Pictures can speak louder than words. So here is a shot of the performance of my E*Trade account.
Yikes. First one question. Is is possible to apply technical analysis to a chart of your performance? If so, I would be short Jason Coleman right now. I got hammered in December (giving back all the gains of a nice November) and my portfolio value has fallen out of the channel it was in. I should probably sell out of all my stocks even though the individual stocks themselves don’t look so bad. Or do they?
My trading strategy for that first half of the year can be summed up as “find great company stocks, buy them when they are overpriced, then sell like a pussy when the stock loses money” cause that’s exactly how I lost all that money. Other problems I was facing was investing with money that I needed for other stuff. So I would enter a decent investment (like buying MSFT at $24) and have to pull the money out at a bad time (when the stock was down $1 at $23) and then I wouldn’t have money to buy the stock at a better time (when it was close to $20, now closer to $30).
Lesson learned:
If you don’t have the liberty or patience to stay in an investment for the long term, don’t make a long term investment.
A theme that I noticed a lot this year was that I would make good calls. I just never seemed to put my money where my mouth was. Usually, my money was too busy wrapped up in a worse trade. I credit a lot of this to selective memory though.
Now something incredible happened around July. Actually three somethings. (1) I learned more about technical analysis and started trading a swing-trading strategy, (2) I left my job and started working at home, thus had more time to devote to stock research, and (3) the market turned around and soared. Which of these was more important, I’ll never know. This I know, I did a lot better than I did earlier in the year. Although I was only keeping pace with the S&P and boarder market, I at least wasn’t losing so much.
What happened in December? A lot of my loses came from a botched trade in SIRI.
New rule:
I can never trade SIRI stock again. I am always wrong.
I made a mistake that I’ve made before (WITH THE SAME STOCK); I turned a trade into an investment. In November I came up with a thesis, based on technical analysis, that SIRI would bounce from $3.60 to about $4.30 or so. I didn’t have any conviction, so I stayed out of the trade. Then the stock started taking off. At $3.90, I thought there was enough confirmation that my original thesis would hold and SIRI would see at least $4.30. That was my trade, $3.90 to $4.30. When the stock hit $4.30, I didn’t sell. I changed my mind and decided to hold on to the stock for a longer trade. Bad idea. Now the stock is down around $3.50 and probably going lower.
I was greedy. I could have sold the sucker and been happy with a nice little $150 profit. The kinds of profits that were making me so much money throughout the fall. What’s worse is that as my money was held up in SIRI I missed some opportunities to take advantage of some swings that were happening in my other holdings. I stink.
(UPDATE: I wrote this article before trading started in 2007. I am currently planning my sale of my SIRI stock. A lot of people were selling at the end of year, as people tend to sell big losers for the tax advantage at the end of the year. Now at the beginning of the year, there are a lot of stupid people who lost money, sold losers, and now have a lot of cash. These people are going to be buying on the first trading day of the year. That’s what’s happening with SIRI and a lot of stocks now. The plan to not be greedy and recoup as much of my losses as I can.)
More than E*Trade
I’ve been especially risky with my E*Trade account. There are a few reasons for this. (1) I’m young and my account size is small. Thus, I’m more able to recover from a big loss. (2) I’m using this account to learn about trading and investing. Some people advocate paper trading, but I find that trading with real money makes it that much more real. Part of learning to trade is learning how to make money. Paper trading is fine for this. A bigger part of learning to trade is learning to control your emotions and tendencies. This can only be done when something real is at stake. And (3) my E*Trade account is only 1/3rd of my total savings. I have another third saved in mutual funds through a 401k and another third invested in my old employee share purchase plan. Let’s take a look at these other investments.
My 401k
The year-to-date returns on my 401k account is 15.9%. This was a good year for everyone. I don’t know how my numbers stack up against others. I was invested pretty evenly in 4 funds.
– Fidelity Contrafund (FCNTX) (+15%)
– Harbor Capital Appreciate Fund (HACAX) (+1.7%)
– Royce Opportunity Fund (RYPNX) (+20.4%)
– Templeton Emerging Markets Fund (TEEMX) (+25.8%)
All of the funds are “stock – growth” funds, except TEEMX which is an international fund. The fund that sticks out like a sore thumb there is HACAX. This was a fund I purchased into on a tip. That should have been a warning there.
I thought that I needed to diversify a bit more and didn’t know which fund to choose; a colleague suggested HACAX and I thought, “Why not?”. In the middle of the year, I saw that HACAX had handled the pull back from May-July much worse than my other funds. While other funds were floating a bit above 2% returns (or much higher in some cases), HACAX was down almost 10%. The stock was overweight in technology, which had been hit the hardest in May. But I new that tech (and the stocks HACAX owned) were going to lead the turn around in July. So I stayed with the stock. They managed to crawl back to positive but didn’t improve much once they got there. I thought that they had made some bad moves. So I moved the money I had in HACAX into another international fund: Fidelity Diversified International (FDIVX). I’m now about 50-50 international vs. US funds. This is a bit higher than recommended, but I think good for an aggressive portfolio.
My ESPP: Accenture (ACN)
Here is a chart of ACN for the year.
Not too shabby. In July, I sold about half of my stake. I was quitting my job and needed the money as a cushion until my independent work starting producing more cash. Some of the money profits found their way into the E*Trade account. The stock I sold in July had been bought at much lower than $28. The options came with a 15% discount too. Nice. The remaining shares continued to do very nice throughout the rest of the year. Exact numbers are hard to come by, but the gains in ACN made up for all of my loses in the E*Trade account and then some. Overall, both accounts are up about 10-15%. Plus the 15.9% gains in my 401k, and I have about 13-15% gains overall. Very acceptable, but I know I can do better.
That’s all for now. It’s been educational and entertaining to look back on my year of trading in 2006. Thanks for being there with me.