Last week I was a part of a discussion with Kosta Montoya (aka (e)STREETELF), who is as much of an ROI investment strategy purist as you’ll find on Empire Avenue.

I have gone from experimenting with a reciprocal buying strategy 2 months ago to thinking thinking reciprocal buying is a good but unsustainable strategy 6 weeks ago to now becoming as close to a reciprocal buying purist as you’re likely to find on Empire Avenue.

For the last 2 months I have matched every buy of my shares by buying an equal number of shares up to my max of 350.  And now I have gone back and matched all past investments as well.  The only exception is that I will sell someone’s shares if they become inactive on EAv.

So what happens when an ROI purist and a reciprocal purist debate strategy?

It looks something like this. (Note that I did edit out some parts to try to reduce the length)

John Philpin What do we collectively think is a reasonable income as percentage of stock owned for a portfolio. For example – if you owned 1,000,000 dollars in a portfolio – and hitting EXACTLY 1% – you would be raking in 10,000 a day from divs. MY thinking is that this is unlikely to be the average though.

Kosta Montoya John. I don t bother with % I bother with graph and yield going under 1. Sliders & their prev div given & or if they reached that +1. I bother also with growth only for the newbies atm. Check my portfolio. It s only based on these criterias.

Terry Rota If you were in your portfolio Kosta would you sell yourself or hold based on your strategy and your performance?

Kosta Montoya There is no points of keeping my shares but slowing you down. No growth ( main important point ) Div yield under 1 = Sell… really I dont care if you sell my shares, already got the eaves please feel free to sell me and invest in good stocks

Terry Rota ‎:-) I like your honesty there Kosta , I’m keeping my 500 in you because I have a different strategy which is based more on the activities that occur in this group, twitter, klout and the other platforms.

Kosta Montoya Ok it s up 2 you Terry. I got used to be orange everyday so I don t even botter with that anymore. B4 It was diff I could always trick the system and get a yield over +1 up to 200 share price but now I can t 😉 So unstead of performing in terms of growth, I do … what I have left. A strong investment strategy.

Paul Steinbrueck ‎Kosta, I ask this with all sincerity and respect – why are you using and promoting a strategy that a) does not make you a good buy according to your own criteria, and b) has caused your share price to drop more than 2e over the last 2 weeks?

Kosta Montoya Good question, promoting good stocks only raise my netwealth. Every buys on the top divs or gainers in growth earns me something since I got many of them…

You also have to know 2 things : 1 ) People used to go to my portfolio and browse it to find good buys, by promoting my strategy It also involve that my portfolio is properly managed and is obviously a reference to anyone that looks for strong buys. It s a win win situation , people go to my pf and buy, and I get money from their buys. 2 ) I spend in average 400-450k per day , selling and buying always earn me eaves on a regular basis. People think I am just getting their stock to hold it when I actually am just waiting for them to drop to sell them. That gives me an income as well specially when I invest 600 at a time in a lot of players , they usually buy back on big amounts. I don t care when they sell me when they notice that I sold them because I still got the eaves.

Paul Steinbrueck ‎Kosta if lots of people were using your portfolio as a reference and buying your shares, your share price wouldn’t be going down would it? IMO, this is the fatal flaw of ROI-based strategies – they are unsustainable because you can’t keep increasing your dividend to keep pace with your share price. The result is you end up investing in high ROI players, who tend to also have an ROI-based strategy, and because your ROI isn’t that good they don’t invest back and your share price plateaus.

That’s why I believe for the vast majority of us whose ROI < 1%, we’re better off with a reciprocal buying strategy. Sure you don’t earn quite as big a dividend each night, but more people invest which results in more eaves and a higher share price.

Kosta Montoya In terms of share price increase yeah. But by doing massive buys I also attract a few buys on my profile even thought I do not expect them to buy me back. I could change that and go for the buy back strategy, massive investments in order to stay green all the time etc. But What would happen is that I would mess my portfolio more and more and bring it to a point where it would take me 3 hours to clean it up, or facing the fact that *most* of the buying back users are indeed bad stocks that aren t really worth it…

Why would I keep a guy who has 100 share price and .50 div even if he holds 700 in me. I can buy a 40 share price stock that provides the same amount + eventual fast growth. It doesn’t do anything to keep a share price up virtually. Faster my nw and daily income grows , more and more buys I will do , more and more ppl will buy me etc. Paul the question now is. If you would stop ALL activity on your ticker , how many people would stick to your stock. It would be A LOT of people. Would you like them to artificially keep your shareprice up or do a wise investment ?

I was talking bout this one in your pf , just a random exemple: http://www.empireavenue.com/ANAILIL <- I still know your doing great Paul, but some tweaking in your pf would not hurt either. Nothing personal there. But there is ROI and Bad, or horrible ROI like this one.

Paul Steinbrueck Kosta, the reason you’d hold shares in someone with a 0.5% ROI who has 700 shares of you because you are helping each other. If you sell him and he sells you, both of your share prices drop big time.

To address your question to me, a reciprocal buy & hold strategy doesn’t mean you never sell anyone. If someone leaves the game, then you’re not helping them buy holding their stock. FWIW, I only have one share of (e)ANAILIL as a marker in case she returns.

But let’s say someone’s ROI drops dramatically to say 0.2% but they are still somewhat active on EAv. You might ask, why hold and keep their share price “artificially” high?” Well, because some day I want to have a share price of 600e even if my divs are only 1.5e/share. The only way that’s going to happen is if I band together and invest in others who have similar goals and strategies.

Who decides what is “artificially high” anyway? You think it’s artificially high because you’re still thinking in terms of divs & ROI. But if all I care about is whether the person buys and holds my shares, then there is no such thing as artificially high.

Kosta Montoya I agree 100% that your strategy works and that your perform exceptionaly good doing so ( 6 months 27m & share price of 168 that s just great )… I am just focusing on a strategy that assure me a constant growth in terms of netwealth & daily income… I just go thru my sliders and I am done. I dont reply to all the shouts of buys anymore etc. This is why my eav actions are little. Anyways. In the long term you will probably do much better than I. Meanwhile I am just having fun keeping and maintening a great portfolio and helping people to find & or do wise and good investments without emotions involved.

Paul Steinbrueck Thanks Kosta. I appreciate the back and forth. It helps me see if I’ve overlooked anything in the strategy I’m using and what if any adjustments I need to make.

Conclusions

The bottom line is that if you are trying to increase your share price, an ROI-based strategy is not the way to go. Kosta acknowledged this. And if you look at the graph of his share price, it’s actually fallen by more than 3e over the last 3 weeks despite the fact that he has a decent ROI of 0.89%

Empire Avenue streetelf shareprice graph

Meanwhile, my share price has gone up 20e in the last month even though my ROI is not as high as Kosta’s.

empire avenue pdstein shareprice graph

Share price isn’t the only measure of success in Empire Avenue. Despite the drop in share price, Kosta has grown his net worth by about 67% in the last month, which is about the same growth rate I’ve experienced.

So, what do you think of our “debate?”  Does your investment strategy lean more towards  ROI or reciprocal buying?