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The week's question
In March 2025, in the thread "Re: OT, out", Umm asked the members: "Do you think it is because America is made up of magical soil that makes businesses based in America magically profitable?" This week it is put to everyone again. The button below opens the small thread re-asking it - read what others have said so far, then give your own answer as an ordinary reply.
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Investment Strategies / Mechanical Investing
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Author: anchak   😊 😞
Number: of 6245 
Subject: Re: A mechanical strategy
Date: 03/24/23 6:03 PM
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Oh crap! I was worried if I made an error in the expression and looks like I did

A simple sanity check is as follows

YOu have x/2 and x/2 invested ie 5K and 5K say.

And the index drops by 10%

So the total portfolio should be

5000*( 1-10%) +5000 = 5000 ( 2 - 10%)

algebraically - x/2*(2 - theta)

I messed up the sign on the expressions;

Here's the CORRECTED VERSION.

Subtractive side ie CASH LEFT on BTD at each step

C[i]= C[i-1]* ( Theta - Alpha + Theta* Alhpa]

Invested side

P[i]=P[i-1]* (1-theta) + P[i-1]*(1-theta)*(1+alpha)
which simplifies to

P[i]= P[i-1]* (1 - theta)*(2+alpha)

And you can check that if you put initial half and half or x/2 and add these 2
it will equal the x/2 (2 - theta) which is what you ought to have when portfolio drops by theta

On the STP side it goes the other way - ie you need to subtract that term from the invested side and add it back to the Cash side.

Hope this helps!

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