As an investor we all have our strategies which must work, otherwise why bother. We have different strategies designed to capitalise on different aspects of market behaviour to provide us with certain types of income for differing stages of our lives.  After all, effectively we are behavioural analysts. That’s what we respond to – price behaviour.

The main point we need to understand is that we need to separate strategies and trade them differently and never ever try to mix them together because a strategy with a different objective can only work on its own. Too many investors try to mix objective and strategies and ‘cover’ all bases which is a recipe of confusion disaster and capital decimation. So, we always like to keep it simple and separate them out.

Stockradar is my thing and has been since 1997. It works well over time – not all the time and no strategy ever does – but its returns have been more than acceptable over the 28 years and now we have more recently focused on the management of the portfolio service it has accelerated recent returns using the smaller high conviction portfolio process. Simple rules like working on the premise the stock market goes up over time, so we only ever buy stocks – never short. Right or wrong it’s our way and is just one of the simple common sense premises we base our analysis on.

The key to our outperformance is focusing only on stocks going up and not those going down allowing us to achieve better results than baskets of ETF’s or Indices that hold a pool of stocks some going up and some going down. That’s a lazy passive approach buit still based on the premise the stock market goes up most of the time. That also, as the stock market is, is common sense.

So, the Stockradar growth and trend strategy rolls along and when followed with discipline returns are more than acceptable.  It has its own very simple set of rules and processes which put us in total control of how we behave.

There are other ways to make money on the stock market again based on common sense with a simple objective and this idea I will present to you can be more appropriate for the more trade reticent investor who wants to focus on income as a cushion to their trading. Smart and yes, a good balance can be achieved as we lay out our premises and rules and follow them.

The Australian stock market is a delightful rarity in this world where stocks offer substantial dividend returns in excess of cash and term deposit rates and also offer the other delightful aspect of fully franked dividends. We should all be in love with them and not look this gift horse in the mouth. With the right ‘controlled’ strategy it can deliver wonderful returns that are tax advantaged – although perhaps lesser so now thanks to our ‘enlightened’ government that loves to crush spirit and innovation. However, we can move on from that. Never let the bastards get you down.

Back to the stock market. As with any strategy the key words of discipline and control are key and common to all successful stock market strategies.  If you apply that and don’t get distracted you are 90% there. The rest is easy.

Let’s look at an income focused trading strategy. Start with a data universe of stocks in the top 200/300 that offer say a 5% fully franked yield. Remember all stocks ultimately ‘come back’ and if we must wait, we are still getting a comfortable return via the yield- that’s important. This differs with the Stockradar strategy of trend and growth where yield is a bonus not an objective and observing stops (don’t ever take big losses/drawdowns) is imperative.

As with all strategies perfection doesn’t exist but we still play the more often than not approach so yields on quality stocks may be cut but rarely disappear. That’s why we still focus on the quality of the top stocks.  It gives us a holding time cushion.

Generally, such an income portfolio will be based on a core of high yield portfolio of stocks that we rarely sell and generate good income. But we can enhance these returns by adding some and trading the same stocks. If we end up holding them so be it. i.e. We may have a core holding of WDS of 1000 shares. A trading opportunity is presented as a trend growth opportunity. We buy 500 more WDS to ultimately trade. If it comes off, we get a profit if WDS goes up say $10.00 = $5000. If not, we sit and hold the yield of 5% on 1500 shares and wait until ultimately at some stage WDS will come back and we can offload the 500 shares probably still at a profit. We still need to be careful and observe the basic rules or reversals and tends. Some high yield stocks may not be part of the core holding and that’s fine. The trade opportunities with a yield cushion can work well.

We must be very disciplined and controlled in our stock selection but remembering the bias of the stock market is always up. When a stock falls it must at some stage show signs of buyer interest that stops the price falling. Basic 101 buyer seller analysis.  Of course, with low yield stocks like CSL COH that won’t work they simply will never be a part of this strategy. It’s actually been a rarity that I have ever bought CSL apart from back in the good old trending days but at it has a deplorable yield it would never be part of this strategy.

Stocks like HVN SUL FMG BHP RIO the banks DDR QAN ARB JBH MTS SIQ DRR GWA SXE TWE there’s a swathe of them and are all examples of candidates that can could be part of a high yield core portfolio and may soon offer some good trade opportunities – as they aways do. Have a look at the charts and the behaviour of some of these stocks. Plenty of up / down and trends.

Often the stocks like BHP RIO or at the smaller end SIQ and SXE have been bought a lot lower when yields were more attractive, so our holdings are still generating good yields for us based on their entry. But we’ll trade some out for a profit. The trick is to have the guts and gumption to buy these stocks when they are down and yields are at a certain level. A rising share price is the cream on top and having a larger holding allows you more freely trade those extra shares. We all have to turn some profits at some stage we just need to be smart about it, cool, calm no knee jerk stuff.

Cool Heads make Cool Decisions.

Stocks like SUL, HVN or ARB may soon fit the bill as their share prices collapse. On watch! There are always stocks coming up as opportunities as the stock market round about rolls on relentlessly.

Just an idea, but it works and with a little care and discipline there are many stock market strategies that can work. I am sure you all have your own ideas – you can make them work.