When do we decide to buy or sell?
How do we decide when to buy or when to sell stock? How much money should we hold in cash? What is a good time to buy/sell?
We are in it for the long term. That is why we do not short any positions. Sometimes it is better to wait and hold cash than to invest in a market that is going down (Bear market). That is why we have invented the traffic light. We try to take out the emotions as much as possible. So we have a system that tells us what to do and when.
The traffic light is our TAA (Total Asset Allocation). It tells us how much or what percentage we can keep in stock and what percentage we have to hold cash. It is like a buy, hold or sell rating but more specific. It generates a number and that number corresponds with a percentage. So if the traffic light is at 80. We need to have 80% stock in our portfolio (and subsequently 20% cash). For our current portfolio see the ETF or click: here.
At this moment the traffic light is: 75
Stock : 75%, Cash: 25%
That means yellow !!!
How do we calculate the traffic light?
This is probably the most mathematical part of the website.
The traffic light is made up out of a few indexes. We have the major indices: the Dow Jones Index, the S&P 500 Index, the Nasdaq 100 and a few indicator indexes: the Vix (volatility Index), the Baltic Dry (transportation index), and the IPSOS GCC (global consumer confidence index). Than we let loose some simple indicators on them. The SMA300, and MACD.
Combine them together with our special formula (Everything is equal weight except the vix that is negative weight) and we get a number from 1 to 100.
Between 1 and 40 is red, Between 41 and 80 is yellow and above 81 is green.
That decides what percentage we keep stock and cash. It also tells us how the general (macro) economy is doing and wheter we are in an overbought or oversold situation.
For example. If the major indexes are going higher and the Vix is low that means that our traffic light is above 80 points and we have to have at least 80% stock. This means we have to buy more stock and thus have a smaller cash position because probably most stocks will go up and we will increase our gains.
Or if the major indexes are going lower and the Vix goes up that makes our trafficlight somewhere below 40 points and we have to keep 40% stock and at least 60% cash. This means we have to sell stock and keep a larger cash position. Which is probably a good idea because most stocks will go lower and we will decrease our losses.
Please keep in mind that the-wiseguy.com provides high-quality information. However detailed and excellent it might be. It is not financial advice.
Our lawyer would say: The-wiseguy.com tries to help you form an opinion on buying or selling a certain security. We will never tell you to do so. Also we may already hold a position in a certain stock or may never buy it at all. Our information does not take in account your investment objectives, particular needs or financial situation. Therefor we are not responsible for any gains or losses you may experience. Any security mentioned should be examined with ones own due diligence. Always consult a licensed and trustworthy profesional before making a financial decision.