December 2010 Trading

Best realized gains for any month to date!  Sold some large, long term holdings as well as collected a number of dividends.  December represents only the fifth month where I have returns over 2% of available funds, but this is noteworthy because my available funds are more than doubled since the last time I hit this threshold in March 2010.

Invested at slightly less than 50% at this moment, so looking to use these excess funds to buy more aggressively and dabble with index funds. 

Sales this month:

• Harsco Corporation - Sold out of my Roth holdings for a nice 30% gain after holding for three months.  Later sold out of all other positions that I'd been holding for about six months.  These yielded a more modest 13% gain, but the holdings were three times larger than Roth, so the absolute gains were significant.
• Exxon Mobil Corporation - Held for almost a year.  7.6% return plus dividends.

Current holdings and unrealized gains/losses are as follows.

• Exelon Corporation - Down 4.5% (-9.7% in Nov, -9.3% in Oct, -5.4% in Sept, -9.6% in Aug, -7.1 in July and -15.7 in June). 
• FirstEnergy Corp. - Up 0.3% (-4.8% in Nov, -2.7% in Oct, +1.8% in Sept, -3.5% in Aug, -0.4 in July and -6.9 in June).
• TeleCommunication Systems, Inc. - Up 5.0% (+4.1% in Nov, +21.9% in Oct, -12.1% in Sept, -30.7% in Aug, -26.4 in July and -31.5 in June).
• EnCana Corporation (USA) - Up 5.4% (+0.3% in Nov, +2.2% in Oct, +9.4% in Sept, -0.6% in Aug).
• Lockheed Martin Corporation - Up 1.0% (-1.7% in Nov, +2.0% in Oct, +2.0 in Sept, -1.3% in Aug).
• National Grid plc (ADR) - Down 0.5% (-1.4% in Nov, +6.4% in Oct, -4.2% in Sept, -5.5% in Aug, -9.0 in July and -17.4 in June).
• Kellog Company - Up 3.7% (Even in Nov, +2.0% in Oct).
• ConAgra Foods, Inc - Up 7.0% (+1.8% in Nov)

The following dividends were collected:

• FirstEnergy Corp.
• Exxon Mobil Corporation
• Exelon Corporation
• Kellog Company
• Lockheed Martin Corporation
• EnCana Corporation (USA)
  

Annual Trading Review

While the end of the year is not yet here, it's close enough to look back at the last two years and analyze my trading. 

2009 vs 2010

I've clearly refined my trading strategy over the last year and it has created some observable results.

in 2009 I felt that I was leaving too much money on the table, so I changed my strategy to seek higher return on each individual trade.  I've succeeded in this goal as per investment return is improved and I'm receiving quite a few more dividend payments than in the past.  However, this has come at the cost of greatly increased holding periods and lower overall realized gain.

I also greatly expanded my pool of trading capital with my available capital tripling since I started this exercise.  These funds have come from a combination of realized gains and infusions of cash from other rollover accounts.  This extra capital has gone largely uninvested as percent invested in the last quarter and is well below 2009 levels.  I have mixed emotions about this.  Obviously I hate to have money sit idle while money markets are paying no interest, but I do like the idea of having ready cash available to capitalize on a bear market.

In 2010 I adopted a strategy where I would spend up to 25% of the available pool buy stocks at a premium price.  This strategy was explained in an earlier post and makes a lot of sense for all market conditions.  But it is especially practical in a bull market.  However, I must admit that I have not followed through on this strategy and have continued to bottom feed.  I'm sure this has cost me some gains.

Another thing that changed since I've been trading is my job status.  I started this exercise during a two month gap in employment and those two months were among my most productive.  I've worked throughout 2010 and there have definitely been some missed buying and selling opportunities because I wasn't monitoring things as closely as I could when I wasn't working.  It's very doubtful that I would be able to completely offset my working income by trading, but I'm convinced that there is a difference.

Performance vs the market

There are not big surprises in the comments above because I've been watching these developments closely as I've been trading.  But my results against the market are a little more surprising. 

I've always steered away from the market index approach to investing, but there are clearly a lot of adherents to this philosophy.  When I compare my results for the last two years to the overall market, I'm not as far ahead as I thought.

With these results, I must acknowledge that the overall performance of the market over the period I've been investing is better than mine! 

But I must also add some caveats to that last statement.  I would argue that my holdings have held less risk because I was rarely 100% invested and earning market returns would require 100% over the whole periods.  Although a index advocate would surely argue that their approach is less risky because it was more diversified. 

I also must point out that these are measuring apples and oranges to a degree.  Market returns assume 100% reinvestment and all returns are essentially unrealized.  Whereas my strategy is specifically directed toward realizing gains as quickly as practical. 

These market results above are looking at the market themselves, not representative funds.  So they exclude fund administrative expenses.  I hate the fact that these black and white numbers don't convince me, but I remain sceptical of fund companies. 

Since underinvested funds has been such a concern, I looked closely at my performance again my opportunity cost.  I know I can invest these same funds in 5 year CDs and not have to worry about managing the trades.  But my return far exceeds those opportunity costs.

Action Plan

Obviously I can't ignore these findings, so there are several things that I plan to do to help maximize gain.

1. Partially revert to 2009 strategy and take profits a bit sooner.  In 2009 I was pretty fixed on a 5% gain.  While I don't think I'll be that aggressive about profit taking, I will lower my standards. 

2. Reduce or cap investment pool.  I think I've reached my limit with regards to funds I'm willing to manage.  My strategy doesn't lend itself to making a lot of buys and I'm not willing to sink a larger percentage into a given stock.  So I no longer need to grow the pool and perhaps need to shrink it.  But I'm not sure where I want to put them.  I could move funds to CDs, but it's hard to go back to such low returns.  I could also adopt a buy and hold strategy toward income stocks.  But this would really be a variation on what I'm currently doing.  More to come on this.

3. Quit bottom feeding!  I should be more open minded at buying stocks at somewhat premium prices within my designated limits.  I've seem too many stocks slip away before they hit my standard buy price. 

4. Dabble in Index Funds.  I can't believe I'm saying this, but the results of the last two years can't be ignored.  I need to do further research on this.  I'll certainly take a look at some specific funds and perhaps even invest a small amount of money into a fund over a period of time. 

5. Don't sweat employment.  My current project ends in two weeks and I don't currently have another gig lined up.  Perhaps some more time off is in my future?  If so, I'll be a full time trader again and see if I'm able to improve my returns as a result.

Account Strategy

Due to various circumstances, I have several different account which I trade in.  In the past, I'm pretty much just picked an account that has money and bought stock.  But over time this has evolved so that I I engage in slightly different strategies for each account. 

Large Rollover IRA Account - This account is tax deferred until I choose to make a withdrawal (after 59-1/2), so it is the first account which I like to use and maximize funds invested. 

Small Roth Accounts - Because these gains are tax free, I wish to maximize gains for these accounts.  I do this by using these accounts for double-down investments.  I am not always fully invested in these accounts, but I think this allows me to maximize gains because the percentage and absolute gains for a given investment are larger because the buy-in price is always lower than my standard buy-in.

 Small Rollover IRA Account - Like the large account, this is tax deferred, but I only want to carry 1-2 different stocks in this account, so I can double-down in a single account.  This minimizes selling commissions and also makes the sell process a little bit easier to manage.

Large Beneficiary IRA Account - My strategy for this account is subtly different from the other accounts.  Taxes are deferred until withdrawal, but I must make a withdrawal every year.  For now, I am working full time, so I don't wish to make large withdrawals (and pay related tax), so I treat this account as a secondary option.  However, should I stop working and wish to use this account as a primary source of current income, it would leapfrog the Rollover accounts to become my first choice. 

As with most aspects of my training strategy, this is subject to change over time.

New Monthly High!

December 2010 is officially the best month for realized gain to date.  And it's only the 10th! 

Although the numbers are good, this is tempered by the fact that my pool of funds for investment has more than doubled since I began trading.  So this is still less impressive than the first few months of trading when I was focused full time.  But if the market makes a positive move between now and the end of the year, I might even be able to challenge percentage highs.

November 2010 Trading

November represented a bit of a down month.  No sales and only a few dividends collected.  However the slight downturn presented a few buying opportunities.  In most cases, I bought into a stock I already held, but I also bought into one new stock.  Despite this, I'm still only 64% invested.

Current holdings and unrealized gains/losses are as follows.

• Exxon Mobil Corporation - Up 4.0% (-0.6 in Oct, -7.6% in Sept, -11.6% in Aug, -10.7 in July and -14.7 in June).  Up near my sell price immediately before going ex-div, but dropped after.
• Exelon Corporation - Down 9.7% (-9.3% in Oct, -5.4% in Sept, -9.6% in Aug, -7.1 in July and -15.7 in June).  Bought additional shares.
• FirstEnergy Corp. - Down 4.8% (-2.7% in Oct, +1.8% in Sept, -3.5% in Aug, -0.4 in July and -6.9 in June).  Bought additional shares. 
• TeleCommunication Systems, Inc. - Up 4.1% (+21.9% in Oct, -12.1% in Sept, -30.7% in Aug, -26.4 in July and -31.5 in June). 
• Harsco Corporation - Up 3.5% (-0.3% in Oct, +5.7 in Sept, -14.3% in Aug, -10.0 in July and -8.7 in June).
• EnCana Corporation (USA) - Up 0.3% (+2.2% in Oct, +9.4% in Sept, -0.6% in Aug).
• Lockheed Martin Corporation - Down 1.7% (+2.0% in Oct, +2.0 in Sept, -1.3% in Aug).  Bought additional shares.
• National Grid plc (ADR) - Down 1.4%% (+6.4% in Oct, -4.2% in Sept, -5.5% in Aug, -9.0 in July and -17.4 in June).
• Kellog Company - Even (+2.0% in Oct).
• ConAgra Foods, Inc - Up 1.8% - New acquisition.

The following dividends were collected and I'm expecting dividends from 5 companies in December:

• Harsco Corporation
• Universal Corporation - I just got in under the ex-div wire.

New Monitoring Tool

I've recently put two and two together and have improved my ability to monitor stocks via GoogleDocs.  In the past I've been limited to the capability of the GoogleFinance function, manual entry and related calculations.  And GoogleFinance has some distinct limitations, so this has been quite time consuming and perhaps not as effective as it could be.

The manual entries were quite a pain as I had to navigate to another URL, find the data of interest, then paste or type it into the GoogleDocs spreadsheet.

I've now been able to use the Import function as a substitute for these manual actions.  It also requites some other embedded functions to create the desired URL and parse the data.  But the result is a much easier process that I'm able to update more frequently.

A given spreadsheet is limited to 50 imports, so I'm not able to keep live data at all times, but it's much quicker to update the data now than before (using the import formula, then copying to the same cell using "Paste Value").  I update these fields more frequently now. 

October 2010 Trading

October represented another good month.  I was able to realize a few gains  to make it my fifth best month to date in terms of dollar gains.  But I was also able to buy into a few new positions at the end of the month. 

I've rolled over several CDs over the last few months and had a few callable CDs called, so I'm only 58% invested and a bit more cash heavy than at the first of the month.  So I'm pretty well positioned for any post election change.  If the market heads downward, I'll be able to buy in in a big way.  If it goes up, I should be able to do a lot of profit taking.  So I'm looking forward to Tuesday! 

There were three sales this month. Each realized 12-13%:

• Universal Corporation - Held two months, but I held on long enough to be eligible for a dividend payable in November.
• The Buckle, Inc. - Held 4 months
• Nokia Corporation (ADR) - Held 4 months

Current holdings and unrealized gains/losses are as follows. Note that I also included the gain/loss from recent months to demonstrate trends. Although down from mid-month peaks, things are still positive.

• Exxon Mobil Corporation - Down 0.6% (7.6% in Sept, -11.6% in Aug, -10.7 in July and -14.7 in June) 
• Exelon Corporation - Down 9.3% (-5.4% in Sept, -9.6% in Aug, -7.1 in July and -15.7 in June).  It actually went positive earlier in the month!
• FirstEnergy Corp. - Down 2.7% (+1.8% in Sept, -3.5% in Aug, -0.4 in July and -6.9 in June) 
• TeleCommunication Systems, Inc. - Up 21.9% (-12.1% in Sept, -30.7% in Aug, -26.4 in July and -31.5 in June).  I almost took profits on this one this month.  If I would have, this would have broken all my monthly records.  Hopefully I'll be able to do this in the coming months.
• Harsco Corporation - Down 0.3% (+5.7 in Sept, -14.3% in Aug, -10.0 in July and -8.7 in June) 
• EnCana Corporation (USA) - Up 2.2% (+9.4% in Sept, -0.6% in Aug)
• Lockheed Martin Corporation - Up 2.0% (+2.0 in Sept, -1.3% in Aug)
• National Grid plc (ADR) - Up 6.4% (-4.2% in Sept, -5.5% in Aug, -9.0 in July and -17.4 in June)
• Kellog Company - Up 2.0% - New acquisition.

No dividends, But will collect Harsco and Universal divs in November.  Also several holdings going ex-div in November for collection in Nov/Dec.

Telecom Tales - Part 2

Almost 6 months ago in April, I was contemplating contemplating the purchase of three telecom stocks; Telecomunicacoes de Sao Paulo (TSP), Telecommunications  Systems (TSYS) and Nokia (NOK).  I eventually bought into all three stocks.  In each case, I suffered months in the red, but I'm happy to say that I'm now above water with all three.

I found Telecomunicacoes de Sao Paulo to be the least comfortable holding of the three.  I held a standard size lot, but got out of this position as soon as I was able to show a reasonable 6.5% profit in June.  I did not collect the annual dividend and did not wish to hold long enough to do so.

At the time of my initial writing, I had not bought in on Nokia, but the price continued to drop and I soon found the temptation too great.  I bought in with a half sized lot in May, then watch it drop some more and bought in with another half in June.  Although the price dropped even further, I resisted the urge to throw good money after bad. After holding until October, I was finally able to discard for a tidy 12% gain.  As with TSP, I had no desire to hold long enough to collect the annual dividend.

Telecommunications Systems has proven to be the scariest ride of all.  I have bought in with a total of eight lots of increasing size to date.  I was significantly underwater with these until earlier this week despite an absence of news that should justify the continued low price.  On Wednesday and Friday, there were announcements of military contracts that have significantly buoyed the stock price and have left me with a current 16% unrealized gain.  But I still am significantly below my initial buy-in price, so I feel that there is still a lot of upside to this holding.  So I'm now faced with the best strategy for vacating my position.  The next quarterly report is at the end of October, so I'd like to close out before then....but then again, I don't want to leave money on the table if it can be helped. 

So the TSYS story and the overall success of my telecom ventures remains undetermined at this time.

September 2010 Trading

September was a drastic improvement over recent months.  Although realized gain was not anything epic, we've managed to eliminate almost all the unrealized gains and most stocks are in the black for a nice change of pace.  

There were two sales this month.  One sale for both the first and last days of the month:

• Sempra Energy - I closed out this position for a 10.7% gain.
• TOTAL S.A. (ADR) - I sold out my full position in this stock for the second month in a row.  The return this month was only 9.5% and the position was half the size of the previous month, but the holding period was only half the size also. 

Current holdings and unrealized gains/losses are as follows. Note that I also included the gain/loss from recent months to demonstrate trends. Things have taken a drastically positive move in the last month.

• Exxon Mobil Corporation - Down 7.6% (-11.6% in Aug, -10.7 in July and -14.7 in June)
• Exelon Corporation - Down 5.4% (-9.6% in Aug, -7.1 in July and -15.7 in June)
• FirstEnergy Corp. - Up 1.8% (-3.5% in Aug, -0.4 in July and -6.9 in June)
• TeleCommunication Systems, Inc. - Down 12.1% (-30.7% in Aug, -26.4 in July and -31.5 in June)
• Harsco Corporation - Up 5.7% (-14.3% in Aug, -10.0 in July and -8.7 in June)
• Universal Corporation - Up 9.7% (-2.4% in Aug)
• The Buckle, Inc. - Up 1.0% (-9.2% in Aug)
• EnCana Corporation (USA) - Up 9.4% (-0.6% in Aug)
• Lockheed Martin Corporation - Up 2.0% (-1.3% in Aug)
• Nokia Corporation (ADR) - Up 6.6% (-9.0% in Aug, +1.1 in July and -13.4 in June)
• National Grid plc (ADR) - Down 4.2% (-5.5% in Aug, -9.0 in July and -17.4 in June)

Good month for Dividends:  

• FirstEnergy Corp
• Exxon Mobil Corporation
• Exelon Corporation
• Lockheed Martin Corporation
• EnCana Corporation (USA)

August 2010 Trading

Another month, another 31 days of disappointment. Actually it wasn’t that bad. The market was slow, but I still managed to receive positive realized income. In fact, I had 0.90% return on total cash available. That‘s 11% annually, which is not too bad. But there are lots of unrealized losses to go with it, so this must also be considered.

Only one sale again this month:

• TOTAL S.A. (ADR) - I closed out this position with a 10% gain, then bought back in later in the month.

Current holdings and unrealized gains/losses are as follows. Note that I also included the gain/loss from June, July and August to demonstrate trends. Those trends were not always positive.  The numbers represent cumulative movement since buy in, not monthly movement.

• Exxon Mobil Corporation - Down 11.6% (-10.7 in July and -14.7 in June)
• Exelon Corporation - Down 9.6% (-7.1 in July and -15.7 in June)
• FirstEnergy Corp. - Down 3.5% (-0.4 in July and -6.9 in June)
• TeleCommunication Systems, Inc. - Down 30.7% (-26.4 in July and -31.5 in June)
• Sempra Energy - Up 8.2% (+5.7 in July and -0.6 in June)
• Harsco Corporation - Down 14.3% (-10.0 in July and -8.7 in June)
• Universal Corporation - Down 2.4% - New acquisition in August
• The Buckle, Inc. - Down 9.2% - New acquisition in August
• EnCana Corporation (USA) -Down 0.6% - New acquisition in August
• Lockheed Martin Corporation - Down 1.3% - New acquisition in August
• Nokia Corporation (ADR) -Down 9.0% (+1.1 in July and -13.4 in June)
• National Grid plc (ADR) - Down 5.5% (-9.0 in July and -17.4 in June)
• TOTAL S.A. (ADR) -Down 2.6% - New re-acquisition in August

Dividends were collected on the following:

• Harsco Corporation
• National Grid plc (ADR)

The following stocks wend ex-div in Aug with payments expected in September:

• FirstEnergy Corp
• Exxon Mobil Corporation
• Exelon Corporation
• Lockheed Martin Corporation  

July 2010 Trading

July was yet another slow month. Good upward movement until the last few days of the month, but gave back a lot at the end. Good progress was made, but still very little turnover.

Only one sale:

• Telecomunicacoes de Sao Paulo - I was happy to close out this position. Although I received my desired gains, this always seemed a bit riskier than my usual holding

My current holdings and unrealized gains/losses are as follows. Note that I also included the gain/loss from both June and July to demonstrate the generally positive progress over the last month.

• Exxon Mobil - Down 10.7% (June 30: Down 14.7%) - Ex-Div in Aug, Div in Sept
• Exelon Corp - Down 7.1% (June 30: Down 15.7%) - Ex-Div in Aug, Div in Sept
• FirstEnergy Corp - Down 0.4% (June 30: Down 6.9%) - Ex-Div in Aug, Div in Sept
• Telecommunications Systems - Down 26.4% (June 30: Down 31.5%) - July was looking like a very good month for TCS until they took a big hit after a disappointing earnings announcement this week.
• National Grid PLC - Down 9.0% (June 30: Down 17.4%) - Ex-Div in July, Div in Aug
• Total SA - Up 6.4% (June 30: Down 6.2%)
• Sempra Energy - Up 5.7% (June 30: Down 0.6%)
• Harsco Corp - Down 10.0% (June 30: Down 8.7%) - Also a victim of bad news, the only holding to move downward over the last month. Ex-Div in July, Div in Aug
• Nokia - Up 1.1% (June 30: Down 13.4%)

Dividends were collected on the following:

• Sempra Energy

June 2010 Trading

It's all about the dividends in June. The market stayed depressed and I only made one sale, but collected significant dividends to the point that the turnover yield is artificially inflated to over 30%. But this is tempered by an good yield on available funds of 1.55% (a respectable 18% when annualized) and the good new is totally overwhelmed by the large unrealized losses.

But I maintain my hold and collect strategy and am looking forward to two maturing CDs.  I plan to use these to buy in further if the market remains depressed.

My only sale was:

• Telecomunicacoes de Sao Paulo - Only half of my holdings, kinda wishing I sold 100%.

My current holdings and unrealized gains/losses are as follows:

• Exxon Mobil - Down 14.7%
• Exelon Corp - Down 15.7%
• FirstEnergy Corp - Down 6.9%
• Telecomunicacoes de Sao Paulo - Up 3.6%
• Telecommunications Systems - Down 31.5%
• National Grid PLC - Down 17.4%
• Total SA - Down 6.2%
• Sempra Energy - Down 0.6%
• Harsco Corp - Down 8.7%
• Nokia - Down 13.4%

Dividends were collected on the following:

• FirstEnergy Corp
• Exxon Mobil
• Exelon Corp
• Total SA
• National Grid PLC - Not a dividend, but a Rights sale in excess of 10% of the purchase price of the stock. This certainly helps offset some unrealized losses.

Tracking CD Ladders

I was quite pleased that that one of my recent comments on Bargaineering.com was the impetus for a post.  It was a real revelation to me that Jim would say "everyone implies that your CD ladder is held at a single institution."  I've always thought quite that opposite that no one holds their CD ladder at a single institution, especially in the electronic age. 

Regardless of the assumption, my personal need to track my CD ladder across multiple banks has led me to develop a tool for keeping up with this.  I use it for tracking maturities, yields, beneficiaries and potential exceptions to FDIC insurance limitations (I wish this was a bigger problem for me!).

Given this, I maintain a tracking spreadsheet in google docs.  In addition to tracking the particulars of each CD, it also provides a visual representation of the CD ladder that makes the concept a bit easier to follow.

This tool has evolved over the years, It originated as a Lotus123 spreadsheet and later evolved to Excel and eventually google docs.  It also grew from simply tracking my CD ladder to covering each of the components of my overall financial strategy.

I use google docs to maintain this spreadsheet and my stock trading spreadsheet.  These have become two foundational components of my financial monitoring.  Needless to say, since these are on a public server, I don't keep any specific information like account numbers or login info in these docs.

A Hurdle I Haven't Overcame

In general, I've been very pleased with the results of my trading.  The financial rewards are the primary evidence of this, but also, I've been pleased with my ability to adjust my strategy to be more flexible for dealing with various market conditions.  Even though my current holdings are in the tank, I'm convinced that I'm doing the right thing.

However, there is one aspect of my strategy that I'm not comfortable with.  I don't feel that I'm doing a good job of adjusting to long term changes in individual stocks.  For example, I bought and sold Pfizer (PFE) several times during the first few months of trading.  I bought in the $14 range and sold in the $15 dollar range.  Given this, I have a hard time with the idea of buying this stock at a higher price.  So it's now effectively outside my trading universe even though it still meets all of my trading criteria and if fact has increased it's dividend in the last year. 

I'm not sure if it's a good thing or not, but the recent tumble in the market has actually increased my unwillingness to overcome this hurdle.  Many stocks under consideration have hit 52 week lows and have fell back into my price range, reinforcing my unwillingness to raise my buy price.  And of course, my inherit "thriftiness" is also a factor in my unwillingness to raise my buy prices.

Perhaps more importantly, I'm concerned that I'm missing downward signals. I bought and sold Nokia last year in the $13-14 range, so when it fell within this range this year, I was sorely tempted to by. Fortunately, I overcame my initial temptation, but I eventually bought in when it fell below $10.  I knew enough to keep the purchase small.  But was even that too much.

I guess awareness is a good first step, but my hope is to analyze my ongoing assessment of stock value to match and improve on my past success.

May 2010 Trading

To start with the good news, May was a good month for accumulation.  I processed 10 buy transactions which is the fourth highest month to date.  At month end, I'm 97.5% invested and would have been further soaked if not for a need to reserve some cash for an expected need at the end of June.  And dividends will begin flowing from these accumulations in June which will have no less than 4 dividend payouts.

However, I made no sales and collected no dividends in June.  Thus, no gains were realized for the second month since trading began.

My current holdings and unrealized gains/losses are as follows:

• Exxon Mobil - Down 9.6% - Div payable in June
• Exelon Corp - Down 14.3%- Div payable in June
• FirstEnergy Corp - Down 7.0%- Div payable in June
• Telecomunicacoes de Sao Paulo - Down 2.9%
• Telecommunications Systems - Down 17.1% - Expanded holdings during the month to have a fairly substantial holding, purchased at attractive prices.  Unfortunately, the stock is quite depressed at the moment.
• National Grid PLC - Down 9.1% - Goes ex-div in early June
• Total SA - Down 2.1% - Semi-annual dividend payer, took a bit of a dip when it went ex-div in May, but took lots of other market driven dips too. - Div payable in June
• Sempra Energy - Down 2.3%
• Harsco Corp - Up 3.3%
• Nokia - Up 1.1% - Small holding.  This one actually scares me a bit.  Lots of bad news lately, but the price was too good not to dip a toe in.

1 Year and 1 Month Report Card

Wow, what a horrible month!  I started the month underwater and things went south from there.  I've been as low as 12% in the red when the Dow dipped below 10,000 yesterday.  And I've been in a negative position for all my holdings for most of the month.  Thanks goodness for a strong day today and hopefully a strong day tomorrow to finish up the trading month.

Although the market has been terrible, I'm pleased to say that this has not caused me to stray from my strategies or lose sleep.  I bought a lot of bargains on the way down and I'm still very confident that all my purchases can be sold for my usual profit one day.  I wish I could say the same for my long term holdings of BP.  I'm also pleased that I will be able to collect dividends (as planned) while I'm waiting for the market to rebound.

So yeah, I'm in a hole at the moment, and am looking at some slow months in the future.  But this has not shook my confidence in my strategies and this is very reassuring.

1 Year Trading Report Card

I've now been actively trading for a full year.  It's been quite profitable, but the results have varied from month to month.  Overall, return has been 25.31% for the year, which is good by most anyone's standards.  I'd be most happy if I can replicate this every year. 

When I first started this exercise, it was my hope to replace my salary using my trading activity.  I didn't do this, but it didn't work out to be necesary as I was working full time during most of the year.  And the period when I was trading full time were the months where my return was by far the greatest. 

Specific metrics are presented below.

April 2010 Trading

It was a fairly good month.  OK yield (7.24% on turnover, 1.8% on available funds).  Ok realized gain (6th highest in 12 months).  But I'm underwater on my outstanding holdings with 3 of five holding in the red and the other two are barely in the black. 

I sold the following:

• National Grid PLC
• Public Service Enterprise Group, Inc.
• FPL Group

I currently hold the following:

• Exxon Mobil - Up 1.4% 
• Exelon Corp - Down 3.2%
• FirstEnergy Corp - Up 0.1% - bought in additional shares during the month
• Telecomunicacoes de Sao Paulo - Down 2.5% - New holding
• Telecommunications Systems - Down 3.1% - Tiny holding.  Was up 14% earlier this week, but dropped dramatically after earning call.

No dividends were collected, but Exxon, Excelon and FirstEnergy are due to go ex-dividend in the next two weeks.

Tales from the Telecom Trenches

The past week or so has brought to light some interesting Telecom plays. I thought the appearance of these buying opportunities brought to light of the diversity of approaches to this sector.  I also found it odd that they all hit at the same time as these seem to be driven by somewhat unrelated and company-specific circumstances.

First is Telecomunicacoes de Sao Paulo which is a landline/internet/TV provider in Brazil. This is an annual dividend payer who has already paid the for the year and had a 20% price drop in the last month. While this is riskier than my usual purchase, I bought in at my buy price and doubled up once the price dropped another dollar. It's now up from its' 52 week low (induced by recent yearly dividend payout), but I'm still in the red. Nonetheless, I'm pretty happy with this holding because it was acquired at a good price and is a longstanding company. But if I have to hold it until the next dividend payout, I’m sure I will change my tune. This might be a good lesson in buying stocks that pay dividends on yearly schedules.

Next is Telecommunications Systems. They provide services for the wireless industry and do not pay a dividend.. I’ve had past success trading this stock, so it is one of the rare exceptions to my rules about trading growth stocks. They have also had a recent swoon in their stock price to 10 month lows. I bought a small lot with an expectation that the earnings call next week could send the prices up or down. If it goes up, I’ll sell out for a good profit as the trading range is quite broad. If the call send the price downward, I’ll probably load up. Recent news has been reasonably good indicating a good revenue stream on the horizon even if they had a bad first quarter.

Finally, there’s Nokia, the Finnish wireless handset provider. They took a huge 13% plunge today as they had bad news on multiple fronts. This one was very tempting. The price was actually down even further early in the day and well below my buy price. Also, I’ve traded Nokia in the past and have made my desired profit. But I just couldn’t pull the trigger despite the attractive price. This one smells too much like a Nortel at the moment and would not allow me to sleep at night.  Also it's another international stock that's an annual dividend player and I don't think I have the constitution for more than one of those at a time.

I find these decisions to be a strong test of my trading strategy. Of these three stocks, Nokia is the only household name and it’s the only stock that I choose not to buy. I hope to be able to look back at this in a few months and say I made the right calls.

Overall Financial Strategy

Well, I’ve spent all my time documenting my trading strategy, but I’ve spent no time talking about the way that this fits within my overall plan.

In fact, the funds I use for active trading represent about 10-15% of my overall portfolio. I’m very conservative at heart and despite my efforts to minimize risk, I acknowledge that active trading is an inherently risky activity. So it’s important to me that this only be a small part of my overall holdings.

Basically, I split my holdings into two pieces, tax sheltered and taxable. I spend the majority of my time actively managing the tax sheltered funds as they give me the most benefit with the least headaches.

Tax Sheltered
After ensuring I can meet my daily obligations, I make every effort to maximize the moneys in the tax sheltered accounts. So I try to take full advantage of contributions to IRA’s and 401(k)’s where possible. I’m opportunistic with my approach to the Roth instruments. If eligible to make contributions, I do. However, I have not converted any traditional account to Roth and I don’t intend to unless this become more attractive.

There are three basic tax sheltered holdings:
401(k)’s (20-25%) - These are the primary instruments for collection of new funds. My wife and I both have these accounts with the usual limited mutual fund offerings. I focus on capital preservation in these accounts with most of the dollars being directed to bond or governmental funds. I see these as a temporary holding place. My goal is to get these funds rolled over into another account that I can manage. This works well for me, as I typically change jobs ever few years and can roll-the account over. This is less of an option for my wife. However, I’m considering an “in-place rollover” which appears to be an option for some funds.
IRA CDs - (50-60%) - These are mostly long term (8-20 year) callable CDs where the interest is collected and not retained in the CD. The are held within my brokerage account and the collected interest is either used for new CDs or swept into my trading funds. I also hold some traditional CDs, but these are being rolled over into my brokerage account as they mature.
IRA Trading (20-25%) - These are the “available funds” that are the primary focus of this blog.

My plan is to defer withdrawal of these tax sheltered funds as long as possible, so you’ll see that my taxable strategy is intended to compliment this with high liquidity.

Taxable
These funds are those necesary to support our lifestyle up to the time that we are able to collect pensions, social security or withdraw funds from the tax sheltered accounts without penalty.

Taxable funds are also split into three different groupings:
CD Ladder (60%) - This is a ladder of approximately 20 CDs that are spaced in 3 month intervals over 5 years. I currently have all interest reinvested into the CDs, but I plan to change this upon retirement and use the interest as spending money. If additional cash is required, I have no qualms about drawing down the principal on maturing CDs rather than touching the tax sheltered funds.

Equity (30%) - These are a few income stocks that I’ve held in the long term. These are not diversified, but are conservative holdings and represent a small enough percentage of the portfolio that it doesn’t keep me awake at night. I use the dividends for funding the CD ladder, so the equity percentage should decrease over time unless the stock prices keep pace.

Liquid funds (10%) - These are held in money market funds and vary quite a bit depending on where I am cashing in or buying CDs.  Significant expenses can also cause variations in these liquid funds. 

Obviously, my taxable strategy has one glaring omission. You’ll note that I don’t undertake any activity to take advantage of the lower tax rate associated with capital gains. Being the cheap bastard that I am, I struggle with this on an ongoing basis. And in fact, I occasionally use liquid cash for this purpose. But I do not do this as a rule because it introduces additional risk into the overall portfolio and also adds extra overhead into record-keeping and tax reporting that is not required for my tax sheltered trading.

All the way back

For most if not all of 2010, I've had at least one stock that has been underwater (especially EXC). Today is the first day that I can remember that all my holdings are in the black. I still have some lots in negative territory, but in net, each stock has a gain. Perhaps more importantly, overall unrealized gain is at 1.5% and two of the holdings are sitting at about 6% gain, so they will soon (hopefully) be tuned over.

This seems to be related to the recent run-up in oil prices. I hope it lasts a little longer, even though it’s having an impact at the gas pump too.

March 2010 Trading

It's been a while, but finally a good month! Good realized gain, good dividends, decent turnover and I'm still invested at about 70% in some good positions with decent upsides (although I have a small unrealized loss at this writing). I earned 12.5% on the turned-over funds and 3.64% on all available funds. I'd characterize this as my third best month to date.

I sold the following:

• Lockheed Martin Corp - I held some of these shares over 6 months, but this was by far the biggest contributor to realized gain for the month.
• Marathon Oil Corp - Small holding, but turned over fairly quickly at a nice gain.

I currently hold the following:

• Exxon Mobil - Up 0.2% - Up and down, but no serious opportunities to sell yet.
• FPL Group - Down 0.9% - Still in negative territory, but way up from recent lows and moving in the right direction.
• Exelon Corp - Down 2.7% - I don't think this was in the black all month, but up from lows as well
• FirstEnergy Corp - Up 0.9% - Small holding.
• National Grid PLC - Up 3.6% - Small holding bought at an attractive price. Div paid semi-annually, so this represents a deviation from typical purchase. But goes ex-div in about 3 months.
• Public Service Enterprise Group, Inc. - Up 0.6% - Another small holding at a good price. I've held this in the past too.

I collected dividends on the following:

• Marathon Oil Corp
• Exxon Mobil
• Exelon Corp
• Lockheed Martin Corp

Back in Black!

March is starting out like a lion.  I was able to sell my LMT position after the stock going ex-div and all holdings are up from their February positions.  I already have my best realized gains since July and another stock (MRO) is approaching the sell price.  So there is a chance of the best month to date if trends continue. 

Further good news is that many of the realized gains from the LMT sales are associated with our Roth IRAs.  And these gains are not subject to tax, ever.  So maximizing gains in these accounts is a very good thing.  If fact, these accounts are up 39% and 53% since May '09.  These are higher than the gains in the other accounts, but that was the plan.  What makes these gains even more surprising to me is the fact that the LMT holdings took 6 months to turn over and I've only been using this strategy for 10 months..

And if things turn south again, I'm now only 68% invested, so their are funds available for reinvestment.  I'd like to clear the books a bit more before buying back in, but you take what the market offers.

February 2010 Trading

Another slow month for realized gains.  I only sold one holding for minimal gain, but I was able to invest 100% of my funds as the market stayed depressed.  If not for an injection of new funds from a transferred IRA, I would be 100% invested right now. 

 As indicated, I had my second slowest month ever for realized gains and I only earned 7.3% on those.  I'm also marginally in the red for unrealized gains related to the current holdings.  But I went ex-div on 5 of 6 holdings, so March will be my biggest dividend month to date.

I sold the following:

• Owens and Minor, Inc - This is the second time I've cycled through this stock. 

I currently hold the following: 

• Lockheed Martin Corp - Up 6.3% - I've now held some of these shares for 6 months and will be collecting the 2nd round of dividends on them.  I'm tempted to cash in because the gains are reasonable, but I still like the topside on this.
• Exxon Mobil - Down 2.8% - I've been in the black on XOM several times since I've held this, but the gains have always been modest.
• FPL Group - Down 4.9% - This has been depressed since news of their rate case going south.  But it's still a sound company, so I hope to see a bounce back in time.
• Exelon Corp - Down 3.8% - Another depressed utility holding company with sound numbers, but I might bail out with modest gains.
• Marathon Oil Corp - Up 3.6% - Small holding bought at a nice discount.
• FirstEnergy Corp - Down 0.3% - Another small holding purchased at an attractive price, but it's had some bad news lately keeping the price down.

No dividends were collected this month, but I'll be collecting dividends for all stocks except FirstEnergy in March.  March income is already assured to be 250% of the paltry take for February.  With a few sales, it could very easily be a big month.  We'll see what the market has to offer!

100% Invested

For the first time, I have 100% of my available funds invested. The recent market drop has presented buying opportunities that I've not been able to pass up. So now I'm ready for a market run-up!

I've been able to follow my planned strategy and have observed rules relative to my buy-in price as the basis for making purchase decisions.

Strategy      Rule      Actual
Premium       25%     26.2%
Average        50%     28.1%
Discount       25%     45.7%

So I've actually been able to get in at more attractive prices that I anticipated, so this should provide great yields when I sell.

The big question is...When will I get an opportunity to sell? That hard to say. Obviously, I'm hopeful that the market will turn around soon and I'll be able to cash out these positions. But realistically, this probably will not happen quickly. So I may be dependent upon dividend income for the coming months. That's not so bad, as my current portfolio yields 3.92%, which is not so bad and is above current CD yields.

It's also worth pointing out that I'm not entirely shut out and can continue to invest if prices stay depressed. I have a small CD maturing this month that will roll into the ingestible funds pool and some larger CD maturing in August that will increase my ingestible funds by about 30%. So I'd prefer an immediate market turnaround, but I also have a strategy to continue to buy into an extended bull market.

January 2010 Trading

January was an interesting month.  The last two weeks were brutal, costing me all of my unrealized gains, but giving a great opportunity for buying what appeared to be bargains.  But the continued drops made these bargains seem less like a good idea.  Realized gains were very modest, being the second lowest month to date.  But I'm 72% invested, so I'm positioned to capitalize on market upturns.  Although the total was relatively small, the gain percentage was 11.56%, the second highest month to date. 

It's also worth mentioning that I transferred a significant amount of cash out of the investment pool, so the drastic jump in invested percentage is a function of a smaller pool, plus a higher amount of invested funds.

I sold the following:

• Nokia
• Buckle, Inc

I hold the following:

• Lockheed Martin Corp - Up 1.9%
• Exxon Mobil - Down 3.6%
• FPL Group - Down 2.3%
• Owens and Minor, Inc. - Down 1.4%
• Exelon Corp - Down 1.7%

No dividends were collected this month, but a few go ex-div in February and the other holding go ex-div in March.

2009 Performance against Metrics

I've been tracking metrics for the last few months, and the new year is a traditional time to assess past performance and reevaluate the plans for the new year. So here goes.

Income

The reason that I began this exercise was to try to replace lost income at a time when I wasn't working. Although the unemployment didn't last long, it's still my goal to be able to match my net income from a job. Amazingly, I was able to do this on average. In fact, there was one month that I even matched my gross income. Since I will eventually need to pay taxes on these earnings, if I was able to be able to duplicate this feat on a monthly basis, I would no longer feel the need to work. Alas, that's not yet the case.

Yield

I've also been able to meet my my goals in terms of yield. I measure yield in two ways. First, I measure the percentage yield in terms of the amount turned over as part of the realized gain. If I bought $10,000 worth of stock and sold it at $11,000 for a gain of $1,000, my turnover yield would be 10%. If I had $100,000 funds for investing at the end of the period, then the available yield (or portfolio yield) associated with that transaction would be 1%. I've surpassed my 5% goal for turnover yield with an actual yield of 8.49%. 2.49% also surpasses my available yield goal of 2%. This second goal has been compromised a bit by my movement of additional funds into the available pool by transferring IRAs in from other accounts.

Available Funds

As noted above, I've brought in additional funds that have actually put me over my target for this investing pool. This would be great if I was always fully invested along with meeting my yield goals. But it's proven difficult to stay invested (and maintain high levels of realized gain). So I'm currently struggling with my options for these excess funds. I could keep them in the pool for possible investing, or I can invest in CDs, or I can look at putting some of these funds in a longer term stock position. This is proving to be a difficult decision due to the low yields in CD and dividends in the current environment. But I have some other CDs maturing in the next 6-8 months, so I need to develop an appropriate strategy for this.

Percent Invested

As I've said, staying invested is a challenge. My hope is that I would stay 50% invested with constant buying and selling. But the reality is that there are periods of acquisition and periods of disposition that follow general market trends. So the percent invested swings significantly. The chart below is not really representative since it only shows the values at the end of the month. There are typically intra-month peaks and valleys too.

Holding Period

Obviously a short holding period is a good thing assuming that yield goals can be met. But given the low percentage invested, I've trended toward longer holding periods in recent months in order to eek out a few more basis points of yield. I've really struggled with this concept. On one hand, I had good luck during my first few months by taking a quick 5% yield, dumping the stock and then reinvesting in the same stock when it dropped back to my initial buy-in price. But I saw a lot of cases where the stock continued to rise after I sold and I didn't like leaving that money on the table. At the same time, I've seen stocks rise to 7-8% yields and I've held out for 10% only to see it drop the the initial levels. I guess this only goes to prove the old adage that "you can't time the market."

Summary

Although I haven't been able to hit all my goals, this experiment has proven successful beyond my expectations and is certainly worth of ongoing attention and refinement. Although you can't time the market, I will continue to try with most of my current efforts focused on how to determine the best buy-in time. This should boast my percentage invested. Then I'm sure the pendulum will swing and I'll be focused on when I should get out of a position. If nothing else, this has proven to be an interesting, challenging and most importantly, profitable venture.