Summarizing the XBI and tape fighting strategy from another thread:
Firstly, some who have seen my doubling GTC buys go through on XBI (and others) may have assumed that I am carrying large losses. Looking at the chart, this is understandable, but untrue. Below is the screenshot from my XBI holdings today. Despite the downtrend, I'm still up, though nothing to write home about.
But more to the point, at this stage the price movement doesn't really matter to me. In fact I prefer it to keep going down. This strategy is designed to limit your losses as a percentage, while improving the odds of making good money in the long run. The important thing is to pace yourself. And if the ETF makes a bottom while you still have funds allocated to it, you can always invest them on the way up. Below is a copy paste of discussion from from another thread:
The real bottom is where XBI has made 50% gain. It should pull back a bit from there and then take off on a long run. I just don't want to miss that 50% gain. It doesn't bother me if it keeps falling. I have allocated enough capital to XBI to ride out a 50% drop from here. Assume it keeps going down like this for another year. This would make it on the longer end of bear markets. Say it drops another 50% from here during this time. That would make it near a decade low.
Under this scenario, I will have amassed a substantial position and I will be carrying about 10% in losses. Then the following year it will make a 50% gain. In dollar amounts that would be 45, which is still ~40% below here. But it is enough for people to take notice of it and gather around to push it higher. Genetics and bleeding edge medicine are making progress in leaps and bounds. So by then, instead of it being a money losing crap in an inflationary environment, it will be a leading growth technology that is solving the aging population's problems. When it makes it back to where it is now, I will have doubled my money. I can sell half and keep the other half as "free" shares or I can just ride it up for another few years into the trendline. That would be a 3x or a 4x.
So ultimately, I will have made something like 30% - 45% average annual gains over a 5 year period. I call that good investment. And what if I am wrong and it doesn't go that high? I find it unlikely that genetics and bleeding edge medicine will completely flop, but anything is possible. So in the event that it remains at a 10 year low for an extended period of time, then I will have lost 10% over a 5 year period. Not a good outcome, but not life threatening either. XBI is not a trading vehicle for me. This is why I discussed it in the Art of Investing thread. |
