Note: I am an amateur investor. Nothing you might stumble across in this post should be construed as investing advice in any shape or form. Prior to employing RTHG Strategy you should backtest it for yourself until such time as it has proven its worth to you. In fact - don’t use it at all. Why? Because if you screw it up and lose your money I am not coming to your house to give it back to you.
Retreat to High Ground Strategy:
The process of selling lower confidence stocks in times of Gross Market Feebleness (GMF) and other assorted potentially malignant market ills - and then rolling the funds completely over into Higher Confidence ones.
- Why do it?
Well…largely and perhaps primarily…but not entirely, because of RTHG Strategy; which plainly states: In the event of Event A (The Agony) whereby the market enters a period when it is falling precipitously without remorse - and convincingly kicking and mangling your portfolio’s rear end: Employing the RTHG strategy best prepares, positions and further enhances your portfolio for any potential rebound
( Event B: The Ecstasy).
How does RTHG Strategy Work?
Let’s take the typical Fool 25 stock recommended portfolio which appears something like this in your portfolio:
Note1: Prior to proceeding please review the above sample illustration of The Fool’s standard recommendation of a 25 stock portfolio. Understanding of this illustration is critical to the total understanding and beneficial outcome of the RTHG strategy. Please do not proceed until the sample Fool 25 stock portfolio is fixed completely in your mid.
Now in most portfolios, us investors will typically rank our portfolio stock warriors by allocation whereby the number one stock in your portfolio will receive the largest contract for playing for you. If this might be true for you then we can proceed smoothly through this entirely logical and dynamic Fool portfolio example.
Note 2). Now if your portfolio allocations do not match the confidence level you have with your companies - well, then that might be an entirely different example to go through; however, we shall continue on this path with the understanding that however you rank your confidence in the stocks within your portfolio they are as clear as day to you. If, on the other hand, you have no idea the level or ranking of confidence you might have in the stocks within your portfolio then this entire concept might not apply and you potentially could be entirely - (space intentionally left blank) - and subject to the cruel winds of fate… Should this be the case then you can RFTP (Retreat From This Post) as it will not apply to you.
Ok now that we have clarified the essential baseline for employing RTHG Strategy we can move on to a finite and plain spoken, easy to understand and memorize, example
So - during an Event A Sell Off (The Agony), an investor using Retreat To High Ground Strategy would simply begin by selling his/her/its lowest confidence company and then rolling the funds available into his/her/its highest confidence companies. Exactly - but not universally, like this:
Step One: Sell your 25th best idea.
Step Two: Roll the funds over into stocks 1-5 of your highest confidence companies.
Repeat as needed. Got it? Ok let me break this complicated stock maneuver down in a slightly different manner:
Step 1). Sell your 25th Best Idea.
Step 2). Roll the funds over into stocks 1-5 of your highest confidence
companies.
Repeat as needed.
Note: If you do not understand this maneuver or disagree with the theory behind RTHG then simply ignore this entire post.
What is the benefit to the RTHG Strategy?
The complete theory of Retreat to High Ground is predicated on three factors:
Factor One: There will always be Event A (Agony) Events.
Factor Two: Agony Events are always followed by Event B (Ecstasy) Events.
Factor Three: This entire hypothesis relies on the Theory that - If you have chosen wisely for High Confidence stocks, then it is highly likely that the High Confidence stocks will recover faster and with more vigor than the lower level confidence companies. If that is remotely possible /true then you definitely want more of your hard earned money riding on faster, stronger players and less so on your weaker choices when the Event B wave comes rolling in.
Last Note: If you are a rookie investor or not completely convinced of the RTHG strategy it is recommended that prior to actual use in your real money portfolio - try it out on one of those fake portfolio thingys until you see first hand how it works and the benefits it provides.
All the Best,
BDH Investing