This is my 2009 roundup for my stock portfolio. I made an 80% annualized return on my portfolio and in this post I plan to track what I did for the future references and updates.
In my opinion, Stock market ‘kicks’ you almost the same way tables games do in casinos. I always thought I had a better chance to win if I had lots of money to bet on a roulette table ( yes, I am talking about those people who stack-up the chips all over the table and win 36 times back on some) Strange, but I thought the same about Warren Buffett .
So to gamble, I started my stock portfolio in 2009. Thanks to the academic training, the financial numbers and data don’t make me dizzy. (I should also mention that my master’s thesis was to model Stock market behavior). I risked $ 2,000 when I started this portfolio in early Jan 09 and the idea was to learn to play the game in the US market. My first pick was Ford as I liked their new products line and the CEO. My second pick was Citibank as I thought at $5 Citi was grossly undervalued. Also, these stocks were really cheap and entry was easier with a 2K portfolio. I sold Citi at a 21% loss a month after and four months later sold Ford for a 132% gain.
My first two trades used only 60% of the 2K I had and they generated a profit of $ 821 and that was a 41% return- close enough to a roulette side bet. I have noticed one thing; CEOs make a difference. Obviously that was not a new learning but I developed an investment rule for later use. Read the CEO profile in Wiki or online and if the products don’t impress you, at least CEOs should.
I stayed low during the March/April market meltdown and saved up money for a comeback in July. I increased my cash stake to 6.5K in July and bought beaten down financial select sector ETF (XLF), Citibank, Discover Financial and CIT. Financial sector was really fragile hence generated a lot more fluctuation than the overall market. This was also an opportunity to make money and I thought I had some advantage as I understood the finance business better. The investments paid off and by Aug I had a cash return of 3.1K i.e. a 48% return on the 6.5K investment. I was more convinced with the strategy of investing in the businesses you understand better. One of my investments, CIT was deliberate as they had become penny stock fearing bankruptcy and I thought the government would rescue them with another bailout. However, bailout did not happen but the bondholders provided a lifeline to CIT and bailed me out in the process.
During these seven months, I learned how and where to look for information. I also got some idea how news translates in to price movements on specific stocks. Unless you have your own money, you never pay attention to such details. With all the encouragement I had from the trading returns, I increased my investment to 25K by September. As of end of December, I did 27 buy transactions and generated 7.3K profit or 30% return on 25K. Since I did not have 25K in the beginning of the year, annualized return on my investment stands at 80%. Please take a look at attached trading log to see my winners and mistakes.
Many of us know gambling games are designed to benefit the house in the long-term and it might be a Monte Carlo or since we are talking about stock market, it might be Goldman Sachs. Again in my opinion, gone are the days where stock market was a place for long term returns but focusing just on short term, we could make some money or at least have some fun of trading.
These are some rules I developed in the first year of my US stock market investments.
1. Do at least 1 buy and 1 sell transaction in 2 weeks and keep at least 50% of the funds invested. Opportunity to make higher profit increases with the number of trades.
2. Never invest more than 60% funds. This means you have 40% of your portfolio as cash. When the price of the share you bought unexpectedly goes down and you have reasons to believe that it’s going to recover, try to average the price using the cash in hand. (Wells Fargo, Dell & Citi in my portfolio).
3. Sell whenever the net return on a trade crosses 2%. Never hold beyond 5%. ( Nomura, Citi, Ford)
4. Watch the panic sales and price drop due to unexpected news or expected stock dilution or similar. Jump in when they start recovering. Companies with good fundamentals are the best bet (Nomura, Dell, Autodesk are some examples in my portfolio).
5. Sell when prices continue to go down and there is no reason for you to justify a wait. In other words, don’t think every stock recovers in the long-term. By waiting, you are just blocking the cash (Lloyd, Citibank in my portfolio)
6. Invest in the businesses you understand – Old Warren Buffet saying but this also means that you should learn about a business before you invest in it. Many a times, knowing the business helped me to discard the Wall Street analyst’s number games. (Nomura for example )
7. Read about CEOs; watch they talk.
Overall, my favorites are beaten down stocks because bulls pick them to ride on. New product launch or a better sales quarter can cause these companies prices go up. Also, remember to get rid of them the moment they cross 2% return mark as such bull runs are usually short-lived.
I do not diversify the stock holdings as I believe it does not let me maximize my returns. Also I am against holding more than 3 companies at a time as that would demand a lot of time in research and tracking. I also invest in the same companies over and over again as I already know the price support and resistance levels. Finally, I use fundamentals to make sure they don’t become penny stocks in next couple of years.
Day trading is not possible for people like me who work 8 hours a day and no access to online trading at work. I see there is lot of leverage you could do by margin trading or increasing the frequency of trades but my investment objective was to make a 10-15% on my cash savings. And all I have is lunchtime and an iPhone so average holding period for a stock was 3 weeks.
Talking about liveraging, I also have a small options trading portfolio. I will have those results published soon.
Here is the trading book to see the buy and sell trades.
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