Monday, January 3, 2011

2010 Investment Portfolio Performance Review

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The Wilshire 5000 closed the year at 13,360.12, up from 11,497.41, or 16.20%, for 2010.  The Wilshire 5000's 200-day moving average finished the year at 11,953.73, or 11.77% the year-end close. 

Now for the portfolio...
1) Verizon ($VZ) I sold at $35.75 this week, up 16.653% for the year, inclusive of dividends.  FTR, the recent spinoff, recently closed at $9.73/share, worth $68.11 to this portfolio currently.

2) AT&T ($T) closed at $29.38, up 5.11% for the year, inclusive of dividends. 

3) GE ($GE) closed at $18.29, up by 20.55% for the year, inclusive of dividends.

4) TBT, ($TBT) the doubleshort U.S. Treasury ETF closed at $37.04, down 15.15% since my buy.  

5) January 2012 Dupont ($DD)  $45/$55 CALL spreads purchased a few months back closed at $4.90, up 34.25% since my buy.

6) Apple ($AAPL) closed at $322.56 up by 66.48% since my buy. 

7) January '12 Citigroup ($C) CALLs closed at $.12, down by 72.73% since my buy. 

8) Citigroup ($C) closed at $4.73, up by 18.84% since my buy.

9) Goldman Sachs ($GS) closed at $168.16, up by 23.51% since my buy.

10) January '11 S&P 500 ETF ($SPY) $127/$120 PUT Spread that I purchased on Wednesday at $2.92 closed at $1.76, or down 39.73%.



11) June '11 doubleshort 20-year U.S. Treasury ETF($TBT) closed at $3.62, down by 22.15% since I purchased it on the 29th of December.

Overall, the portfolio finished up by 16.52% (16.31% for the DOW Dogs), versus 16.20% for the Wilshire 5000. The current basket of eleven stocks and options that I am currently invested in, including dividends, was up 2.55% year-to-date. The spread between my performance and the overall market (Wilshire 5000) was .32% outperform.

I thought I did a fairly good job of running this portfolio this year, and I look forward to seeing how I can do in 2011.  I think I have learned a lot this year, and have not only been able to test my own trading strategies, but have been able to discover a few new ones as well.

As you can see from the data above, I was basically at a market-perform, with no commissions taken out.  However, the two trades I made in the final two weeks of the year cost me roughly 6% in outperformance.  Had I rested easy at the end of the year, and sat on my stack of cash, I would have been in much better shape.  Oh well, live and learn.

Sunday, January 2, 2011

My Best and Worst Trades Of 2010

As we close the book on one year, and open the book of a new one, a lot of people take an introspective view.  I am no different.  As 2010 has come to a close, I thought it would be productive to take a look at my top five best (and worst) trades of 2010.  I have tried to link each trade back to the post I made announging the trade and my logic.  As you go through, please click through the links and read about what I was thinking, and how wrong (or right) I was.  My hope is that this makes for an interesting read.  Here goes:

The Best:
1) Apple (AAPL).  I purchased Apple for this blog on 2/4/10 at $193.75, and am still holding this stock.  As of the close on Friday, Apple was at $322.56, up by 66.48%.  I spent a lot of time in the malls through the Fall and leading up to Christmas.  I have got to tell you, that store is always packed at all times of the day.  I am anxiously awaiting the introduction of the iPad 2, and the Verizon iPhone.  I see no reason to sell this stock at this point.

2) Whirlpool (WHR) $75/$85 December 2010 CALL Spreads.  I purchased these call spreads on 9/20/10 for $4.78, and sold them on 12/7/10 for $6.50, up by 39.78%.  I purchased this call spread after analyzing Whirlpool's stock using a stock screen that looks for names that are trading with a higher dividend yield than their historical average yield percentage.  I also used a similar strategy on another name which I will discuss later.  In going back through the blog, I have noticed that I did not talk in-depth about this strategy, which is something I will vow to do in 2011, as I have found it to be exceptionally logical and profitable over the last year.

3)  United States Steel (X).  I purchased U.S. Steel on 2/4/10 for $44.11, and sold it on 3/11/10 for $60.42, up 36.98%.  At the time, U.S. Steel was trading near it's historic low, and it was an economic recovery play for me.  It was a quick turnaround, as the stock quickly increased almost 37%, and it was time to take profits.  Today, this name is trading at $58.42. 

4)   DuPont (DD) $45/$55 January 2012 CALL Spreads.  I purchased these call spreads on 9/20/10 for $3.65, and am still holding them at $4.90, up by 34.25%.  This was the trade that I put on which was similar to the Whirlpool (WHR) trade.  When analyzing the historic yield of this stock, I noticed that when it trades to it's upper range, the underlying stock does not move as quickly as Whirlpool's, which is why I used the longer-dated options.  Again, this one has worked out quite nicely thus far, as DuPont is trading at $49.88 currently.

5) S&P 500 ETF (SPY) $102 December 2010 CALLs.  I purchased these deep in-the-money CALLs on 8/10/10 at $12.90, and sold them on 11/3/10 at $17.31, up by 34.19%.  During the summer, I thought (correctly) that stocks were overly cheap, and due for a move upward.  This was a leveraged play on the overall market moving up.  Obviously, it worked out just as I had planned.  Most likely, I will employ this strategy at least one more time in 2011.

The Worst:
1)  Citigroup (C) $7.50 January 2012 CALLs.  I purchased these LEAPs on 5/2/10 for $.44, and am still holding them at $.12, down by 72.73%.  While I am way, way down on this trade, the catalyst for this trade just occurred roughly three weeks ago.  I see the broad market going up through 2011, as well as Citi's earnings per share.  I am going to continue to be patient with this trade, at least for a few more months.

2)  S&P 500 ETF (SPY) $127/$120 PUT Spreads.  I purchased these PUT spreads on 12/15/10 for $2.92, and am still holding them at $1.76, down by 39.73%.  I put this trade on believing the market was due for a correction, and am still holding firm on that belief.  When it will come, I do not know, but am going to remain patient with this trade for at least another week or two.  In hindsight, I should have waited until 2011 to put this trade on, as it was one of two trades that I made near year-end which greatly hurt my overall 2010 performance.

3)  Doubleshort 20-year U.S. Treasury ETF (TBT) $35/$47 CALL Spreads.  I purchased these CALL spreads on 12/29/10 for $4.65, and am still holding them at $3.63, down by 22.15%.  I echo all of the sentiment from my #2 worst trade on this one, and it is way too early to tell how this will shape up.  I am going to continue to be patient.

4)  ProShares Ultrashort FTSE China 25 ETF (FXP).  I purchased this ETF on 1/15/10 for $43.10 (adjusted for the 1-for-5 stock split), and sold it in the Fall for $33.26, down by 22.83%.  This was my lesson for the year on why ETFs are not always what they seem.  In the beginning of 2010, I believed (correctly), that China's stock market was going to hit the skids.  I was right, as China's market was down over 10% for the year.  The S&P 500 was up double-digits this year, for comparison.  The FXP is currently trading at $30.08, about 10% below where I sold it.  As I said before, this was my play on the downturn in the Chinese market.  While my market analysis was correct, my pick in the ETF to play that move was not.  Lesson learned.

5)  Doubleshort 20-year U.S. Treasury ETF (TBT).  I purchased this ETF on 1/3/10, and added to my position later in the year.  My current adjusted price is $43.66, and the ETF is trading at $37.04, down 15.15%.  I am going to continue to hold this name, as I have detailed here.

Welcome to 2011!  With any luck, we will be able to watch the stock market, and our collective wealth continue to increase throughout the year.  If you've been reading this blog for awhile, please continue to read, and tell your friends.  If you're new to this blog, please continue to read, and tell your friends.  In addition, in 2011 I hope that this blog becomes more interactive, with the readers sharing their trades and comments with the rest of us.  As I detailed in my goals for 2011, I also hope to increase the revenue from this blog.  While you're here, please click through some of the links and information which the advertisers have placed on these pages.  It helps to keep this blog free to everybody, and it helps the advertisers to get their name out and teach you about their products.

Hopefully in 2011 I will learn from both my trading successes and failures in 2010. 



Saturday, January 1, 2011

Happy New Year! 2011 Is Here!

Happy New Year everybody!  If you have been reading this blog regularly, thanks for your patronage.  If you are new to the blog, please keep reading as I make new content available.  If you've been reading regularly, you know that this marks the one year mark of this blog.  I love writing this blog, and look forward to many more years doing so.

As it is a new year, it is customary for people to write down their goals.  Well, I am not different, so here are my top five goals for "Invest.  Get Rich" in 2011:
1)  Beat the market.  I will post my total performance for 2010 within the next few days.  However, the goal of this blog has been, and will continue to be, to provide stock picks and investing advice which consistently beat the market.  2011 will be no different.  As I continue to research the markets and refine my investing knowledge and strategies, I am hopeful that my success rate will continue to improve.

2)  Increase my Alexa rank.  I posted a while back that I was taking the Yakezie Challenge, and as part of that challenge my Alexa rank must increase (or decrease, depending on how you look at it) quite a bit.  Please help me in this challenge.  Currently I sit somewhere north of 6,000,000 - not good.

3)  Post more frequently.  A few times this year I took extended sabbaticals.  I am going to try my best this year to make sure that does not happen.

4)  Post more content on strategy.  I started this blog to help people learn how to invest, and more specifically, pick stocks.  While much of the content on this site is focused on the trades I make and the blog's portfolio, in 2011 I want to make sure I get more into the "why", as opposed to the "what".

5)  Increase the revenue produced by this blog.  Part of this will be achieved through heavier traffic to the site.  If you're reading this, please take a look around and notice the ads and the paid posts around this blog.  The advertisers are what help to keep this blog free to everybody.  So, please, please, please click on the links and check out some of the great content provided by the advertisers, I'd greatly appreciate it.

Wednesday, December 29, 2010

My Latest Trade - 12/29/2010

This morning I purchased one June 2011 TBT $35/$47 CALL spread for $4.65 (x100 shares = $465) to supplement the (38) shares of TBT that I am currently holding in the portfolio. My cash position in the portfolio is now $781.42, down from $1,246.42 after the purchase.

I have been saying for quite some time that I believe interest rates will continue to rise, especially with Mr. Bernanke's QE2 which is scheduled to purchase near-dated bonds through June of next year (notice the date I picked on the options).  While TBT has made an impressive move upward since the announcement of QE2, I believe it has a long way to go.  I purchased the (38) shares of TBT currently sitting in my portfolio on 1/3/2010, the date I started this blog.  Back then, the yield on the 10-year was 3.85%, and the TBT was trading at $43.66.  Today, the 10-year closed at 3.35%, down .132%, and the TBT closed at $37.81, down 3.30% today.  Obviously, I took a bit of a hit on the aforementioned trade today.

To put this all into a bit of historical perspective, the average 10-year rate from 1962 to the present (a pretty big sample size) is 6.81%.  Furthermore, the average rate from 2000-2009 was 4.46%.  You can download and analyze all of this data for yourself here

Just to tie a pretty little bow on this whole conversation, not only are the historical rates still low, but the U.S. Government itself has already told us it is going to prop up rates through QE2, and we there are also other forces at work which may drive rates up (see my post from yesterday here, more specifically, China and oil).  As inflation begins to creep into the economy, and I am not saying it will, so too will the interest rates increase.  Actually, just the fear of inflation is all that's needed.

Tuesday, December 28, 2010

What Will Cause The Coming Market Correction?

In the past few weeks I have said that I believe the market is overbought, and we are headed toward an early 2011 correction.  Well, it is my opinion that such corrections are usually brought about in the media through the proliferation of "bad news", and then traders use that as an excuse to take the market lower.  Here is my list of the top ten news stories (in no particular order) that I believe will spur our move lower:

1) The conflict between North and South Korea
Today, South Korea declared North Korea it's enemy.  Big shock there.  Quite frankly, that tiny man with the crazy here in North Korea is crazy.  Tension has been boiling over between them and the rest of the world for quite some time.  I believe that any sort of military action in that region would weigh on the markets if it came to pass.

2) Rising interest rates - both in China and here in The United States
While the media will tell you that rising rates here in America are a problem, truth be told, the rate on the 10-year could rise 15% from a 3.50% yield to 4.00% and still be at historically low levels.  The problem is, as rates go up, so does the cost to service and obtain debt.  Credit cards, adjustable mortgages, new mortgages, you name it.  All of those reasons could be tough on American consumers.

On the other hand, China has a similar issue.  Anything seen as a negative in China is seen as a negative for the rest of the world.  I don't so much buy into this theory, but it's true.  Rising Chinese rates will have the same effect on their economy as the reasons I just stated above for the U.S. economy.

3) The Euro Zone's debt problems
We've already had Greece and Ireland.  I promise you, they are not the only ones on the other side of the pond with trouble.  Portugal and Spain are also going to be an issue, and Spain is a much larger economy than the others.

4) Slowing or no perceived job growth
To quote Adrian Van Eck's most recent publication, "weekly jobless claims remain much improved from their levels of six to twelve months ago.  They have been running in the area near 420,000 to 430,000 for a while now.  A year or two ago, many economists were saying that weekly jobless claims would have to break below 425,000 before any kind of meaningful improvement in the monthly employment picture could take place."  Now that we are at that level, the media and economists are going to want lower numbers.  All in due time.  Jobs are the last things to come back during an economic recovery.

5) Rising oil prices
Oil is currently around $91 a barrel, and many analysts are saying it's going to $100 or maybe even higher.  Such things are sometimes a self-fulfilling prophecy.  Higher oil will be seen as an added "tax" on the American consumer, and will drive up the prices of everything from goods to travel.

6) Rising inflation in China
The Chinese economy has been on a tear the last few years, fueled by gobs and gobs of money pumped into the economy by the government.  With that came increased real estate and food prices, among other things.  As inflation on basic items rises, demand will decrease and I ultimately feel that the huge labor force in China will demand higher wages.  As wages increase, so does the cost to produce things, and so does the cost to buy Chinese made goods.  The world, especially the U.S. consumes a lot of Chinese goods.  See where I am going with this one?

7) Profit-taking
Honestly, the link says it all.  The market has made a huge run, and most everybody is bullish as you can tell from the sentiment data I publish in my portfolio updates.  Traders will want to lock-in profits at some point...

8) Municipal and State debt problems
A couple days ago, Meredith Whitney went on television and forecasted a major state and municipal debt problem here in the U.S.  Meredith Whitney is famous for her call of the Financial Crisis of 2008.  While she was right on her predictions then, I think she is borderline fear mongering.  While I believe there will be some debt problems, in my opinion, they won't be as soon nor as deep as Meredith is forecasting.

I do not mean to downplay Ms. Whitney's work.  I read this story on an obscure news site a few days back, and was astounded that this did not get more national play.  Surely, this small Alabama town is not going to be the only one...

9) Iran
See: Korea, North.  These folks have a crazy leader with nuclear capabilities too.  'Nough said.

10) Home price instability
October home price data came out this morning, and it wasn't good.  Foreclosures are going to weigh on the market for quite some time.  However, I can tell you that a realtor friend of mine told me she had her best November ever this year.  While the real estate market is quite soft, as I have observed personally, I don't think it's as bad as it is made out to be in the media.

To conclude, while I do not think that all these things are going to happen, and while I think that many of these things have little to no actual economic bearing or consequence to our economy or our markets, I do think that at least one of these stories is going to be played up in the media, and I also believe it will coincide with the market correction I am forecasting.

Sunday, December 19, 2010

I Have Joined The Yakezie Challenge!!!

Dear Readers,
As of today, I am joining the Yakezie Challenge.  The Yakezie Challenge is the process you have to go through to get your financial blog listed on Yakezie.  For those of you who don't know, as I didn't five minutes ago, Yakezie is one of the top financial blogs on the interwebs.  In order to get your blog listed with them, you must complete a simple process, listed here.

Basically, in order to get my blog listed, I have to 1) install the badge (see at right, a little ways down the page), 2) write consistently 2-4 times per week for six months (I should be doing this anyway, and have failed over the last two months.  This will be good motivation to maintain my pace.), and 3) get my Alexa rank above 200,000 (I am currently at an abysmal 12,506,744).

How you can you help?
Read my blog.  Please.  If you like it, keep reading, tell your friends and write comments.  If you hate it, do the same.  I would love to hear what readers think either way.  If you comment, please leave your name and website/blog address so we can get it some exposure and engage in constructive dialogue. 

Portfolio Update - 12/19/10

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The Wilshire 5000 closed the week at 13,203.03, up from 13,175.94, or .21%, this past week.  The Wilshire 5000's 200-day moving average currently sits at 11,878.70, or 11.15% below Friday's close. 

This week's reading of the Investor's Intelligence Survey was 56.8% BULLS, and 20.5% BEARS, for a spread of 36.3%. This is in comparison to a reading of 56.2% BULLS, and 21.3% BEARS, for a spread of 34.9% back on December 7th. 

The Volatility Index ($VIX) closed Friday at 16.11, down from 17.61 last Friday.

Now for the portfolio...
1) Verizon ($VZ) at $34.64, up 13.03% for the year, inclusive of dividends.  FTR, the recent spinoff, recently closed at $9.25/share, worth $64.75 to this portfolio currently.

2) AT&T ($T) closed at $29.21, up 4.50% for the year, inclusive of dividends. 

3) GE ($GE) closed at $17.70, up by 16.84% for the year, inclusive of dividends.

4) TBT, ($TBT) the doubleshort U.S. Treasury ETF closed at $38.13, down 12.66% since my buy.  

5) January 2012 Dupont ($DD)  $45/$55 CALL spreads purchased a few months back closed at $4.85, up 32.88% since my buy.

6) Apple ($AAPL) closed at $320.61 up by 65.48% since my buy. 

7) January '12 Citigroup ($C) CALLs closed at $.12, down by 72.73% since my buy. 

8) Citigroup ($C) closed at $4.70, up by 18.09% since my buy.

9) Goldman Sachs ($GS) closed at $164.04, up by 20.53% since my buy.



10) January '11 S&P 500 ETF ($SPY) $127/$120 PUT Spread that I purchased on Wednesday at $2.92 closed at $2.58, or down 11.64%.





As you see above, sentiment data has gotten way overdone on the upside.   To put things into perspective, the BULL/BEAR spread of 36.3% is the highest it's been since 5/4/10, right at the beginning of the 15+% correction that we saw over the summer.  While the upcoming correction will not be as deep or as long, it has to be coming at some point.  The VIX is currently at 16.11, with the 25-day moving averageis at 19.27, historically pretty low.  In addition, every moving average of the Put/Call ratio is more than 1 standard deviation below the historical average.  All of this is pointing to the market being overbought.


As I said last week, I believe the market will continue to melt up into year-end.  I am going to continue to raise cash into year-end, but don't see any reason to do it right this second.  As you see, my SPY PUT Spread is down 11% since I bought it.  I am not worried.  If the market looks like it refuses to break in another three weeks or so, I may have to liquidate that position at a loss.  Until then, I will remain patient. 

Overall, the portfolio is up by 19.72% (13.56% for the DOW Dogs), versus 14.83% for the Wilshire 5000. The current basket of eleven stocks and options that I am currently invested in, including dividends, is up 8.11% year-to-date. The spread between my performance and the overall market (Wilshire 5000) is at 7.01% outperform.

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