Collective2

The Isonomy Balanced series:
--- Isonomy, Cautious Balanced - Unexciting but relatively safe, easy to understand and follow.
--- Isonomy Plus, Enhanced Balanced - this system. Enhanced version of Isonomy for higher returns.
--- Isonomy Turbo, Aggressive Balanced - Most aggressive of the three systems for highest returns.

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UGMF58563

TARGET

To exceed the long term stock market returns with no increase in volatility along the way. Expecting about 15% average per year over the long term. Could be used for a retirement or college fund as long as you can stomach short term volatility.

An expected 15% per year may not look very impressive. But we're in this for the long haul and over the long term it compounds up nicely. $30,000 at 10% over 15 years turns into $125,000 but at 15% it turns into $244,000... almost double.
Of course these are goals only. No performance can be guaranteed, and the actual real-world results may be vastly different from these goals.
DESCRIPTION

Isonomy Plus works with a combination of Gold (or other precious commodity), Stocks and Bonds. We use the gold as an inflation hedge (and general crisis hedge for that matter) over the short term and for capital appreciation over the long term. The other two pay us some nice dividends so even in times of stagnation we can make a little progress.

The principle is that sufficiently different asset classes do not usually move in step for long and so by keeping our money allocated between different asset classes, and rebalancing from time to time, we can smooth out our returns over the long term. Various studies have shown that such diversification greatly smooths out performance.

Given that returns are already smoothed (i.e. volatility is reduced) we use gearing (in the form of 50% margin) to increase long term returns. Of course, this increases short term volatility as well but not beyond that expected if the smoothing had not occured.

On top of the basic balancing strategy we use options at the periphery to generate a little extra income and to protect from the extremes of volatility.

Therefore we expect greater long-term return than the stock market alone (with dividends reinvested) but with similar, or lower, volatility along the way.

Trading is infrequent, perhaps ten to fifteen trades per year. Therefore trading costs are minimal. Signals may come at any time of day but if you are off-line for a while and not auto-trading there is no need to panic - placing the trade a day or two late should usually cause no discernible deviation from performance as measured by Collective 2.

REQUIREMENTS

~ This system is designed to be traded with at least $30,000 equity but you can trade it with more. With any less I would recommend you trade Isonomy instead, geared if you want.
This is because with less than $30,000 you may not be able to follow the option trades properly.

~ Make sure you scale your trades accordingly. For instance if the system equity (up-to-date value is shown in the box on the right hand side of this page) is currently $30,000 and the signal is to buy 15 shares (or one option) then you buy 30 shares (or two options) if you have $60,000.

~ Important: If you start trading this system manually you should place trades to open all currently open positions. If you autotrade then this should be done for you automatically.

~ Your broker account should allow you to trade options - covered calls, short puts, spreads. You will not need to sell naked calls.
Without the options component you will just be trading a geared version of Isonomy.

~ 50% gearing is employed by default. You can trade without margin by funding your account with 150% of the nominal equity, whilst at the same time scaling the trades as if you had 100% nominal equity.
~ For instance, if the current system equity (up-to-date value is shown in the box on the right hand side of this page) is $30,000 and you have $45,000, when the signal says to buy 20 shares then to trade without margin you buy 20, not 30.
Another example: if the system equity is $60,000 and you have $45,000, when the signal says to buy 20 shares then to trade without margin you buy 10, not 15.

Please use the system forum or contact me directly if you have any questions.

CREDIT CRISIS

Below are back-test results of how this system may have performed had it been running just before, and during, the Credit Crunch. Of course, these are only approximated hypothetical results derived after the fact and should be taken as such.

Year.... Isonomy Plus....S&P500
2005.........20.5%...........9.8% (Jan 05 - Jan 06)
2006.........11.8%.........14.2%
2007.........27.7%..........-2.7%
2008.........-16.5%........-38.2%
2009.........27.4%..........41.0%