Friday, May 22, 2009

VD's 40:30:30 Investment Concept

I have come up with a investment concept, VD's 40:30:30 Investment Concept as i call it. It is like this, at any point of time you want to invest in Stocks divide the money you have for investing in a ratio of 40:30:30. Invest 40 % money in stocks you want to buy. Keep remaining amount as it is, don't invest it. It is up to you whether you want to invest it for long term or short term. If the market goes down by 15-18% invest remaining 30% of money and if it further goes down by 15-18% invest the last 30 %. If after investing 30 % at any point of time market goes up you can sell your stock if you want and book profit thereby reducing loss from original 40% invested money and then you can again invest 30 % when market goes further down.

Now if the market goes up you can sell the stock to get profit and re-divide the total amount in 40:30 :30 ratio and invest it. Or you can keep the stocks and the amount which is left i.e. 60 % of total amount, you can redivide the amount in 40:30:30 ratio and invest it and keeping the existing stocks.

It is up to you to sell stock at whatever rate you want and book profit. You can use this principle if you don't want to keep stop loss. I feel by using this concept you can keep your portfolio away from heavy losses when market starts going down. You can also earn profit when market goes up and invest more with less risk with this concept. You can use this concept at any point, whether you are just starting to invest or you have been already investing.

I use this concept when i invest my money and it has been amazingly helpful to me during tough times. Moreover do strong market research before investing in any stock. The concept has worked with me and it is not necessary it works with everyone because it also depends on person to person and in scripts they invest. I feel this concept may lessen your risk in investing.

Disclaimer: This is only for information and the author is not liable for any losses be it direct, indirect, incidental, special or consequential damages caused by using the information, or as a result of the risks inherent in the stock market. No warranty or guarantee is given regarding the accuracy, reliability or completeness of the information provided here.


Ankit said...

I would still prefer to invest in a well diversified portfolio while considering the risk of each investment and then setting up an optimal combination..

Ankit said...

Also apply a simple rule.. HIgher the diversification on your portfolio lower the risk.. But that must be weighed against the transaction cost

Vashistha Diwan said...

Absolutely true...i agree to it. By this concept it is upto the investor to select the scripts and diversify the portfolio. This concept i feel will work for any kind of portfolio.


Vashistha Diwan said...

Thank you Ankit for your inputs:)

Ankit said...

No probs dude.. This is what I have done for my living for past two years.. As a GRA I have worked on finding the optimal diversification based on company beta, market return and risk free rates.. But again most of these propositions work in an effective capital market.. US is considered to be a semi effective capital market but India is no where close to it..

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