HomeMy WebLinkAboutBUDGET & FINANCE AGENDA 09-15-08~l Central Contra Costa Sanltarv District
5019 Imhoff Place, Martinez, CA 94553-4392 (925) 228-9500 www.centralsan.orb
BUDGET AND FINANCE COMMITTEE
Chair McGill
Member Nejedly
Monday, September 15, 2008
3:00 p.m.
Executive Conference Room
5019 Imhoff Place
Martinez, California
INFORMATION FOR THE PUBLIC
ADDRESSING THE COMMITTEE ON AN ITEM ON THE AGENDA
Anyone wishing to address the Committee on an item listed on the agenda will be heard when the
Committee Chair calls for comments from the audience. The Chair may specify the number of minutes
each person will be permitted to speak based on the number of persons wishing to speak and the time
available. After the public has commented, the item is closed to further public comment and brought to the
Committee for discussion. There is no further comment permitted from the audience unless invited by the
Committee.
ADDRESSING THE COMMITTEE ON AN ITEM NOT ON THE AGENDA
In accordance with state law, the Committee is prohibited from discussing items not calendared on the
agenda. You may address the Committee on any items not listed on the agenda, and which are within their
jurisdiction, under PUBLIC COMMENTS. Matters brought up which are not on the agenda may be
referred to staff for action or calendared on a future agenda.
AGENDA REPORTS
Supporting materials on Committee agenda items are available for public review at the Reception, 5019
Imhoff Place, Martinez. Reports or information relating to agenda items distributed within 72 hours of the
meeting to a majority of the Committee are also available for public inspection at the Reception. During
the meeting, information and supporting materials are available in the Conference Room.
AMERICANS WITH DISABILITIES ACT
In accordance with the Americans With Disabilities Act and California Law, it is the policy of the Central
Contra Costa Sanitary District to offer its public meetings in a manner that is readily accessible to
everyone, including those with disabilities. [f you are disabled and require special accommodations to
participate, please contact the Secretary of the District at least d8 hours in advance of the meeting at (925)
229-7303.
i, Recycled Paper
• - ~dget and Finance Committee
September 15, 2008
Page 2
1. CALL MEETING TO ORDER
2. PUBLIC COMMENTS
*3. CLAIMS MANAGEMENT
a. Review of Outstanding Claims
b. Review of Zander Landslide
4. REPORTS/ANNOUNCEMENTS
a. Status of Internal Audit
*b. GASB 45 Trust -Outstanding Issues
1. Finalize Recommended Investment Strategy (See attached
Articles)
2. Plan Administrator
*c. Annexations and Right of Way -Update
d. Financial Impact of the General Employees Salary Survey
5. REVIEW JULY. 2008 FINANCIAL STATEMENTS (Item 4.b. in Board Binder)
6. REVIEW EXPENDITURES (Item 4.a. in Board Binder)
7. ADJOURNMENT
* Attachment
Legal Expenditure Summary
SFI F INSl1R~NCE El1ND
Printed : 9/12/2008
Check # Check $ Vendor Name Account # Account $ CL # Case # -Case Title
1 102898 $14,101.10 Meyers, Nave, Riback, Silver 003-0000-991.14-21 $13,277.10 Scanlan v Kaufman
003-0000-993.14-21 $824.00 CCCSD v Gus Kramer
2 102899 $258.65 Scott Sechler 003-0000-993.14-20 $258.65 AC1 Sechler Vehicle Accident -Rental Car Payment
RIINNIN[, EXPENSE
Check $ Vendor Name Account # Account $ GL # De artment -Division - Descri tion
3 172239 $21,759.14 Meyers, Nave, Riback, Silver 001-0100-400.08-02 $8,477.72 ADM -Board Activi -Board Meetin s, Retainer Serv, Dist Code Update
001-0100-400.08-03 $1,909.21 ADM -General
001-0110-400.08-03 $382.13 ADM -Finance
001-0140-400.08-03 $942.81 ADM - Purchasin ,Constr. Contract, Retainer Serv
001-0150-400.08-03 $136.37 ADM -Risk Mana ement, Retainer Serv
001-0200-420.08-03 $9,638.15 ES - Le al Work Auth., Retainer Serv
001-0300-410.08-03 $136.37 CSO - Admin, Retainer Services
001-0400-410.08-03 $136.37 POD - Misc, Retainer Services
4 172305 $33,816.40 Hanson Brid ett 001-0120-400.08-03 $28,761.85 ADM -Labor -Grievance
$4,908.55 ADM -Labor -General
$81.00 ADM -Labor - 2008 Sexual Harassment Trainin
$65.00 ADM - MS/CG -Arbitration
D D/'1 I C~`TC
. .. vvw.v
Check # Check $
Vendor Name
Account #
Account $
CL #
Pro'ects
5 31235 $3,003.48 Me ers, Nave, Riback, Silver 8192PQ.08-97 $3,003.48 Collection S stem Pro'ects
CL# -Claim Log Number
GL -General Liability Claims
AC -Auto Claims
P -Property Claims
- FY 2007-2008
w
Pane 1
2008-09
OVERFLOWS AND PLUMBING REIMBURSEMENT CLAIMS
# Tvpe DOL Address Cwt Claimant ~ Reserve Paid to Date Paid to
1 PL 06/28/08 42 Southwood Drive Orinda Bill Wilson PL $7,494.75 Bill Wilson
2 SSO 07/17/08 100 Moraga Way Orinda Patricia Reinker PD $739.88 Restoration Management Co
3 SSO 09/09/08 2250 Harbor View Dr. Martinez Linda Huffman PD $1,500.00
i
i Total -Overflows $1,500.00
GENERAL LIABILITY CLAIMS -OTHER $8,234.63
# Tvpe DOL Address Chit ~ Claimant Tyae Reserve Paid to Date Paid to
1 CD 05/11/08 245 Glorietta Blvd. Orinda Amit Munshi $9,471.87 Amit Munshi
2 GL 08/15/08 1 Virginia Drive Orinda Robert S Weng $1 959.30 Robert S. Weng
3
i
E
Total - GL Other
PROPERTY
$0.00
$11,431.17
#
i
Type
DOL
Address
CSC
Claimant Tvpe
Reserve
Paid to Date
Paid to
1
2
3
Total -Property
AUTO CLAIMS $0.00 $0.00
# Tvpe DOL Location Veh Desc. Name Reserve Paid Paid to
1 AUTO 07/03/08 Walnut Creek Dist Veh. CCCSD $258.65 Scott Sechler -for rental car
AUTO 07/03/08 Walnut Creek Dist Veh CCCSD $1 358.50 Jim's Auto Body
2 AUTO 08/14/08 Lafayette Dist Veh. Christina Brush $250.00
3
Total -Auto Claims $250.00 $1,358.50
9/12/2008
The Power of Compounding and Dollar Cost Averaging
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Personal Planning
The Power of Compounding and Dollar Cost Averaging
Page 1 of 3
mEm l~?r
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You can benefit from the dollar cost averaging investing strategy and the power of compounding
earnings. Here's how (and here's why it works)!
Stark _InvestingTodayl
~:~i View Our Tod 20 Holdings
Need Assistance? Contact Us
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Dollar cost averaging
You can use your MSFS dollar based purchase
plans for dollar cost investing programs.
Many have spent untold hours to reduce the art and
science of investing to a formula. One of the more
enduring and successful programs is dollar cost
averaging. Some commentators have called dollar
cost averaging the unbeatable formula.
er ~ Dollar cost averaging is one of the simplest
~^ investment strategies, investing a constant amount
of money in common stocks over a long period,
regardless of the level of stock prices. This steady
accumulation of stocks proceeds at regular intervals. The same dollar amount purchases fewer
shares when prices are high, more shares when prices are low. Price fluctuations are beneficial as a
price decline provides an opportunity to buy additional shares at a low price.
A simple example illustrates the idea. If you invest $1200 in shares of a given company in each of
three years buying 20 shares at $60 in the first year, 40 shares at $30 in the second year, and 24
shares at $50 in the third year.
ear Pri Share
1 $60.0 2
$30.0 4
$50.0 2
8
You will have 84 shares at $50 with a value of $4200 at the time of your third year purchase, a gain
of $600 even though the price of the security has fluctuated.
Dollar cost averaging programs helps you avoid emotional purchases and sales, buying shares when
the market is too high and liquidating shares when the market is too low. Stocks whose prices
fluctuate generate better profits than those that do not fluctuate. Price fluctuations are your friend in
dollar cost averaging programs.
Dollar cost averaging is a long term investment program of at least five years with two requirements,
a long term view, and a steady flow of funds for investment. The beginning time is not important.
The portfolio you select must be managed to eliminate undesirable issues when necessary. Our
economy changes and some companies are unable to maintain their markets share as technologies
change.
You can decrease your risk by diversifying your portfolio or by purchasing stocks that have lower
fluctuations, less volatility. You can dampen the volatility of your portfolio by maintaining some
portion in cash of short term investments. You can increase your risk, and maybe increase your rate
of return with a one or a few stock portfolio, or a portfolio with stocks in one market segment.
6.
http://www.mystockfund.com/personalplanning/powerofcompounding.aspx 9/8/2008
.'iPC
The Power of Compounding and Dollar Cost Averaging Page 2 of 3
The few disadvantages of a dollar cost averaging program include gaming the program by
attempting to time the market, delaying purchases in declining markets or when the market appears
high, or by diverting funds to other uses.
The ending time is important. You should not end your program during an extended market decline.
Dollar cost averaging does not answer all investment needs. It does not work for in and out trading or
for the investment of lump sums.
Summary
Dollar cost averaging is the disciplined process of investing a fixed amount of money into a particular
security over a period of fixed investment dates. Sound familiar? It is similar to your investing in your
company's 401 K Plan. An example of such investing practices can be demonstrated by investing
$500 in the McDonald's (MCD) on the first Thursday of every month through your MyStockFund
account. Since your dollar amount is fixed, if MCD is trading higher that day, you will be buying fewer
shares. If it is trading lower, you will be buying more shares at a lower price. This practice, over time,
allows you to benefit from stock markets price fluctuations while reducing your emotional decisions.
Compound earnings
You can use your MSFS purchase plans to compound your asset's earnings with your dividends.
Compound earnings is earnings on earnings. The rate of return earned in a year is earned on the
value of the asset at the end of the previous year. The rate of return or earnings can be interest on
fixed income securities, dividends or growth in the market value of securities. We are going to
assume an 8% rate of return for our example.
If you invest $100 and earn 8% during the first year you begin the second year with assets of
$108.00. Your earnings at 8% during the second year are $8.64. The extra sixty four cents are the
8% earnings on the $8.00 you earned in the first year. Your earnings include earnings on your prior
earnings, or earnings on earnings.
The following table illustrates the effect of reinvesting all earnings for ten years.
Yea Earnin Asset Value, end of ea
1 8.0 108.0
8.6 116.6
9.3 125.9
10.08 136.0
10.8 146.9
11.7 158.71
12.7 171.41
13.72 185.1
14.81 199.9
Our assets have almost doubled from $100 to $199.94 in 9 years by compounding our earnings.
Assets that compound, or earn on their prior earnings, double more quickly that assets that do not
compound. An asset that earns 8% a year but is unable to earn on the earned assets will double in
12.5 years. An asset that earns 8% and is able to compound by earning on the prior earnings will
double in 9 years. The double occurs 3.5 years quicker.
We sometimes use the rule of 72 to estimate the number of years necessary to double an asset with
compound earnings. Assets that compound their rate of return, earning on the prior earnings, double
with compound earnings in the number of years that result from dividing 72 by the rate of return. An
asset that compounds with an 8% rate of return doubles in 9 years. 72/8 = 9 years.
Using the rule of 72, if the rate of return is 6%, compounding assets double in 12 years. 72/6 = 12
years. Alternatively, if the rate of return is 9%, compounding assets double in 8 years. 72/9 = 8
years.
Your can enhance the compounding of your portfolio assets by reinvesting your dividends, the
compounding of earnings.
http://www.mystockfund.corn/personalplanning/powerofcompounding.aspx 9/8/2008
The Power of Compounding and Dollar Cost Averaging Page 3 of 3
Summary
You may choose to direct MSFS to automatically reinvest your dividends that you receive on your
portfolio securities into more shares of the company stock. You can elect to have your MCD
dividends purchase more shares of MCD at the then prevailing market price of MCD. This
compounding effect helps you build aportfolio -one day at a time.
Conclusion
Your MyStockFund account with its dollar based plan facilitates your dollar cost averaging program,
and the automatic dividend reinvestment puts your dividend to work to compound your earnings.
You too, can now benefit from this investing strategy and compound earnings.
Open_ An Account
Go Back To Personal Planning
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Investment strategy -Wikipedia, the free encyclopedia Page 1 of 1
Investment w~l ~l ~ l.~u~;,~,~r~ed by people like you. Please donate today.
From Wikipedia, the free encyclopedia
In finance, an investment strategy is a set of rules, behaviors or procedures, designed to guide an investor's selection
of an investment portfolio. Usually the strategy will be designed around the investor's risk-return tradeoff: some
investors will prefer to maximize expected returns by investing in risky assets, others will prefer to minimize risk, but
most will select a strategy somewhere in between.
Passive strategies are often used to minimize transaction costs, and active strategies such as market timing are an
attempt to maximize returns.
One of the better known investment strategies is buy and hold. Buy and hold is a long term investment strategy, based
on the concept that in the long run equity markets give a good rate of return despite periods of volatility or decline. A
purely passive variant of this strategy is indexing where an investor buys a small proportion of all the shares in a
market index such as the S&P 500, or more likely, in a mutual fund called an index fund.
This viewpoint also holds that market timing, that one can enter the market on the lows and sell on the highs, does not
work or does not work for small investors, so it is better to simply buy and hold. The smaller, retail investor more
typically uses the buy and hold investment strategy in real estate investment where the holding period is typically the
lifespan of their mortgage.
See also
^ Algorithmic trading
^ Buy and hold
^ CANSLIM
^ Contrarian
^ Liability driven investment strategy
^ Market timing
^ Trading strategy
^ Trend following
External links
MoneyWeek Investment Advice (http://www.moneyweek.com/file/39/investing.html)
Wheel of fortune (http://www.fam.tuwien.ac.at/public/simulation/wheel en.html) Design and test your
investment strategy for a virtual wheel of fortune, optimize your strategies using different utility functions.
Virtual stock market (http://www.fam.tuwien.ac.at/public/simulation/exchange_en.html) Design and test your
investment strategy for a virtual stock market, where three stocks and a bank account are available for investing.
Retrieved from "http://en.wikipedia.org/wiki/Investment strategy"
Categories: Investment
^ This page was last modified on 25 July 2008, at 19:09.
. All text is available under the terms of the GNL1 Free Documentation License. (See Copyrights for details.)
Wikipedia® is a registered trademark of the Wikimedia Foundation, Inc., a U.S. registered 501(c)(3) tax-
deductible nonprofit charity.
http://en.wikipedia.org/wiki/Investment_strategy 9/8/2008
Algorithmic trading -Wikipedia, the free encyclopedia
Algorithmi~el~~Rrq~~~r~content to the world by donating today!
From Wikipedia, the free encyclopedia
In electronic financial markets, algorithmic trading, also known as algo, automated,
black-box, or robo trading, is the use of computer programs for entering trading orders
with the computer algorithm deciding on certain aspects of the order such as the timing,
price, or even the final quantity of the order. It is widely used by hedge funds, pension
funds, mutual funds, and other institutional traders to divide up a large trade into
several smaller trades in order to manage market impact, opportunity cost, and risk.~l~
It is also used by hedge funds and similar traders to make the decision to initiate orders
based on information that is received electronically, before human traders are even
aware of the information.
Algorithmic trading may be used in any investment strategy, including market making,
inter-market spreading, arbitrage, or pure speculation (including trend following). The
investment decision and implementation maybe augmented at any stage with
algorithmic support or may operate completely automatically.
A third of all EU and US stock trades in 2006 were driven by automatic programs, or
algorithms, according to Boston-based consulting firm Aite Group LLC. By 2010, that
figure will reach 50 percent, according to Aite. [21
In 2006 at the London Stock Exchange, over 40% of all orders were entered by algo
traders, with 60% predicted for 2007. American markets and equity markets generally
have a higher proportion of algo trades than other markets, and estimates for 2008
range as high as an 80% proportion in some markets. Foreign exchange markets also
have active algo trading (about 25% of orders in 2006).~3~ Futures and options markets
are considered to be fairly easily integrated into algorithmic tradingl4l, with about 20%
of options volume expected to be computer generated by 2010.151 Bond markets are
moving toward more access to algorithmic traders.161
__ _
___
Contents ~
^ 1 History
^ 2 Communication Standards
^ 3 Strategies
^ 3.1 Transaction cost reduction
^ 3.2 Arbitrage
^ 3.3 Market Making
^ 3.4 More Complicated Strategies
^ 4 Issues and Developments
^ 5 Effects
^ 6 See also
^ 7 References '
^ 8 External links
History
Page 1 of 6
Investors
Hedge funds
Private equity
Venture capital
Speculation
Institutional investors
Banks
Building societies
Collective investment schemes
Credit Unions
Insurance companies
Investment banks
' Pension funds
Prime Brokers
Trusts
__
Finance series
Financial market
Participants
Corporate finance
Personal finance
Public finance
Banks and Banking
Financial regulation
Computerization of the order flow in financial markets began in the early 1970s with some landmarks being the
http://en.Wikipedia.org/wiki/Algorithmic_trading 9/8/2008
Financial market
participants
Algorithmic trading - Wikipedia, the free encyclopedia Page 2 of 6
introduction of the New York Stock Exchange's "designated order turnaround" system (DOT, and later SuperDOT)
which routed orders electronically to the proper trading post to be executed manually, and the "opening automated
reporting system" (OARS) which aided the specialist in determining the market clearing opening price.
Program trading is defined by the New York Stock Exchange as an order to buy or sell 15 or more stocks valued at
over $1 million total. In practice this means that all program trades are entered with the aid of a computer. In the 1980s
program trading became widely used in trading between equity and futures markets.
In stock index arbitrage a trader would buy (sell) a stock index futures contract such as the S&P 500 futures and sell
(buy) a portfolio of up to 500 stocks at the NYSE matched against the futures trade. The program trade at the NYSE
would be pre-programmed into a computer to enter the order automatically into the NYSE's electronic order routing
system at a time when the futures price and the stock index were far enough apart to make a profit.
At about the same time portfolio insurance was designed to create a synthetic put option on a stock portfolio by
dynamically trading stock index futures according to a computer model based on the Black-Scholes option pricing
model.
Both strategies, often simply lumped together as "program trading," were blamed by many people (for example by the
Brady report) for exacerbating or even starting the 1987 stock market crash.
Financial markets with fully electronic execution and similar electronic communication networks developed in the late
1980s and 1990s. In the U.S., decimalization, which changed the minimum tick size from 1/16th of a dollar ($0.0625)
to $0.01 per share, may have encouraged algorithmic trading as it changed the market microstructure by permitting
smaller differences between the bid and offer prices, decreasing the market-makers' trading advantage, thus decreasing
market liquidity.
This decreased market liquidity led to institutional traders splitting up orders according to computer algorithms in order
to execute their orders at a better average price. These average price benchmarks are measured and calculated by
computers by applying the time weighted (i.e unweighted) average price TWAP or more usually by the volume
weighted average price VWAP.
As more electronic markets opened, other algorithmic trading strategies became possible including arbitrage, statistical
arbitrage, trend following, mean reversion. These strategies are more easily implemented by computers because
machines can react more rapidly to temporary mispricing and examine prices from several markets simultaneously.
Communication Standards
Algorithmic trades require communicating considerably more parameters than traditional market and limit orders. A
trader on one end (the "buy side") must enable their trading system (often called an "Order Management System" or
"Execution Management System") to understand a constantly proliferating flow of new algorithmic order types. The
R&D and other costs to construct complex new algorithmic orders types, along with the execution infrastructure, and
marketing costs to distribute them, are fairly substantial. What was needed was a way that marketers (the "sell side")
could express algo orders electronically such that buy-side traders could just drop the new order types into their system
and be ready to trade them without constant coding custom new order entry screens each time.
FIX Protocol LTD http://www.fixprotocol.org is a trade association that publishes free, open standards in the securities
trading area. Members include virtually all large and many midsize and smaller broker dealers, money center banks,
institutional investors, mutual funds, etc. This institution dominates standard setting in the pretrade and trade areas of
security transactions. In 2006-2007 several members got together and published a draft XML standard for expressing
algorithmic order types. The standard is called FIX Algorithmic Trading Definition Language (FIXatdl). Currently
targeting March 2008 for final release, FIXatdl is now in broad beta testing with the following firms participating:
Barclays, Bloomberg Tradebook (http://www.bloombergtradebook.com~, Cheuvreux (https://www.cheuvreux.com/),
http://en.wikipedia.org/wiki/Algorithmic_trading 9/8/2008
Algorithmic trading - Wikipedia, the free encyclopedia
Page 3 of 6
Citigroup, Credit Suisse, Fidelity Investments, Goldman Sachs, ITG (http://www.itg.comn, JPMorgan Chase, Merrill
Lynch, Morgan Stanley, NeoNet (http://www.neonet.biz~, Pragma@Weeden (http://www.weedenco.comn and UBS
AG. '
More information on FIXatdl, including example XML files and sample code may be found at:
http://www. fixprotocol. org/working_groups/algowg/documents
Strategies
Many different algorithms have been developed to implement different trading strategies. These algorithms or
techniques are commonly given names such as "iceberging", "Guerrilla", "benchmarking", "Sniper" and "Snif-fer".~~~
Transaction cost reduction
Large orders are broken down into several smaller orders and entered into the market over time. This basic strategy is
called "iceberging". The success of this strategy may be measured by the average purchase price against the VWAP for
the market over that time period. One algorithm designed to find hidden orders or icebergs is called "Guerrilla".
Arbitrage
A classical arbitrage strategy might involve three or four securities such as covered interest rate parity in the foreign
exchange market which gives a relation between the prices of a domestic bond, a bond denominated in a foreign
currency, the spot price of the currency, and the price of a forward contract on the currency. If the market prices are
sufficiently different from those implied in the model to cover transactions cost then four transactions can be made to
guarantee arisk-free profit. Algorithmic trading allows similar arbitrages using models of greater complexity involving
many more than 4 securities.
Market Making
Market making involves placing a limit order to sell (or offer) above the current market price or a buy limit order (or
bid) below the current price in order to benefit from the bid-ask spread. Automated Trading Desk, which was bought by
Citigroup in July 2007, has been an active market maker, accounting for about 6% of total volume on both NASDAQ
and the New York Stock Exchange.l8~
More Complicated Strategies
A "benchmarking" algorithm is used by traders attempting to mimic an index's return. An algorithm designed to
discover which markets are most volatile or unstable is called "Snif-fer".
Any type of algo trading which depends on the programming skills of other algo traders is called gaming. Dark pools
are alternative electronic stock exchanges where trading takes place anonymously, with most orders hidden or
"iceburged."19~ Garners or "sharks" sniff out large orders by "pinging" small market orders to buy and sell. When
several small orders are filled the sharks may have discovered the presence of a large iceburged order. They then front
run the order.
"They look for big, dumb elephants leaving big footprints," said Joe Saluzzi, head of equity trading at Themis Trading
"If you're getting tapped by odd lots, if it happens 40 times...you're being gamed." [91
Any sort of pattern recognition or predictive model can be used to initiate algo trading. Neural networks and genetic
programming have been used to create these models.
http://en.wikipedia.org/wiki/Algorithmic trading 9/8/2008
Algorithmic trading - Wikipedia, the free encyclopedia
Page 4 of 6
"Now it's an arms race," said Andrew Lo, director of the Massachusetts Institute of Technology's Laboratory for
Financial Engineering. "Everyone is building more sophisticated algorithms, and the more competition exists, the
smaller the profits."[to]
Issues and Developments
More sophisticated models and intelligent programs have created the question of whether the models will break down.
"The downside with these systems is their black box-ness," Mr. Williams said. "Traders have intuitive senses of how the
world works. But with these systems you pour in a bunch of numbers, and something comes out the other end, and it's
not always intuitive or clear why the black box latched onto certain data or relationships."I1 t]
Regulators in Great Britain are watching the development of algo trading.
"The Financial Services Authority has been keeping a watchful eye on the development of black box trading. In its
annual report the regulator remarked on the great benefits of efficiency that new technology is bringing to the market.
But it also pointed out that `greater reliance on sophisticated technology and modelling brings with it a greater risk that
systems failure can result in business interruption'."[t2]
Other issues include the technical problem of latency or the delay in getting quotes to traders,l13] security and front
running, and the possibility of a complete system breakdown leading to a market crash.~l4]
The cost of developing and maintaining algorithms is still relatively high, especially for new entrants, as the need for
stability, bandwidth and speed is even higher than for regular order execution. Firms which have not developed their
own algorithmic trading have had to buy competing firms.
"Goldman spends tens of millions of dollars on this stuff. They have more people working in their technology area than
people on the trading desk...The nature of the markets has changed dramatically."[15]
Financial market news is now being formatted by firms such as Reuters, Dow Jones, Bloomberg, and Thomson
Financial, to be read and traded on via algorithms.
"Computers are now being used to generate news stories about company earnings results or economic statistics as they
are released. And this almost instantaneous information forms a direct feed into other computers which trade on the
news. "~ 16]
The algorithms do not simply trade on simple news stories but also interpret more difficult to understand news. Some
firms are also attempting to automatically assign sentiment (deciding if the news is good or bad) to news stories so that
automated trading can work directly on the news story.
"There is a real interest in moving the process of interpreting news from the humans to the machines" says Kiristi
Suutani, global business manager of algorithmic trading at Reuters. "More of our customers are finding ways to use
news content to make money. "[ t 7]
An example of the importance of reporting speed to algorithmic traders was an advertising campaign by Dow Jones
(appearances included page W15 of the Wall Street Journal, on March 1, 2008) claiming that their service had beaten
other news services by 2 seconds in reporting an interest rate cut by the Bank of England.
In July 2007, Citigroup, which had already developed its own trading algorithms, paid $680 million for Automated
Trading Desk, a 19 year old firm that trades about 200 million shares a day, accounting for about 6 percent of trading
volume in U.S. markets.llg] CitiQroup had previously bouSht Lava Trading and OnTrade Inc.
http://en.wikipedia.org/wiki/Algorithmic trading 9/8/2008
Algorithmic trading - Wikipedia, the free encyclopedia
Effects
Page 5 of 6
Though its development may have been prompted by decreasing trade sizes caused by decimalization, algorithmic
trading has reduced trade sizes further. Jobs once done by human traders are being switched to computers. The speeds
of computer connections, measured in milliseconds, have become very important. [19] [20]
More fully automated markets such as NASDAQ have gained market share from less automated markets such as the
NYSE. Economies of scale in electronic trading have contributed to lowering commissions and trade processing fees,
and contributed to international mergers and consolidation of financial exchanges.
Competition is developing among exchanges for the fastest processing times for completing trades. For example the
London Stock Exchange, in June 2007, started a new system called TradElect, which promises an average 10
millisecond turnaround time from placing an order to final confirmation, and can process 3,000 orders per second.[21]
Spending on computers and software in the financial industry increased to $26.4 billion in 2005.[22]
Brokers have found it more difficult to monitor the risk of their clients' positions, especially for clients such as hedge
funds.
See also
^ Artificial Intelligence
^ Complex Event Processing
^ Electronic Communication Network
^ Electronic trading
^ Implementation shortfall
^ Investment strategy
^ Quantitative trading
References
1. ^ Moving markets Shifts in trading patterns are making technology ever more important, The Economist, Feb 2, 2006
(http://www.economist.com/finance/displaystory.cfm?story_id=E 1_VQS VPRT)
2. ^ The Ultimate Money Machine (http://www.iran-daily.com/1386/2836/htmUfocus.htm), Iran Daily May 7, 2007
3. ^ A London Hedge Fund That Opts for Engineers, Not M.B.A.'s
(http://www. nytimes.com/2006/08/ 18/business/worldbusiness/ 18man. html?
ex=1313553600&en=b2fee1b41c85afl5&ei=5088&partnerzssnyt&emc=rss) by Heather Timmons, August 18, 2006
4. ^ Looking for options Derivatives drive the battle of the exchanges, April 15, 2007, Economist.com
(http://www.economist.com/finance/displaystory.cfin?story_id=E 1 _JDNPSDQ)
5. ^ "Algorithmic trading, Ahead of the tape (http://www.economist.com/finance/displaystory.cfm?story_id=9370718)", The
Economist 383(June 23, 2007): p. 85, <http://www.economist.com/finance/displaystory.cfm?story_id=9370718>.
6. ^ MTS to mull bond access, The Wall Street Journal Europe, April 18, 2007, p. 21
7. ^ Trading with the help ofguerrillas' and'snipers,' Financial Times, March 19, 2007 (http://search.ft.com/ftArticle?
queryText=%22algorithmic+trading%22&aj e=true&id=070319000878)
8. ^ [The Associated Press, July 2, 2007 (http://www.iht.com/articles/ap/2007/07/02/business/NA-FIN-COM-US-Citigroup-
Automated-Trading-Desk.php)J Citigroup to expand electronic trading capabilities by buying Automated Trading Desk,
accessed July 4, 2007
9. ^ ° b Rob Curren, Watch Out for Sharks in Dark Pools (http•//online.wsj.com/article/SB121911298392752051.htm1), The
Wall Street Journal, August 19, 2008, p. c5. Available at WSJ Blogs (http://blogs.wsj.com/marketbeat/2008/08/18/trading-in-
a-dark-pool-watch-for-sharks/) retrieved August 19, 2008
10. ^ Artificial intelligence applied heavily to picking stocks (http://www,iht.com/articles/2006/11/23/business/trading.php`?
page=l) by Charles Duhigg, November 23, 2006
11. ^ Artificial intelligence applied heavily to picking stocks (http://www.iht.com/articles/2006/11/23/business/trading.php`?
http://en.wikipedia.org/wiki/Algorithmic trading 9/8/2008
Algorithmic trading -Wikipedia, the free encyclopedia Page 6 of 6
page=l) by Charles Duhigg, November 23, 2006
12. ^ Black box traders are on the march (http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/08/27/ccsoft27.xm1)
The Telegraph, August 26, 2006
13. ^ Enter algorithmic trading systems race or lose returns, report warns, Financial Times, October 2, 2006
(http://search. ft. com/ftArtic le?queryText=%22algorithmic+trading%22&aj e=true&id=061002000774)
14. ^ Cracking The Street's New Math, Algorithmic trades are sweeping the stock market
(http://www.businessweek.com/magazine/content/OS 16/b3929113 mz020.htm).
15. ^ [The Associated Press, July 2, 2007 (http://www.iht.com/articles/ap/2007/07/02/business/NA-FIN-COM-US-Citigroup-
Automated-Trading-Desk.php)] Citigroup to expand electronic trading capabilities by buying Automated Trading Desk,
accessed July 4, 2007
16. ^ "If you're reading this, it's too late: a machine got here first," The Financial Times, April 16, 2007, p.l
(http://www. ft.com/cros/s/bb570626-ebb6-11 db-b290-OOOb5df10621.htm1)
17. ^ "If you're reading this, it's too late: a machine got here first," The Financial Times, April 16, 2007, p.l
18. ^ [Siemon's Case Study (http://www.siemon.com/us/company/case_studies/atd.asp)] Automated Trading Desk, accessed July
4, 2007
19. ^ Dodgy tickers, The Economist, March 8, 2007 (http://www.economist.com/finance/displaystory.cfm?
story_id=E1_RRNJGNP)
20. ^ Pleasures and Pains of Cutting-Edge Technology Mar 19, 2007 (http://www.wallstreetandtech.com/showArticle.jhtml?
articleID=198001836)
21. ^ "LSE leads race for quicker trades" by Alistair MacDonald The Wall Street Journal Europe, June 19, 2007, p.3
22. ^ Moving markets Shifts in trading patterns are making technology ever more important, The Economist, Feb 2, 2006
(http://www.economist.com/finance/displaystory.cfin?story_id=E 1_VQSVPRT)
External links
^ Business Week, Cracking the Street's New Math, April 18, 2005
(http://www.businessweek.com/magazine/content/OS_ 16/b3929113_mz020.htm)
^ FT Mandate Special Report on Algorithmic Trading
(http://www. ftmandate.com/news/categoryfront.php/id/95/ALGORITHMIC_TRADING.html)
^ Advanced Trading Magazine: Algorithmic Trading Resource Center Advanced Trading Magazine
(http://www. advancedtrading.com/algorithmsn
^ Paper on the empirical efficiency of combining algorithmic trading strategies
(http://homepages.cwi.nU~robu/cima2005.pdf)
Retrieved from "http://en.wikipedia.org/wiki/Algorithmic_trading"
Categories: Financial markets
^ This page was last modified on 29 August 2008, at 03:58.
^ All text is available under the tenors of the GNU Free Documentation License. (See Copyrights for details.)
Wikipedia® is a registered trademark of the Wikimedia Foundation, Inc., a U.S. registered 501(c)(3) tax-
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>3uy and hold -Wikipedia, the free encyclopedia Page 1 of 1
Buy and ho~'~ us provide free content to the world by donating today!
From Wikipedia, the free encyclopedia
Buy and hold is a long term investment strategy based on the concept that in the long run financial markets give a
good rate of return despite periods of volatility or decline. This viewpoint also holds that market timing, i.e. the concept
that one can enter the market on the lows and sell on the highs, does not work or does not work for small investors so it
is better to simply buy and hold.
The antithesis of buy and hold is the concept of day trading in which money can be made in the short term if an
individual tries to short on the peaks, and buy on the lows with greater money coming with greater volatility.
One of the strongest arguments for the buy and hold strategy is the efficient market hypothesis (EMH): If every
security is fairly valued at all times, then there is really no point to trade. Some take the buy and hold strategy to an
extreme, advocating that you should never sell a security unless you need the money [ 1 ]
(http: //www. efficientmarket. ca/artic leBuy-And-Hold).
Others have advocated buy and hold on purely cost-based grounds, without resort to the EMH. Costs such as brokerage
and bid/offer spread are incurred on all transactions, and buy-and-hold involves the fewest transactions for a given
amount invested in the market, all other things being equal. Warren Buffett is an example of a buy and hold advocate
who has rejected the EMH in his writings.
See also
^ Passive management
^ Sell in May - an alternative strategy
External links
^ Never Sell: Buy and Hold Forever (http://www.efficientmarket.ca/articleBuy-And-Hold) (Efficient Market
Canada, Investment Magazine)
^ The Buy and Hold Apocalypse (http://www.fool.com/schooUbuyandhold.htm): Motley Fool article
^ John Bogle, Bogle on Mutual Funds: New Perspectives for the Intelligent Investor, Dell, 1994, ISBN 0-440-
50682-4
^ Mark T. Hebner, Index Funds: The 12-Step Program for Active Investors, IFA Publishing, 2005, ISBN 0-976-
80230-9
Retrieved from "http://en.wikipedia.org/wiki/Buy_and_hold"
Categories: Investment
^ This page was last modified on 22 January 2008, at 04:09.
^ All text is available under the terms of the GNU Free Documentation License. (See Copyrights for details.)
Wikipedia® is a registered trademark of the Wikimedia Foundation, Inc., a U.S. registered 501(c)(3) tax-
deductible nonprofit charity.
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~.r~ivJL,11v1 - wixipedia, the free encyclopedia Page 1 of 4
CANSLIM Help us provide free content to the world by donating today!
From Wikipedia, the free encyclopedia
CANSLIM is an acronym for an investment strategy based upon claimed common characteristics shared by best-
performing stocks.
Contents
^ 1 The investing mechanism and process
^ 1.1 Components of CANSLIM
^ 2 Cutting losses
^ 3 References
^ 4 Books Referencing CAN SLIM
^ 5 CANSLIM Internet Resources
The investing mechanism and process
CANSLIM is a growth stock investment strategy based on a study of 500 of the stock market winners dating back to
1953 in the book How to Make Money in Stocks: A Winning System In Good Times or Bad, 3rd Edition (May 23,
2002) ISBN 0071373616. (http://books.mcgraw-hill.corn/getbook.php?isbn=0071373616) by William J. O'Neil. This
strategy uses both technical analysis and fundamental analysis.
The goal of the strategy is to discover leading stocks before they make major price advances. These pre-advance
periods are "buy points" that are emerging from price consolidation areas (or "bases") of at least 7 weeks on weekly
price charts.
Components of CANSLIM
Each letter in CANSLIM stands for common characteristics which proponents claim are found in the greatest stock
market leaders over the past 50 years:
^ C =Current earnings per share. They must be up 18 to 20% or more. [1] [2] [3] [4] [5] [6] [7] [8] [9) [10]
^ [Al8] [19j [20~ earnings. They should be up 25% or more in each of the last three years. [11] [12] [13] [14] [15] [16] [17]
^ N =New. The company should either be under new management, have a new product, or have a new service. It
should also have a new high for its stock price. [21] [22] [23] [24] [25] [26] [27] [28] [29] [30J
^ S =Shares of common stock Outstanding:Keep it small. The price of a common stock with 300 million shares
[39]s[ p]ding is hard to budge up because of the large supply of stock available. [31) [32] [33] [34] [35] [36] [37] [38]
^ L = Leader or laggard? Within an industry, always choose the company that is leading the way, not one that is
following in another's footsteps. [41] [42] [43] [44] [45] [46] [47] [48] [49] [50)
^ I =Institutional sponsorship. Make sure large mutual fund companies (and other institutions) are investing in
our stock - ou can ride on their ca ital. Also, focus on the better performing institutions buying your stock. [51 ]
~52] [53] [54] [55] [56] [57] [58) [59] [60]p
^ M =Market trends and market indices. Recognize the cup and handle pattern, as well as other market correction
footprints. Know when a stock has peaked out. Also, buy stocks only when the Dow, S&P 500, and Nasdaq are
~oin~ un. [61] [62] [63] [64] [65] [66] [67) [68) [69] [70)
http://en.wikipedia.org/wiki/CANSLIM 9/8/2008
C;ANSLIM - Wikipedia, the free encyclopedia
Cutting losses
Page 2 of 4
The strategy is one that strongly encourages cutting all losses at no more than 7% or 8% below the buy point, with no
exceptions, to minimize losses and to preserve gains. It is stated in the book, that buying stocks from solid companies
should generally lessen chances of having to cut losses, since a strong company (good current quarterly earnings-per-
share, annual growth rate, and other strong fundamentals) will usually shoot up--in bull markets--rather than descend.
O'Neil has stated that the CANSLIM strategy is not "momentum investing", but that the system identifies companies
with strong fundamentals--big sales and earnings increases which is a result of unique new products or services--and
encourages buying their stock when they emerge from price consolidation periods (or "bases") and before they advance
dramatically in price.
References
1. ^ William J.O'Neil (2004). The Successful Investor, p. 155.
2. ^ Van K. Tharp (2007). Trade Your Way to Financial Freedom (2nd ed), p. 238.
3. ^ William J.O'Neil (2002). How to Make Money in Stocks (3rd ed), p. 7.
4. ^ John Boik (2004). Lessons from the Greatest Stock Traders of All Time, p. 103.
5. ^ Jack D. Schwager (1993). Market Wizards: Interviews with Top Traders, p. 222.
6. ^ Jon Leizman (2002). Short Term Trading, Long-Term Profits: The Complete Guide to Short-Term Trading, p.
15.
7. ^ Jae K. Shim, Anique Qureshi, Jeffrey Brauchler, and Joel G. Siegel (2000). International Encyclopedia of
Technical Analysis, p. 49.
8. ^ Ellie Williams (2000). The McGraw-Hill Investor's Desk Reference, p. 422.
9. ^ Ellen Hertz (2005). Trading Crowd, The (Cambridge Studies in Social and Cultural Anthropology), p. 171.
10. ^ Steven B. Achelis (Oct 2, 2000). Technical Analysis from A to Z, 2nd Edition, p. 91.
11. ^ William J.O'Neil (2004). The Successful Investor, p. 156.
12. ^ Van K. Tharp (2007). Trade Your Way to Financial Freedom (2nd ed), p. 238.
13. ^ William J.O'Neil (2002). How to Make Money in Stocks (3rd ed), p. 16.
14. ^ John Boik (2004). Lessons from the Greatest Stock Traders of All Time, p. 104.
15. ^ Jack D. Schwager (1993). Market Wizards: Interviews with Top Traders, p. 222.
16. ^ Jon Leizman (2002). Short Term Trading, Long-Term Profits: The Complete Guide to Short-Term Trading, p.
15.
17. ^ Jae K. Shim, Anique Qureshi, Jeffrey Brauchler, and Joel G. Siegel (2000). International Encyclopedia of
Technical Analysis, p. 49.
18. ^ Ellie Williams (2000). The McGraw-Hill Investor's Desk Reference, p. 422.
19. ^ Ellen Hertz (2005). Trading Crowd, The (Cambridge Studies in Social and Cultural Anthropology), p. 171.
20. ^ Steven B. Achelis (Oct 2, 2000). Technical Analysis from A to Z, 2nd Edition, p. 91.
21. ^ William J.O'Neil (2004). The Successful Investor, p. 156.
22. ^ Van K. Tharp (2007). Trade Your Way to Financial Freedom (2nd ed), p. 238.
23. ^ William J.O'Neil (2002). How to Make Money in Stocks (3rd ed), p. 24.
24. ^ John Boik (2004). Lessons from the Greatest Stock Traders of All Time, p. 105.
25. ^ Jack D. Schwager (1993). Market Wizards: Interviews with Top Traders, p. 222.
26. ^ Jon Leizman (2002). Short Term Trading, Long-Term Profits: The Complete Guide to Short-Term Trading, p.
15.
27. ^ Jae K. Shim, Anique Qureshi, Jeffrey Brauchler, and Joel G. Siegel (2000). International Encyclopedia of
Technical Analysis, p. 49.
28. ^ Ellie Williams (2000). The McGraw-Hill Investor's Desk Reference, p. 422.
29. ^ Ellen Hertz (2005). Trading Crowd, The (Cambridge Studies in Social and Cultural Anthropology), p. 171.
30. ^ Steven B. Achelis (Oct 2, 2000). Technical Analysis from A to Z, 2nd Edition, p. 91.
31. ^ William J.O'Neil (2004). The St{ccessful Investor, p. 157.
32. ^ William J.O'Neil (2002). How to Make Money in Stocks (3rd ed), p. 32.
http://en.wikipedia.org/wiki/CANSLIM 9/8/2008
~,tilv~Liiv1 - wikipedia, the free encyclopedia Page 3 of 4
33. ^ Van K. Tharp (2007). Trade Your Way to Financial Freedom (2nd ed), p. 239.
34. ^ John Boik (2004). Lessons from the Greatest Stock Traders of All Time, p. 105.
35. ^ Jack D. Schwager (1993). Market Wizards: Interviews with Top Traders, p. 222-223.
36. ^ Jon Leizman (2002). Short Term Trading, Long-Term Profits: The Complete Guide to Short-Term Trading, p.
15.
37. ^ Jae K. Shim, Anique Qureshi, Jeffrey Brauchler, and Joel G. Siegel (2000). International Encyclopedia of
Technical Analysis, p. 49.
38. ^ Ellie Williams (2000). The McGraw-Hill Investor's Desk Reference, p. 423.
39. ^ Ellen Hertz (2005). Trading Crowd, The (Cambridge Studies in Social and Cultural Anthropology), p. 171.
40. ^ Steven B. Achelis (Oct 2, 2000). Technical Analysis from A to Z, 2nd Edition, p. 92.
41. ^ William J.O'Neil (2004). The Successful Investor, p. 157.
42. ^ William J.O'Neil (2002). How to Make Money in Stocks (3rd ed), p. 37.
43. ^ Van K. Tharp (2007). Trade Your Way to Financial Freedom (2nd ed), p. 239.
44. ^ John Boik (2004). Lessons from the Greatest Stock Traders of All Time, p. 105.
45. ^ Jack D. Schwager (1993). Market Wizards: Interviews with Top Traders, p. 223.
46. ^ Jon Leizman (2002). Short Term Trading, Long-Term Profits: The Complete Guide to Short-Term Trading, p.
15.
47. ^ Jae K. Shim, Anique Qureshi, Jeffrey Brauchler, and Joel G. Siegel (2000). International Encyclopedia of
Technical Analysis, p. 49.
48. ^ Ellie Williams (2000). The McGraw-Hill Investor's Desk Reference, p. 423.
49. ^ Ellen Hertz (2005). Trading Crowd, The (Cambridge Studies in Social and Cultural Anthropology), p. 171.
50. ^ Steven B. Achelis (Oct 2, 2000). Technical Analysis from A to Z, 2nd Edition, p. 92.
51. ^ William J.O'Neil (2004). The Successful Investor, p. 158.
52. ^ William J.O'Neil (2002). How to Make Money in Stocks (3rd ed), p. 42.
53. ^ Van K. Tharp (2007). Trade Your Way to Financial Freedom (2nd ed), p. 239.
54. ^ John Boik (2004). Lessons from the Greatest Stock Traders of All Time, p. 107.
55. ^ Jack D. Schwager (1993). Market Wizards: Interviews with Top Traders, p. 223.
56. ^ Jon Leizman (2002). Short Term Trading, Long-Term Profits: The Complete Guide to Short-Term Trading, p.
15.
57. ^ Jae K. Shim, Anique Qureshi, Jeffrey Brauchler, and Joel G. Siegel (2000). International Encyclopedia of
Technical Analysis, p. 49.
58. ^ Ellie Williams (2000). The McGraw-Hill Investor's Desk Reference, p. 423.
59. ^ Ellen Hertz (2005). Trading Crowd, The (Cambridge Studies in Social and Cultural Anthropology), p. 171.
60. ^ Steven B. Achelis (Oct 2, 2000). Technical Analysis from A to Z, 2nd Edition, p. 92.
61. ^ William J.O'Neil (2004). The Successful Investor, p. 158.
62. ^ William J.O'Neil (2002). How to Make Money in Stocks (3rd ed), p. 48.
63. ^ Van K. Tharp (2007). Trade Your Way to Financial Freedom (2nd ed), p. 239.
64. ^ John Boik (2004). Lessons from the Greatest Stock Traders of All Time, p. 107.
65. ^ Jack D. Schwager (1993). Market Wizards: Interviews with Top Traders, p. 223.
66. ^ Jon Leizman (2002). Short Term Trading, Long-Term Profits: The Complete Guide to Short-Term Trading, p.
15.
67. ^ Jae K. Shim, Anique Qureshi, Jeffrey Brauchler, and Joel G. Siegel (2000). International Encyclopedia of
Technical Analysis, p. 49.
68. ^ Ellie Williams (2000). The McGraw-Hill Investor's Desk Reference, p. 423.
69. ^ Ellen Hertz (2005). Trading Crowd, The (Cambridge Studies in Social and Cultural Anthropology), p. 171.
70. ^ Steven B. Achelis (Oct 2, 2000). Technical Analysis from A to Z, 2nd Edition, p. 92.
Books Referencing CAN SLIM
Master Traders: Strategies for Superior Returns from Today's Top Traders (Wiley Trading), by Fari Hamzei and
Steve Shobin (Hardcover -Oct 6, 2006)
Technical Analysis: The Complete Resource for Financial Market Technicians, by Charles D. Kirkpatrick and
Julie R. Dahlquist (Hardcover -Aug 18, 2006)
Technical Analysis from A to Z, 2nd Edition, by Steven B. Achelis (Hardcover -Oct 2, 2000)
http://en.wikipedia.org/wiki/CANSLIM 9/8/2008
I;AN~L1M -Wikipedia, the free encyclopedia
Page 4 of 4
^ Online Investing Bible (Bible (Wiley)), by Jill S. Gilbert, Thomas S. Gray, Claire Mencke, and Jill Gilbert
Welytok (Paperback -Jan 2001)
^ Short Term Trading, Long-Term Profits: The Complete Guide to Short-Term Trading, by Jon Leizman
(Hardcover -Feb 15, 2002)
^ The McGraw-Hill Investor's Desk Reference, by Ellie Williams (Hardcover -Oct 19, 2000)
^ International Encyclopedia of Technical Analysis, by Jae K. Shim, Anique Qureshi, Jeffrey Brauchler, and Joel
G. Siegel (Hardcover -Feb 2000)
^ Trading Crowd, The (Cambridge Studies in Social and Cultural Anthropology), by Ellen Hertz (Paperback -Aug
31, 2005)
^ Applying Elliott Wave Theory Profitably, by Steven W. Poser (Hardcover -Jul 18, 2003)
^ Trade Your Way to Financial Freedom (2nd ed), by Van K. Tharp (Hardcover - 2007)
^ The Vital Few vs. the Trivial Many :Invest with the Insiders, Not the Masses, by George Muzea (Paperback -Oct
29, 2004)
^ Understanding Stocks, by Michael Sincere (Paperback -Aug 19, 2003)
^ All About Retirement Funds :The Easy Way to Get Started by Ellie Williams Clinton (Paperback -Sep 17, 2003)
^ The Hedge Fund Edge: Maximum Profit/Minimum Risk Global Trend Trading Strategies (Wiley Trading, by
Mark Boucher (Hardcover -Oct 30, 1998)
^ How Legendary Traders Made Millions by John Boik (Paperback -Mar 23, 2006)
^ Dave Landry's 10 Best Swing Trading Patterns and Strategies by Dave Landry (Paperback -Nov 1, 2003)
^ How to Make Money Selling Stocks Short by William J O'Neil and Gil Morales (Paperback Dec 24, 2004)
CANSLIM Internet Resources
^ www.investors.com William O'Neil's Investors Business Daily. News, tutorials, commentary
^ www.gilmoreport.com The stock idea newsletter by CANSLIM legend Gil Morales
^ www.canslim.net CANSLIM stocks screens, alert service, training
^ www.garyk.com Gary Kautbaum; CANSLIM radio show host, author, subscription newsletter
^ www.covestor.com/mbr/ibdinvestor Follow real time trades of CANSLIM investor, Peter Kurata
Retrieved from "http://en.wikipedia.org/wiki/CANSLIM"
Categories: Investment
Hidden categories: Wikipedia articles needing style editing from December 2007 ~ All articles needing style editing
^ This page was last modified on 3 September 2008, at 17:55.
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Wikipedia® is a registered trademark of the Wikimedia Foundation, Inc., a U.S. registered 501(c)(3) tax-
deductible nonprofit charity.
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L.iaoiiity-anven investment strategy -Wikipedia, the free encyclopedia Page 1 of 1
Liability-dpi ~~p~~~~~~~~gq~"~i~~t`~~~'
From Wikipedia, the free encyclopedia
(Redirected from Liability driven investment strategy)
The liability driven investment strategy (LDI) is an investment strategy of a company based on its risk tolerance, the
company's ethics and the target return. The target return is usually linked to an index or combination of indices of the
sector or any other like S&P 500. This is called the benchmark-driven investment strategy.
Especially in the long-term investments, like pension fund, the benchmark-driven is no longer appreciated. Now the
buzzword is liability driven investment LDI. The investment target of the fund is no longer linked to any external
index, but to the liability of the fund, which is evaluated by the actuaries. In case of pension fund, it will be the present
value of the benefits payable to the employees and pensioners, attached with a probability of those payments made.
LDI in Pension Funds
A pension fund following an LDI focuses on the pension-fund assets in the context of the promises made to employees
and pensioners (known as liabilities). This is in contrast to an approach which focuses purely on the asset side of the
pension fund balance sheet. Typical LDI strategies involve hedging, in whole or in part, the fund's exposure to changes
in interest rates and inflation. These risks can eat into a pension scheme's ability to keep their promises to members.
Historically, bonds were used as a partial hedge for these interest rate risks but the recent growth in LDI has focused on
using swaps and other derivatives. These offer significant additional flexibility and capital efficiency compared to
bonds.
LDI investment strategies have come to prominence in the UK as a result of changes in the regulatory and accounting
framework. IFRS 17 (International Financial Reporting Standards) requires that UK companies post the funding
position of a pension fund on the corporate sponsor's balance sheet. In the US the introduction of FAS 158 (Financial
Accounting Standards Board) has created a similar requirement.
Retrieved from "http://en.wikipedia.org/wiki/Liability-driven_investment strategy"
Categories: Investment -
Hidden categories: Articles lacking sources from October 2007 ~ All articles lacking sources ~ Cleanup from October
2007 I All pages needing cleanup
^ This page was last modified on 1 July 2008, at 16:13.
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Wikipedia® is a registered trademark of the Wikimedia Foundation, Inc., a U.S. registered 501(c)(3) tax-
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rviarxet ummg - Wikipedia, the free encyclopedia Page 1 of 2
Market tim~i~ic~ support Wikipedia by making atax-deductible donation.
From Wikipedia, the free encyclopedia
Market timing is the strategy of making buy or sell decisions of financial assets (often stocks) by attempting to predict
future market price movements. The prediction may be based on an outlook of market or economic conditions resulting
from technical or fundamental analysis. This is an investment strategy based on the outlook for an aggregate market,
rather than for a particular financial asset.
Whether market timing is ever a viable investment strategy is controversial. Some may consider market timing to be a
form of gambling based on pure chance because they do not believe in the possibility of predicting future financial
prices. The efficient market theory suggests that financial prices often exhibit random walk behavior and thus can not
be predicted with consistency. Some consider market timing to be sensible in certain situations, such as an apparent
bubble. However, because the economy is a complex system that contains many factors, even at times of significant
market optimism or pessimism, it often remains difficult, if not impossible, to pre-determine the local maximum or
minimum of future prices with any precision; a so-called bubble can last for many years before prices collapse.
Likewise, a crash can persist for extended periods; stocks that appear to be "cheap" at a glance can often become much
cheaper afterwazds before either rebounding at some time in the future or heading toward bankruptcy.
A major stumbling block for many market timers is the phenomenon of curve fitting. This means that a given set of
trading rules has been optimized to fit the particulaz dataset for which it has been back-tested. Unfortunately optimized
trading rules often fail to work on future data. Market timers attempt to avoid these difficulties in a number of ways.
One is by looking for clusters of parameter values which work particularly wellll~. Another is using out-of-sample data,
which ostensibly allows the market timer to see how the system will work on unforeseen data. However, critics charge
that once the strategy has been revised to reflect such data it is no longer "out-of-sample".
Several independent organizations (e.g., Timer Digest and Hulbert Financial Digest) have tracked some market timers'
performance for in some cases over thirty years. In many of these cases, they have found that purported mazket timers
do no better than chance or even worse. However, some have proven to be reliable for the entire thirty year period with
performances that substantially exceed the performance of the general stock market or the sectors that the market timer
invests in. Jim Simons Renaissance Technologies Medallion Hedge Fund has consistently outperformed the market.
The fund allegedly uses mathematical models developed by Ellwyn Berlekamp 1~1. Efficient mazket theory has also
been criticized as an unscientific theory. That is, it assumes the Null hypothesis is true (nothing can predict the market),
which is the reverse of standard Popperian methodology.
A recent study suggested that the best predictor for a fund to consistently outperform the market was low expenses and
low turnover, not pursuing a value or contrarian strategy.~3~ However, other studies have concluded that some simple
strategies will outperform the overall market. [41 One mazket timing strategy is referred to as Time Zone Arbitrage.
A scandal erupted in the United States in 2003 where some mutual funds "secretly allowed select investors to rapidly
trade the portfolio despite statements banning the practice in the prospectus. The scandal did not involve mazket timing
per se, and market timing is not itself illegal. However, it involved permitting selected investors to make frequent and
repeated trades during the day while permitting general investors to trade only at the close of business, which permitted
the favored investors to take advantage of market timing strategies. A double standard that favors one investor at the
expense of another is illegal and undermines the credibility of the industry"~5~ In this instance, the market timing
frequently involved predictions of the performance of how international markets would respond to the day's trading in
the US. This scandal also involved late trading.
See also
^ Stock market cycles
http://en.Wikipedia.org/wiki/Market_timing 9/8/2008
iviarxet timing - Wikipedia, the free encyclopedia
^ Stock market bottom
References
Page 2 of 2
1. ^ Pruitt, George, & Hill, John R. Building Winning Trading Systems with TradeStation(TM), Hoboken, N.J: John
Wiley & Sons, Inc. ISBN 0471215694, p. 106-108.
2. ^ Finance and Business (http://math.berkeley.edu/~berlek/fin.html)
3. ^ Malkiel B.G. (2004) Can predictable patterns in market returns be exploited using real money? Journal of
Portfolio Management, 31 (Speciallssue), p.131-141.
4. ^ Shen, P. Market timing strategies that worked -based on the E/P ratio of the S&P 500 and interest rates.
Journal of Portfolio Management, 29, p.57-68.
5. ^ Hougel, T., & Wellman, J. (2005) Fallout from the Mutual Fund Trading Scandal. Journal of Business Ethics
62, p.132 & p.129-139.
External links
^ Market-Timing Strategies that Worked (http://www.kansascityfed.org/Publicat/Reswkpap/PDF/RWP02-Ol.pdfJ
Retrieved from "http://en.wikipedia.org/wiki/Market timing"
Categories: Investment
Hidden categories: Articles needing sections ~ All articles with unsourced statements ~ Articles with unsourced
statements since December 2007
^ This page was last modified on 2 September 2008, at 14:14.
^ All text is available under the terms of the GNU Free Documentation License. (See Copyrights for details.)
Wikipedia® is a registered trademark of the Wikimedia Foundation, Inc., a U.S. registered 501(c)(3) tax-
deductible nonprofit charity.
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From Wikipedia, the free encyclopedia
In finance, a trading strategy (see also trading system) is a predefined set of rules for making trading decisions.
Traders, investment firms and fund managers use a trading strategy to help make wiser investment decisions and help
eliminate the emotional aspect of trading. A trading strategy is governed by a set of rules that do not deviate. Emotional
bias is eliminated because the systems operate within the parameters known by the trader. The parameters can be
trusted based on historical analysis (backtesting) and real world market studies (forward testing), so that the trader can
have confidence in the strategy and its operating characteristics.
__ _ _..
Contents
^ 1 Development
^ 2 Forwazd testing
^ 3 Executing strategies '',
^ 4 Styles
^ 5 Timeframes
^ 6 External links
_. _ __
Development
When developing a trading strategy, many things must be considered: return, risk, volatility, timeframe, style,
correlation with the mazkets, methods, etc. After developing a strategy, it can be backtested using computer programs.
Although backtesting is no guazantee of future performance, it gives the trader confidence that the strategy has worked
in the past. If the strategy is not over-optimized, data-mined, or based on random coincidences, it might have a good
chance of working in the future.
Forward testing
Forward testing a strategy give the trader a much better picture of how it will work in the future. Forwazd testing, or
out-of-sample results, are the best way to measure its quality.
Executing strategies
A trading strategy can be executed by a trader (manually) or automated (by computer). Manual trading requires a great
deal of skill and discipline. It is tempting for the trader to deviate from the strategy, which usually reduces its
performance.
An automated trading strategy wraps trading formulas into automated order and execution systems. Advanced
computer modeling techniques, combined with electronic access to world market data and information, enable traders
using a trading strategy to have a unique market vantage point. A trading strategy can automate all or part of your
investment portfolio. Computer trading models can be adjusted for either conservative or aggressive trading styles.
Styles
Technical analysis
Fundamental analysis
http://en.wikipedia.org/wiki/Trading strategy 9/8/2008
i racing strategy - W ikipedia, the free encyclopedia
Quantitative trading
Trend following
Mean reversion
Volatility (finance)
Timeframes
Intraday
Day trading
swing trading
Long term trading
External links
Page 2 of 2
Retrieved from "http://en.wikipedia.org/wiki/Trading strategy"
Categories: Technical analysis
^ This page was last modified on 25 June 2008, at 18:33.
^ All text is available under the terms of the GNU Free Documentation License. (See Copyrights for details.)
Wikipedia® is a registered trademark of the Wikimedia Foundation, Inc., a U.S. registered 501(c)(3) tax-
deductible nonprofit charity.
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Trend follol~n~'"ed donations keep Wikipedia running!
From Wikipedia, the free encyclopedia
In finance, trend following is an investment strategy that tries to take advantage of long-term moves that seem to play
out in various markets. The system aims to work on the market trend mechanism and take benefit from both sides of
the market enjoying the profits from the ups and downs of the stock market.
Traders who use this approach can use current market price calculation, moving averages and channel breakouts to
determine the general direction of the market and to generate trade signals. Traders who subscribe to a trend following
strategy do not aim to forecast or predict markets or price levels; they simply jump on the trend and ride it.
Contents
^ 1 Definition
^ 2 Considerations
^ 3 Example
^ 4 Trend followers
^ 5 Notes and references
^ 6 Further reading
^ 7 See also
Definition
This trading method involves a risk management component that uses three elements; the current market price, equity
level in an account and current market volatility. An initial risk rule determines position size at time of entry. Exactly
how much to buy or sell is based on the size of the trading account. Changes in price may lead to a gradual reduction or
increase of the initial trade. On the other hand, adverse price movements may lead to an exit for the entire trade.
These systems traders normally enter in the market after the trend properly establishes itself and for this reason, they
miss the initial turning point.
If there is a turn contrary to the trend, these systems signal apre-programmed exit or wait until the turn establishes
itself as a trend in the opposite direction. Incase the system signals an exit, the trader re-enters when the trend re-
establishes.
In the words of Van K. Tharp, in the book Trade Your Way to Financial Freedomlll
" Let's break down the term Trend Following into its components. The first part is "trend". Every trader
needs a trend to make money. If you think about it, no matter what the technique, if there is not a trend
after you buy, then you will not be able to sell at higher prices..."Following" is the next part of the term. ~~
We use this word because trend followers always wait for the trend to shift first, then "follow" it.
Considerations
Price: One of the first rules of trend following is that price is the main concern. Traders may use other indicators
showing where price will go next or what it should but as a general rule these should be disregarded. A trader need only
be worried about what the market is doing, not what the market might do. The current price and only the price tells you
what the market is doing.
http://en.Wikipedia.org/wiki/Trend following 9/8/2008
arena roiiowmg - wlkipedia, the tree encyclopedia
Page 2 of 4
Money Management: Another decisive factor of trend following is not the timing of the trade or the indicator, but
rather the decision of how much to trade over the course of the trend.
Risk Control: Cut losses is the rule. This means that during periods of higher market volatility, the trading size is
reduced. During losing periods, positions are reduced and trade size is cut back. The main objective is to preserve
capital until more positive price trends reappear.
Rules: Trend following should be systematic. Price and time are pivotal at all times. This technique is not based on an
analysis of fundamental supply or demand factors.
Trend Following answers the questions:
^ How and when to enter the market.
^ How many contracts or shares to trade at any time.
^ How much money to risk on each trade.
^ How to exit the trade if it becomes unprofitable.
^ How to exit the trade if it becomes profitable.
Example
A trader would identify a security to trade (curriencies/commodities/financials) and would come up with a preliminary
strategy, such ash~1:
^ Commodity: soyabean oil
^ Trading approach: long and short alternatively.
^ Entrance: When the 50 period Simple moving average(SMA) crosses over the 100 period SMA, go long when
the market opens. The crossover suggests that the trend has recently turned up.
^ Exit: Exit long and go short the next day when 100 period SMA crosses over 50 period SMA. The crossover
suggests that the trend has turned down.
^ Stop loss: Set a stop loss based on maximum loss acceptable. For example if the recent, say 10 day, Average
True Range is 0.5%, stop loss could be set at 4x0.5% = 2%.
The trader would then backtest the strategy using actual data using a software system such as Wealth-Lab Pro,
StrategyDesk or Trade2Win, and would evaluate the strategy. The simulator would generate estimated number of
trades, the fraction ofwinning/losing trades, average profit/loss, average holding time, maximum drawdown and the
overall profit/loss. The trader can then experiment and refine the strategy.
It is possible that a large fration (perhaps majority) of the trades maybe unprofitable, but by "cutting the losses" and
"letting profits run", the overall strategy maybe profitable.
Trend followers
Trend following systems have enjoyed popularity over the years -well-known trend followers include Bill Dunn, Ed
Seykota, John W. Henry, Richard Dennis, and Richard Donchian.
Many traders like original Turtles Paul Rabar and Jerry Parker say that following a market trend is their winning
trading strategy.
Dennis and Donchian are the fathers of the trend following. During the 1980s Richard made a bet with partner William
Eckhardt that he could train non-traders this technique; he won the bet and these people rank in the top 10 Commodity
Tradine Advisors rankines, they became known as the turtles.l31
http://en.wikipedia.org/wiki/Trend following 9/8/2008
arena roiiowmg - wikipedia, the free encyclopedia
Notes and references
Page 3 of 4
1. ^ Tharp, Van K. (1998). Trade Your Way to Financial Freedom. 83: McGraw-Hill. ISBN 0-07-064762-3.
2. ^ Covel, Michael W. (2007). Trend Following. HarperCollins. ISBN 0978-0-06-124170-3
3. ^ Covel (2007), p.?
Further reading
^ Brown, Kedrick (2006). Trend Trading: Timing Market Tides. John Wiley & Sons, Inc.. ISBN 0-471-98021-8.
^ Covel, Michael W. (2005). Trend Following. Financial Times Prentice Hall. ISBN 0-13-134550-8.
^ Covel, Michael W. (2007). Trend Following. HarperCollins. ISBN 0978-0-06-124170-3.
^ Covel, Michael W. (2007). The Complete TurtleTrader. ISBN 0061241709.
^ Fahy, Tom (2006). "Arcadia Financial: Simple, Logical & Profitable (http://www.arcadiafinancial.biz~".
Retrieved on 2006-10-29.
^ Faith, Curtis M. (2007). Way of the Turtle: The Secret Methods that Turned Ordinary People into Legendary
Traders. McGraw-Hill. ISBN 0-07-148664-X.
^ Markman, John D. (2003). Swing Trading: Power Strategies to Cut Risk and Boost Profits. ISBN 0 471 20678 4
4.
^ Reerink, Jack (May 1995). "Turtle bisque (http://www.allbusiness.com/periodicals/article/499193-1.html)"
Futures magazine. Retrieved on 2006-08-26. '
^ Seykota, Ed (August 2006). "How to determine the trend
(http://www.seykota.com/tribe/TSP/Trends/index.htm)". FAQ. Retrieved on 2006-08-21.
^ Tate, Christopher (March 2001). The Art of Trading. ISBN 1 876627 63 8.
See also
Techniques
^ Electronic trading
^ Algorithmic Trading Platforms
^ Swing trading
^ Stock market cycles
Related phenomena
^ Chart patterns
^ Information cascade
^ Noise trader
^ Keynesian beauty contest
^ Herd behavior
http://en.wikipedia.org/wiki/Trend_following 9/8/2008
trend following -Wikipedia, the free encyclopedia
Page 4 of 4
Retrieved from "http://en.wikipedia.org/wiki/Trend following"
Categories: Finance ~ Stock market ~ Technical anal sis
^ This page was last modified on 30 August 2008, at 13:45.
^ All text is available under the terms of the GNLJ Free Documentation License. (See Copyrights for details.)
Wikipedia® is a registered trademark of the Wikimedia Foundation, Inc., a U.S. registered 501(c)(3) tax-
deductible nonprofit charity.
http://en.wikipedia.org/wiki/Trend following 9/8/2008
Dollar cost averaging -Wikipedia, the free encyclopedia Page 1 of 4
Dollar c~~~a~ V C~~ ' ~~ making atax-deductible donation.
From Wikipedia, the free encyclopedia
Dollar cost averaging -also known as a constant dollar plan or in the United
Kingdom as pound-cost averaging - is an investing technique intended to reduce
exposure to risk associated with making a single large purchase. The idea is simple:
spend a fixed dollar amount at regular intervals (e.g., monthly) on a particular investment
or portfolio/part of a portfolio, regardless of the share price. In this way, more shares are
purchased when prices are low and fewer shares are bought when prices are high. The
premise of dollar cost averaging is that the investor wants to guard against the market
losing value shortly after making his investment. Therefore, he chooses to spread his
investment over a number of periods.
Since the market has a positive mean rate of return, dollar cost averaging usually requires
the investor to give up some expected return for the benefit of reduced variance in his
eventual outcome. In fact, research has shown that investing a lump sum according to
these principles generally results in worse performance as compared to investing the
entire sum at separate times (Constantinides, 1979). However, the investor can expect a
reduction in the variance of his performance by implementing dollar cost averaging.
While dollar cost averaging can help to limit the downside of a worst-case scenario of an
immediate drop in asset value after the lump sum is invested, most market research has
shown that such drop-offs are relatively rare compared to the strong emphasis the
strategy puts on avoiding them.
Contents
^ 1 Investing horizon
. 2 Advanced techniques
^ 3 Reverse dollar cost averaging
^ 4 Criticism from economists and finance experts;
^ 5 References
Investing horizon
http://en.wikipedia.org/w/index.php?title=Dollar_cost_averaging&printable=yes 9/5/2008
Dollar cost averaging - Wikipedia, the free encyclopedia
Page 2 of 4
When using dollar cost averaging, the investor must determine how long the investment
horizon will be as well as the frequency of making investments (i.e.: monthly, quarterly,
etc.). Again, the investor must generally balance the tradeoff between reduced variance
and improved performance. By selecting a short time horizon, the strategy will behave
more like lump sum investing with better performance but higher variance. With a long
time horizon, dollar cost averaging has a greater chance of producing worse performance
but the variance of returns will be reduced. One study has found that the best horizons
when investing in the stock market have been 6 or 12 months (Jones, 1997).
Advanced techniques
When making the decision to dollar cost average, the investor can consider additional
information about the investment which may guide his choice of strategy. For instance,
when investing in the stock market, the investor can use the market's P/E ratio as an
indicator of the expected future rate of return. A high P/E may indicate that the expected
future rate of return is lower than the historical rate (maybe even negative) and dollar cost
averaging may be a superior strategy than lump sum investing. Research has shown that
the choice of dollar cost averaging can actually produce superior performance and
reduced variance in comparison to lump sum investing when the market's P/E ratio is
high (Sigma Investing, 2006).
Another formulaic investing strategy is called value averaging. In contrast to dollar cost
averaging, this technique aims to invest an amount in each period such that a target
investment value is achieved in each period. In some cases, value averaging will call on
the investor to sell some of his asset if the target is surpassed. It is more complicated than
basic dollar cost averaging but has been shown to produce superior results.
Reverse dollar cost averaging
Until now there has been nothing similar on the withdrawal side. In fact the common
practice of withdrawing a constant sum each period is dollar cost averaging with you on
the losing end. United States patent 7003483 has been issued for a method of reverse
dollar cost averaging to sell for more, not less, than the average price.
http://en.wikipedia.org/w/index.php?title=Dollar_cost_averaging&printable=yes 9/5/2008
Dollar cost averaging - Wikipedia, the free encyclopedia Page 3 of 4
Criticism from economists and finance experts
Dollar cost averaging has been widely criticized by economists and academic finance
researchers as more of a marketing gimmick than a sound investment strategy (a way to
gradually ease worried investors into a market, investing more over time than they might
otherwise be willing to do all at once). Numerous studies of real market performance,
models, and theoretical analysis of the strategy have shown that in addition to having the
admitted lower overall returns, DCA does not even meaningfully reduce risk when
compared to other strategies, even including a completely random investment strategy. [ 1
(http://www. sciencedirect.com/science/article/B6W4D-45JK7 82-
6/2/bec35bbe850cf520ddbb20d9eb634271)
References
. The Moneypaper
(http://www.directinvesting.com/drip_learning_center/dollar_cost_average.cfm?
clickid=38)
^ constantinides, George M. (June 1979). "A Note on the Suboptimality of Dollar-
Cost Averaging as an Investment Policy
(http://web.archive.org/web/20030319011045/http://gsbwww.uchicago.edu/fac/geor
ge.constantinides/JFQA_1979.pdf)" (PDF). Journal of Financial and Quantitative
Analysis 14 (2): 443-50. Retrieved on 2006-06-22. Archived from original
(http://gsbwww.uchicago.edu/fac/george.constantinides/JFQA_1979.pdf) on 2003-
03-19.
^ Middleton, Timothy (2005-01-04). "The costly myth of dollar-cost averaging
(http://moneycentral.msn.com/content/P104966.asp)". MSN Money. Retrieved on
2006-06-22.
. MoneyChimp (2006-03-12). "Does Dollar Cost Averaging Work?
(http://www.moneychimp.com/features/dollar_cost.htm)". Money Chimp. Retrieved
on 2007-04-30.
^ Sigma Investing (2006-09-01). "Dollar Cost Averaging
(http://www. sigmainvesting.com/advanced-investing-topics/dollar-cost-averaging)".
Sigma Investng. Retrieved on 2007-06-05.
^ Jones, Bill (1997-01-01). "Do Not Dollar-Cost-Average for More than Twelve
Months (http://www.efficientfrontier.com/ef/997/dca.htm)". Efficient Frontier.
Retrieved on 2007-06-05.
http://en.wikipedia.org/w/index.php?title=Dollar_cost_averaging&printable=yes 9/5/2008
Dollar cost averaging -Wikipedia, the free encyclopedia
Page 4 of 4
^ The Intelligent Investor: revised 1972 edition Benjamin Graham, Jason Zweig.
Collins, 2003. ISBN 0-06-055566-1
^ Investopedia (http://www.investopedia.com/terms/d/dollarcostaveraging.asp)
Retrieved from "http://en.wikipedia.org/wiki/Dollar_cost_averaging"
Categories: Investment
^ This page was last modified on 22 August 2008, at 18:45.
^ All text is available under the terms of the GNU Free Documentation License. (See
Copyrights for details.)
Wikipedia® is a registered trademark of the Wikimedia Foundation, Inc., a U.S.
registered 501(c)(3) tax-deductible nonprofit charity.
9/5/2008
http://en. wikipedia. org/w/index. php?title=Dollar_cost_averaging&printable=yes
Investing horizon
When using dollar cost averaging, the investor must determine how long the investment
horizon will be as well as the frequency of making investments (i.e.: monthly, quarterly,
etc.). Again, the investor must generally balance the tradeoff between reduced variance
and improved performance. By selecting a short time horizon, the strategy will behave
more like lump sum investing with better performance but higher variance. With a long
time horizon, dollar cost averaging has a greater chance of producing worse performance
but the variance of returns will be reduced. One study has found that the best horizons
when investing in the stock market have been 6 or 12 months (Jones, 1997).
[edit] Advanced techniques
When making the decision to dollar cost average, the investor can consider additional
information about the investment which may guide his choice of strategy. For instance,
when investing in the stock market, the investor can use the market's P/E ratio as an
indicator of the expected future rate of return. A high P/E may indicate that the expected
future rate of return is lower than the historical rate (maybe even negative) and dollar cost
averaging may be a superior strategy than lump sum investing. Research has shown that
the choice of dollar cost averaging can actually produce superior performance and
reduced variance in comparison to lump sum investing when the market's P/E ratio is
high (Sigma Investing, 2006).
Another formulaic investing strategy is called value avera~;in~. In contrast to dollar cost
averaging, this technique aims to invest an amount in each period such that a target
investment value is achieved in each period. In some cases, value averaging will call on
the investor to sell some of his asset if the target is surpassed. It is more complicated than
basic dollar cost averaging but has been shown to produce superior results.
[edit] Reverse dollar cost averaging
Until now there has been nothing similar on the withdrawal side. In fact the common
practice of withdrawing a constant sum each period is dollar cost averaging with you on
the losing end. United States patent 7003483 has been issued for a method of reverse
dollar cost averaging to sell for more, not less, than the average price.
[edit] Criticism from economists and finance experts
Dollar cost averaging has been widely criticized by economists and academic finance
researchers as more of a marketing gimmick than a sound investment strategy (a way to
gradually ease worried investors into a market, investing more over time than they might
otherwise be willing to do all at once). Numerous studies of real market performance,
models, and theoretical analysis of the strategy have shown that in addition to having the
admitted lower overall returns, DCA does not even meaningfully reduce risk when
compared to other strategies, even including a completely random investment strategy.] 1.1
[edit] References
• The Moneypaner
• Constantinides, George M. (June 1979). "A Note on the Suboptimality of Dollar-
Cost Averaging as an Investment Policy" (PDF). Journal of Financial and
Quantitative Analysis 14 (2): 443-50. Retrieved on 2006-06-22. Archived from
original on 2003-03-19.
• Middleton, Timothy (2005-01-04). "The costl~yth of dollar-cost averaging".
MSN Money. Retrieved on 2006-06-22.
• MoneyChimp (2006-03-12). "Does Dollar Cost Averaging, Work`?". Money
Chimp. Retrieved on 2007-04-30.
• Sigma Investing (2006-09-0 l ). "Dollar Cost Avera~inQ". Sigma Investng.
Retrieved on 2007-06-05.
• Jones, Bill (1997-01-01). "Do Not Dollar-Cost-Average for More than 'Twelve
Months". Efficient Frontier. Retrieved on 2007-06-05.
• The Intelligent Investor: revised 1972 edition Benjamin Graham, Jason Zweig.
Collins, 2003. ISBN 0-06-055566-1
• Investopedia
Retrieved from "http://en.wikipedia.or~/wiki/Dollar cost avera~in~"
.c.
Annexations
The District has retained two firms to assist with preparing exhibits for
annexation applications to allow staff to process the large backlog of
annexations. These firms are Carlson, Barbee & Gibson and
Ruggeri-Jensen-Azar & Associates. They each have a contract
upper limit of $100,000 approved by the Board on June 19, 2008.
The Finance Committee should see invoices from these firms as we
continue to work on the annexation backlog. In the September 18
Board Meeting packet there are invoices from both firms as well as a
position paper regarding one of the backlogged annexations, number
173. The District has also retained Associated Right of Way
Services, Inc. to augment District right of way staff and assist with
obtaining right of way for the many easement renovation projects.
They have a three year contract approved in October of 2006 for an
upper limit of $500,000. The Finance Committee should continue to
see invoices from this firm as well.