sorta Value Averaging ... an addendum to Value Averaging
motivated by comments by dagan

I was never a great fan of Edleson's Value Averaging ... or is it Edelson
mainly 'cause it requires ...

>Value Averaging?
Yes. That's where you insist that your portfolio increase by, say, $1,000 each month.
If the increase is greater than that, say $2,500, you sell $1500 worth of stock (to get the $1,000 increase).
If your portfolio tanks, losing say $3200, you buy $4200 worth of stock (to get the $1,000 increase).

>And if it tanks by $20,000?
You buy $21,000 worth of stock (to get the $1,000 increase).

>Aaah, yes. That's the Bill Gates strategy, eh? Who else can afford it?
That's my thinking, but (as suggested by dagan), you can use Value Averaging as a sort of Buy/Sell signal and buy only what you can afford (when your portfolio tanks).

So here's what we'll do:

  1. You have some monthly amount to invest, say $1500.
  2. Pick some portfolio change (like $1000).
  3. If your portfolio changes by less than $1000 (either up or down) you invest your $1500.
  4. If your portfolio increases by more than $1000 you sell stock (so the increase is reduced to $1000)
    and put the money (well as your $1500) into Money Market.
  5. If your portfolio decreases by more than $1000, you invest your $1500 as well as any Money Market funds (if necessary) in order to maintain the $1000 increase (if possible).

>I don't get #5.
If your portfolio decreases by $20,000 you invest your $1500 plus $19,500 in Money Market funds (to get that $1000 increase) ... if you have that much in MM !
If you don't have that much in MM, then invest all of your MM funds. If you've got $25K in MM funds then invest just $19,500 of it.

>So you don't need a bunch of Money Market to start with?
That's right. In fact, you don't need any. Notice, however, that you're always putting your available monthly $1500 somewhere, each month.

>And that's Value Averaging?
Well, not exactly ... but you use that "intended" increase of $1000 to tell you when to buy and sell
... and it does force you to sell high (as in step 4) and buy low (as in step 5) and ...

>Yeah, so, does it work?
Well, I have a spreadsheet which (such as it is) looks like this:

You can click on the picture to play with the spreadsheet.

>What's that DCA stuff?
That'd be when you just invest your $1500 every month (never selling anything ... even when you have great gains). Note, too, that you can enter some Inflation Rate so that the required portfolio increase and your monthly investments increase (monthly) with inflation.

>And you guarantee the accuracy of the spreadsheet?

>This "sorta VA" ... why don't you call it sorta DCA?
Uh ... good idea, but then A rose by any other name ...