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Three-three rule when trading volatile assets

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OleksiyRybakov

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For trading stocks and bonds MJ recommended in Unscripted to use the three-three rule. It says that if any investment like stocks or bonds increase their value more than by three years of dividends in three months, the profits should be sold. For me, it looks like this rule has a generalized version depending on the volatility of the assets. What do you think about this? Can this rule be applied with a similar quality when trading more volatile assets like (some) cryptocurrencies?
 

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PizzaOnTheRoof

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Not to throw shade at MJ, cause what the hell do I know about managing large amounts of capital, but I've never heard of the three-three rule and it sounds kind of dumb.

Apple has a dividend of 0.6% right now, so you're telling me that if Apple stock gains 2% in 3 months I should sell it? 8% for the year?

I guess Apple isn't exactly volatile. Is this only for "known" volatile stocks?

Something doesn't sound right.
 

OleksiyRybakov

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Not to throw shade at MJ, cause what the hell do I know about managing large amounts of capital, but I've never heard of the three-three rule and it sounds kind of dumb.

Apple has a dividend of 0.6% right now, so you're telling me that if Apple stock gains 2% in 3 months I should sell it? 8% for the year?

I guess Apple isn't exactly volatile. Is this only for "known" volatile stocks?

Something doesn't sound right.
I suppose that indeed, I phrased one thing incorrectly. Here is the official version of the rule:

"The three-three rule says that if any of your investments, whether they be stocks or bonds, appreciates unrealized gains greater than or equal to three years in dividends in any three-month period, SELL and take the profits".

What should be sold is not the entire asset but the part of the asset which is equivalent to the three years of dividends.

But is this advice good for more volatile assets as well?
 
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thechosen1

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I suppose that indeed, I phrased one thing incorrectly. Here is the official version of the rule:

"The three-three rule says that if any of your investments, whether they be stocks or bonds, appreciates unrealized gains greater than or equal to three years in dividends in any three-month period, SELL and take the profits".

What should be sold is not the entire asset but the part of the asset which is equivalent to the three years of dividends.

But is this advice good for more volatile assets as well?
I think you might be overthinking it.

And it's obviously not going to work for assets that don't pay dividends.

You can come up with your own ideas based on this, like with real estate appreciation, if it goes up more than 3 years cash flow, sell, or whatever. It should just get you thinking. It's a rule MJ came up with himself.

The whole point is to recognize when you have an above average gain. I don't know how you do that with something like crypto, when there is nothing to base it off of. If you want to try, use your imagination. Personally, I'd stick it in the "FU pot" or "speculative" pot and be done with it.
 

OleksiyRybakov

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Originally, I wanted to develop a crypto bot which performs this algorithm on my FU pot and maybe learns some new strategies. For this bot it is important to be able to transfer assets between the dividend / interest pot and the exchange pot. Does anyone of you know if there is such a crypto platform which supports both bots and crypto lending? Crypto.com requires 2FA so I think that my approach would not work there.
 

MJ DeMarco

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Not to throw shade at MJ, cause what the hell do I know about managing large amounts of capital, but I've never heard of the three-three rule and it sounds kind of dumb.

Sure, when it is applied incorrectly and misused.

Perhaps when you make more specific investments for the purpose of passive income, then maybe the rule won't sound so dumb.

The rule has served me well in life, but hey, what do I know.

Anyhow, the rule is for dividend stocks and paycheck pot assets with stated yields, NOT "f*ck you pot" investments or gambles. In other words, it isn't for speculative assets with no yields. AAPL, while it has a dividend, is not a dividend stock. People don't buy it for its income, they buy it for speculative appreciation.

I thought I was pretty clear on this in Unscripted that 3/3 was for assets with yields. Although I can see how it was missed, those chapters are pretty dry.
 

OleksiyRybakov

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Thank you @MJ DeMarco for your insights. Can you please share with us how you originally came up with this rule? More precisely, what is the reason behind the numbers of "three months" and "three years"?
 

Kevin88660

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Not to throw shade at MJ, cause what the hell do I know about managing large amounts of capital, but I've never heard of the three-three rule and it sounds kind of dumb.

Apple has a dividend of 0.6% right now, so you're telling me that if Apple stock gains 2% in 3 months I should sell it? 8% for the year?

I guess Apple isn't exactly volatile. Is this only for "known" volatile stocks?

Something doesn't sound right.
I think MJ refers to dividend stocks, and securities with Good yield, 3-6 percent yield, high enough to outpace official inflation figures but not as dangerous as junk bonds offering more than 8 percent.

These are securities that are not supposed to be growth oriented in the first place, so when price go up, yield drops. It no longer becomes attractive to hold for yield without realizing the capital gain.
 

PizzaOnTheRoof

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Sure, when it is applied incorrectly and misused.

Perhaps when you make more specific investments for the purpose of passive income, then maybe the rule won't sound so dumb.

The rule has served me well in life, but hey, what do I know.

Anyhow, the rule is for dividend stocks and paycheck pot assets with stated yields, NOT "f*ck you pot" investments or gambles. In other words, it isn't for speculative assets with no yields. AAPL, while it has a dividend, is not a dividend stock. People don't buy it for its income, they buy it for speculative appreciation.

I thought I was pretty clear on this in Unscripted that 3/3 was for assets with yields. Although I can see how it was missed, those chapters are pretty dry.
True about AAPL being speculative rather than income. I must have missed or forgotten that part in Unscripted my bad.

Now that you've explained it further it sounds like a useful "back of the envelope" rule to determine if action needs to be taken on a particular income investment.
 

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