT BONDS today since today is the first trading day of the month.

I have attached a screenshot of all the trades that were opened in the thinkorswim platform for clarity.NB:I bought only 1 quantity each of the LOW COST S&P INDEX FUNDS and all the SHORT TERM GOVERNMENT BONDS as seen in th screenshot.

As you can see from the Thinkorswim(TOS) platform in the screenshot buying all the LOW COST S&P INDEX FUNDS and all the SHORT TERM GOVERNMENT BONDS ONLY cost $755.91. As seen in the screenshot the SHY order has not been filled yet so when it gets filled that will bring the total cost of the purchase to $755.91+$41.75= $797.66

I will wait till the middle of the month to start the dollar cost averaging.Meaning , I will another 1 quantity each of the all the LOW COST S&P INDEX FUNDS and all the SHORT TERM GOVERNMENT BONDS middle of the month. Why middle of the month?Because according to the research report in the seasonal stock market trends(pdf attached to my first post) , middle of the month is also one of the best trading days of the month.

And my last dollar cost averaging will be executed on the last trading days of the month which is also one of the best trading days of the month based on the research report in the pdf seasonal stock market trends.

If there is something you dont understand or any questions you would like to ask feel free to do so.

Hey man... Don't you think averaging in 3 times a month is alittle too frequent? I mean conventional wisdom suggests bi-annually, quarterly or at the very most monthly.

And I don't mean to be a contrarian but US equities does seem to be overheating, so it is not really ideal to buy-and-hold now.

In any case, good luck!

This is just your next opinion of the beginning of the month. There is nothing in common with the middle or the end of the month. Stop fooling yourself.

Thanks for all the good info.
I like the PDF.

Hi Fp, thanks for sharing idea and doc. Any news about your experiment?