MONTHLY ALLOCATION OF CAPITAL MAC Once weve bought in with say 25 percent of

Monthly allocation of capital mac once weve bought in

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MONTHLY ALLOCATION OF CAPITAL (MAC) Once we’ve bought in with, say, 25 percent of our allocated capital, we could make the fifth of every month “Stockpiling Day” and buy another 25 percent of our allocation that day each month thereafter if the price is lower than the Stockpiling Price . I call this method MAC. But remember: you buy only when you have a Stockpiling Price, not every time you have capital to allocate. If the price isn’t right, you wait for the next month.
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Let’s assume we’re adding $1,000 a month to our account to allocate to stockpiling a particular business that has passed all four M tests. After six months, we’ll have all of our initial $10,000 invested (assuming Mr. Market cooperates and keeps the price low), as well as $5,000 of new capital. As new capital comes into our account from any source, we’ll save it and invest it in similar-size increments using the MAC Stockpiling method. Here’s how that looks in a chart: The MAC Stockpiling method works best if you have a small amount of capital to start with and are adding to it in regular increments as in the above example. Its main strength is that it requires no particular strategy about when to stockpile. You stockpile when you have a Stockpiling Price and enough cash in the account to match your previous investment amounts (e.g., if you put $2,500 toward a business you’re stockpiling last month, then you’ll buy $2,500 worth of it again this month if the price is still right). The MAC method is great for taking the guesswork out of stockpiling. You just stockpile mechanically whenever you have the capital and the price is right. If the Stockpile Price is $50 and the actual price is fluctuating between $25 and $50, you don’t have to deal with ERI: If you wait and hope the price goes down, according to the Emotional Rule of Investing, the price will go up. On the other hand, if you guess that it will go up and so you buy, the Emotional Rule of Investing states that during the next two weeks the price will go down and you won’t have the funds with which to stockpile it. MAC preserves your fragile emotions. If you’re using the MAC method and on the fifth of the month you buy at $50 and by the fifteenth the stock is at $25, you tell yourself that next month you’ll get to buy at $25. If by the fifth of the next
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month, when it’s time to buy, the stock is at $60, well, you just tell yourself it will all even out in the long run. EMOTIONAL RULE OF INVESTING Remember, ERI stands for my Emotional Rule of Investing: If you buy a piece of a business, the price will go down immediately after you buy it. But if you don’t buy it, the price will go up, up, up until you do buy it … at which time the price will then go down, down, down. Here’s the obvious problem with the MAC method of stockpiling: It’s the fifth of the month and the price is below the MOS price but it’s dropping like a brick with no let-up in sight. You buy on the MAC schedule and then watch the price drop by 30 percent. You realize if you’d waited you could have stockpiled at a much better price. But how would you have known the price was going to continue to go down?
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  • Spring '20
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