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Beat The Stock Market

Beat The Stock Market. The Vortex Method. What is the Essential Point?. The Profit Function Buy Low Sell High When my son Damian was 5 years old he understood this. I sold him a German Mark for Fl. 1.25 and he said: “ You can get it back for Fl. 1.75! ”.

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Beat The Stock Market

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  1. Beat The Stock Market The Vortex Method

  2. What is the Essential Point? • The Profit Function • Buy Low • Sell High • When my son Damian was 5 years old he understood this. I sold him a German Mark for Fl. 1.25 and he said: “You can get it back for Fl. 1.75!”

  3. What do you want to achieve ? • Execute the profit function repetitively! • When is a share price Low ? • When is a share price High ? • You the Investor determines that!

  4. The Method • 1 Determinehow much moneyyou can afford to loose. Call this theInvestment (I) • 2 Split the Investment in two parts. • 3 Part 1 = Reserve (R). . . .Money in the bank • 4 Part 2 = Equity (E). . . .Something you have bought • I = R + E

  5. I = R + E • 1 Set R= ½ I . . . . . . . (For example) • 2 Set E= ½ I. . . . .(Initial equity purchase) • This is what you could buy • 1 ValuableStock • 2 Currencies • 3 An old house that you can fix

  6. InvestmentPart EBuy Sell EYou Buy and Sellin small parcels of E time

  7. The Strategy: Buying & Selling • Buy = Fb*(E1-E2) • Fb= 1/(1-f)--->Fb > 1f < 1 • E1 = oldvalue • E2 = currentvalue. . . E1 > E2 • Sell = Fs*(E1-E2). . . E2 > E1 • Fs= 1/(1-v)--->Fs > 1v < 1 Forf &v negativeyou get: Fb&Fs < 1

  8. Strategy: Buying & Selling Part 2 ?

  9. The Skewed Growth Ratio • 1 Sell 1 share @ $ 100 • 2 The price drops to $ 50 • 3 Buy 2 shares @ $ 50 • 4 Price rises to$ 100(See next page) • New Value =2*$100 = $ 200

  10. Value growth as a GraphThe skewed Growth Ratio

  11. Buying & Selling? as prices + or -

  12. Value Development • Compound interest Model V= Vi*(1+ Rn)^n n = number of trades

  13. Boundaries / Limits / Factors1 Price Changes 5 % to 20 %2 ReserveValue 30% to 80% of I3 Factorsf & v- to 0,99 as you like itChoicesdepend onInvestor Profile:f& v -1000 Buy & Holdf & v 0 Conservativef & v 0.5 Aggressivef & v 0.99 Very Aggressive Fk f & v 1 Not applicablef & v < 1 Buy becomes a SellThis is not usefull

  14. Example: Buying • I= 10 000 R= 5000 E = 5000(Initial Conditions) • Price 1 = 10 N= 500 units • f= 0,75 v= 0,5 • Fb = 1/(1-0,75)= 4 . . . .aggressive buying • Fs = 1/(1-0,5) = 2 . . . .moderate selling • Price 2 = 8 . . . . . 20 % drop (R+E=PV= 9000) • Buy = 4*(5000-4000)= 4000 • Qty to buy n =4000/8= 500 • New quantity N= 1000 • Newequity valueV= 1000*8 = 8000 • New Reserve Value R= 1000 • Portfolio Value PV=1000+8000=9000 Loss on Initial Investment= 10%

  15. Example:Selling • I= 10 000 R= 5000 E = 5000(initial Conditions) • Price 1 = 10 N= 500 units • f= 0,75 v= 0,5 • Fb = 1/(1-0,75)= 4. . . . . aggressive buying • Fs = 1/(1-0,5) = 2 . . . . .moderate selling • Price 2 = 12 . . . 20 % rise (R+E=500+6000=PV=11000) • Sell = 2*(5000-6000)=Trade=–2000 (algebraic notation) • Qty toTrade n =-2000/12= -167 . . .(algebraic notation) • New quantity M = 500-167= 333 • New Value E = 333*12 =3996 • New Reserve R= 5000+167*12=7004 • Portfolio Value PV=3996+7004=11000. . . Profit on Total Investment = 1000/10000*100% =10%

  16. Effect: SkewedRatio • Rising Price: • P=12200; Profit = 10%; Price rise = 20%. • This is a result of the 20%price rise ononly 50% of the initial investmentcapital. Sold SharesNumber = 167 • As the price rises more the selling of more shareshas a decreasing effecton the total value of the Portfolio. Herewithone createsprofit security because the money is in the bank! • DroppingPrice: • P=9000; Loss = 10%;Price drop = 20%. • This is a resultof the 20%price drop on 50% of the initial investmentcapital. Bought SharesNumber = 500 • As theprice drops morethe buying of more shares at a lower pricefor a certain amounthas a positive effecton the number of shares in the portfolio. Because of thisleverage effect as theprice reversesthe value of of the portfolio increases sharply. • Leverage effect on shares= 500/1000= 2

  17. Price Cycle Effect • Share Price Structure: + 2 - 4+2 No net Difference • Identical start conditions. Price 1=10. See page 15 • f= 0,75 Fb = 4 v= 0,5 Fs = 2 • Price 2 = 12 . . . . . 20 % rise • New Value E = 333*12 = 3996 • NewReserve R= 5000+2004=7004 • Portfolio Value PV=7004 +3996=11000. . Winst = 10% • Price 3=8 . . . .33,3 % drop • PV=9668 E= 2664 R=7004 • Buy=4*(11000-9668)=5328 • Qtyto Buy=5328/8=666 • N= 999 E=7992P= 9668 R= 1676 • Loss =332 or 3,32 % at a20% dropin price, referred to the Start Value!

  18. Price Cycle Effect-Continuation • Price cycle: + 2 -4+2 No net difference • Identical start conditions. Price 1=10. See page 15 • f= 0,75 Fb = 4 v= 0,5 Fs = 2 • Price 4 = 10 . . . . . 25 % Rise • New Valueafter execution: Sell n=400; N=599; E = 599*10 = 5990R=5676 • Portfolio Value PV=11666. . . profit = 16,7% • In this price cycle there is a~17% profit realisedand the priceis back at 10. • TheEquity& Reserve are bothgrown • ABuy & Holdmethod would not have realised any profit.

  19. Accumulative Effect • Price CycleProfit is ~17% on the total invested capital of $ 10000. Assume that tradingcosts would be 2 %: Cycle Profit = 15% • If a price cycle like this occurs 5 x per yeartheannual profitcalculated with thecompound interest formulawith 15% per cycle periodis (See page 12): • V= Vi*(1+ Rn)^n • Vi =10000 Rn = 0,15 n=5 • End Price =10 . . .nochange • V= 10000*(1+ 0,15)^5 • V= 20114 • Annual ROI = 101%/yr !

  20. Turbovest • I= 10 000 R= 5000 E = 5000 . . . .(page 14) • Price 1 = 10; N= 500 units f= 0,75 v= 0,5 • Fb = 1/(1-0,75)= 4 Fs = 1/(1-0,5) = 2 • Price 2 = 8 . . . . . 20 % drop (R+E= 9000) • New Value E = 1000*8 = 8000 • New Reserve R= 1000 N= 1000 • Value PV=1000+8000=9000. . . 10% drop • Price 3 = 6 . . . . . 25 % drop E= 6000 • Borrow 70% of 6000 =4200 Extra Inv. =4200 • Qty=4200/6 =700 N= 1700 E=10200 PV = 11200 • Net Value 11200 – 4200 = 7000 R=1000 • Price 4= 4. . . . .33,3 % drop

  21. Turbovest. . .Continuation • N= 1700 R= 1000 E =6800 PV = 7800 • Borrow 3700 (is < than 70% of equity value) • Total loan = 7900 &there is 1000 asReserve • Buy4700/4= 11175 N=2875 E= 11500 • PV = 11500 Totale Inleg = 10000 + 7900 = 17900 • Net value= 11500-7900= 3600 R= 0 • Netdebt =7900 -3600= 4300 • Leverage effect =2875/500= 5,75 • Price drop is 6/10------- 60% • With the extra buyingat extra low prices de leverage ratio reaches ~8. At that pointthe price drop would be approximately 70% @ 75% on the break-even point, at which the borrowing power is exhausted. END

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