This page only gives examples that apply to the AlphaDogs program - the Trend Following portfolio needs none of this. It is much simpler.
So how does AlphaDogs actually work?
So you are probably thinking, your story sounds noble and your approach seems reasonable but what am I actually going to be getting each month if I help you pay for your web site? How is it going to work? We described in the WHERE page how AlphaDogs invests in growing sector ETFs and balances their risk. Here we will show you how this is actually done.
We are going to publish the list of ETFs and the % of the portfolio they should make up at the beginning of each month on the WHAT Page. The % allocation of each ETF will change a little each month so we will "redistribute" the portfolio each month to match the new monthly % allocation. This simply means we buy or sell some of the shares of each ETF each month.
If you want the detailed math used to redistribute a portfolio, see below. If not, you can just use the AlphaDogs spreadsheet that we provide along with the allocations on the Portfolio Page which does the math for you.
About Stop Losses
Every once in a while, a security may drop below an acceptable threshold during the month. When that happens we will issue a stop loss announcement both on the Portfolio page as well as in email and on Facebook (although we don't give specifics on a public page like Facebook). When that happens we will sell all shares of that position on the very next market day following the stop loss announcement. This gives anyone who is following the AlphaDogs program the opportunity to sell their shares on the very next market day after the announcement. We will reallocate the money from the sale of those shares at the beginning of the next month. The founders, will of course, wait another day and let you trade a day ahead of them, in accordance with our normal practice.
Give me the detailed example
OK then, lets say we publish the following allocations in month one, and we have a $10,000 portfolio:
Total Portfolio Dollars * Sector ETF Allocation percentage = Sector ETF Dollar Allocation
10% in the ETF called X, then we will invest $1,000 in the ETF called X
20% in the ETF called B, then we will invest $2,000 in the ETF called B
30% in the ETF called C, then we will invest $3,000 in the ETF called C
40% in the ETF called Y, then we will invest $4,000 in the ETF called Y
Depending on the cost of each share of the ETF at the time you make the trade, the exact number of shares purchased will vary. That is ok. Just divide the dollar allocation by the cost of the ETF's shares to get the number of shares. Let's say, for simplicity in this example, that each of these stock's share price is $100. Then:
Sector ETF Dollar Allocation / Sector ETF Price = Number of Shares
ETF called X --> $1000 / $100 = 10 shares of ETF called X.
But what if the number of shares isn't a round number? That is ok. Round down to the nearest whole number of shares. (If the math tells you to buy 100.1 shares, just buy 100.) Following our example from above this would give you the following share counts:
10 shares of the ETF called X
20 shares of the ETF called B
30 shares of the ETF called C
40 shares of the ETF called Y
Redistributing
In month two, the allocations (% we have in each security) will change based on market conditions. The % of the portfolio we have in each security will change. The next month we might publish:
20% in the ETF called X
10% in the ETF called B
30% in the ETF called C
40% in the ETF called Y
In this case, provided the share prices remained at $100 each you would then redistribute your portfolio by selling 10 shares of the ETF called B and buying 10 shares of the ETF called X. Leaving you with:
20 shares of the ETF called X
10 Shares of the ETF called B
30 shares of the ETF called C
40 Shares of the ETF called Y
But in that example share prices stay the same! So what if the share prices of each security changed? That's ok: the math still works. This was just an example.
Just remember, you always use your total portfolio value (that is the value of the securities as well as any cash you may have added during the month) multiplied by the % allocation to get the ETF dollar allocation. Then divide the share price by the dollar allocation to get the number of shares. If it isn't a whole number, round down to the nearest whole number of shares.
Yes there is some math here, but if you passed 6th grade you will probably be fine. If not, we also provide the AlphaDogs Spreadsheet. The spreadsheet has formulas built in that will do this math for you.
Show me a more complex example
Ok fine. Lets say that in month three two stocks went up in value and two went down AND we changed our allocation. Are you ready? This is going to get slightly more complex.
Allocations for month three:
22% of the ETF called X
13% of the ETF called B
27% of the ETF called C
38% of the ETF called Y
Stock prices for month three:
$95 for the ETF called X
$110 for the ETF called B
$105 for the ETF called C
$99 for the ETF called Y
If the stock prices changed in this way then our portfolio is no longer worth $10,000 it is now worth $10,110 That is a 1% gain in one month; congratulations. We now take the total portfolio and multiply by the allocation percentages.
$10,110 * 22% = $2,224.20 of the ETF called X
$10,110 * 13% = $1,314.30 of the ETF called B
$10,110 * 27% = $2,729.70 of the ETF called C
$10,110 * 38% = $3,841.80 of the ETF called Y
Did I mention there was a spreadsheet for this? It will do the math for you.
$2,224.20 / 95 = 23 shares of the ETF called X
$1,314.30 / 110 = 12 shares of the ETF called B
$2,729.70 / 105 = 26 shares of the ETF called C
$3,841.80 / 99 = 38 shares of the ETF called Y
So to redistribute for month three you now need to determine how many shares you need to buy or sell of each security, so:
We had 20 shares of of the ETF called X, we need 23, so we buy 3 shares.
We had 10 shares of of the ETF called B, we need 12, so we buy 2 shares.
We had 30 shares of of the ETF called C, we need 26, so we sell 4 shares.
We had 40 shares of of the ETF called Y, we need 38, so we sell 2 shares.
Seriously guys the spreadsheet does all of this math for you.
We will "wash, rinse, and repeat" this process month after month.
So, where can I get that spreadsheet?
We are glad you asked, it is on the Portfolio Page along with the allocations for this month.
