Author Topic: exit signal when stock goes ex div  (Read 1931 times)

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Offline ivan

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exit signal when stock goes ex div
« on: 28/09/2018, 10:46:47 AM »
Hi All,

yesterday STW went ex div with a corresponding drop in the stock which consequently trigged an exit signal.  This always annoyed me in SPA3 however I understood with the size of the stock universe it was challenging to code in the logic to check whether it was the ex-div that caused the exit.

However, with SPA3 Investor the stock universe is greatly reduced, so it would be really nice if you could now code in the logic to adjust the stop loss ( or ignore it for a period)  if a stock has gone ex-div.  Would be very interested to also see the impact on your back testing results .


Offline Dave McCulloch

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Re: exit signal when stock goes ex div
« Reply #1 on: 01/10/2018, 11:02:22 AM »
Hi Ivan,

Thanks for your question.

There are many variables in the market that effect the price of a stock/ETF.  The research for SPA3 Investor has shown that an investor will typically receive around 2/3 of the available dividends over the longer term. When a stock or ETF goes ex-dividend it can produce an exit signal, as in the case of STW last week.

There may be occasions when the price rebounds after the dividend and triggers a new entry and other times not, we'll never know in advance.

The use of timing is a key risk management tool, but one way to capture the dividends could be to split your capital into two halves and use timing on half the portfolio and use buy and hold on the other.

In a rising market, there will be periods when buy and hold performs better than timing, and vice-versa when timing performs better than buy and hold. The choice of when you might adopt this type of approach is largely dependent on how far away your investing milestones are, and the potential impact of sequence of returns risk.

During a Bear market the buy and hold approach will wear the full brunt of the decline, whereas the timing half will experience a much smaller portion of it. When the market starts to rise again the timing portfolio will do so from a larger capital base.

I hope that helps.



Offline Paul M

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Re: exit signal when stock goes ex div
« Reply #2 on: 03/10/2018, 10:14:04 AM »
Another possibility is to use the All Ords ($XAO) as a proxy for the STW (valid for obvious reasons). When the date for STW ex div approaches, keep an eye on the $XAO. If its chart shows a sell trigger before the STW ex, that would be a guide as to whether a later (ex div) STW trigger was 'genuine' or purely ex div related. Action could then be to 'lighten' on the $XAO trigger, or some other defensive action if ex div 'sells' are a source of frustration/annoyance. The main point is that the $XAO is a reasonable and related guide as to whether a downturn is genuine or not.

I haven't done any detailed research on this but the general principle may be worth looking at for those looking to apply some 'finesse' to triggers at ex div time. A further indicator would be whether the SIROC for the STW chart has crossed below 70 in recent days. That could provide additional indication as to whether the ex div SELL trigger is a result of genuine downturn or not. Either or both of these could be used to cause specific action or simply to give 'confidence' that following the trigger won't lead to frustration.

The problem however with selling/lightening in advance would be what to do if SPA3 Investor doesn't trigger on ex div! Not an insurmountable problem however and a strategy could be written into one's formal plan. Taking any such pre-emptive action would/should also depend on one's appetite for risk given investment time-frames etc.

In the end, the SPA3 Investor algorithm has been tested and, while it might result in occasional short-term frustration, the default position should be to follow the triggers. 'Personal tweaks' may still be useful for some.

Offline Paul M

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Re: exit signal when stock goes ex div
« Reply #3 on: 03/10/2018, 10:53:30 AM »
A limitation to the suggestion in my previous post:
The idea is only useul for $XAO-related index 'stocks'. The frustration remains unabated for when CBA, RIO, TLS, etc goes ex div. There is no other simple source to gauge the significance of the trend and ex div signal.
But, in those cases, the solution is still simple ... follow the triggers ... some short term frustration for longer term "SPA"!