Tuesday, August 12, 2008

Trade Alert.

GMCR was sold today at $38.70 for a small profit. It had violated its stop level back on July 31st. At the time I had decided to sell it if breaks the low of that day or if it climbs back up to the 50 day moving average. It zoomed passed the fifty day moving average taking filling my limit order in the process.
Net on the trade was $100 with $0 commissions through Zecco.
I will be researching my next system trade and will be looking to enter a position soon.

Thursday, May 1, 2008

Inagural Play.

NLY gave a buy signal on my system today. Since I already own a ton of NLY I am going to pass on this signal. Three other companies gave signals recently and then followed up by strong earning reports. Green Mountain Coffee (GMCR), Capella Education (CPLA) and Oriental Education (EDU).

It looks like the education sub-sector is breaking out into a new trend. I am choosing to enter GMCR for my first position in this portfolio. I have a limit order to buy at $35. If it does not fill soon I will raise my limit price as I intend to buy into this position.

Sunday, April 27, 2008

The Portfolio Tracker

The portfolio tracker will be updated with transactions as they occur. If there are open positions they will be tracked in real-time (20 minute delay) using GoogleFinance.
This spreadsheet will automatically update with changes, there is no need to reload or for new posts to reflect updates.

The Story.


In 2006 and 2007 I got enamored with the idea of Endowment style investing, made popular by the likes of Yale and Harvard Endowments.
The basic premise is to manage risk not returns by spreading your investments across multiple asset classes with low correlation to each other. Balance infrequently, do not sell (except to draw needed money out) and add to laggards instead of winners.

I set out to setup my own Endowment style portfolio. It was not that hard as these days there are Exchange Traded Funds, Closed End Funds and plain old mutual funds that represent most of the asset classes. It was just a matter of picking which vehicle, or vehicles, to represent for each asset class and allocate some money to it. I mainly used Wisdom Tree ETFs, Rydex managed future funds, Currency Shares ETFs and Hussman's funds.

The only missing piece of the puzzle was a Hedge fund. I am at an awkward position in my financial stature. I have enough net worth to be a qualified investor, but not enough yet to invest the minimum required by most Hedge Funds and still sleep well at night. In other words, most minimums would be a substantial amount of my net worth.

One day while pondering the problem I ran into a comment on a blog that described a young hedge fund manager in the Midwest. The dude ran a small size hedge fund, was widely successful, published in magazines and had a great track record for his several years old fund.

Most importantly he had a low minimum of $20,000. After some thought I initiated conversation with him. He had just had a widely successful summer while the market was in turmoil due to the Bear Stearns Hedge Fund blowup.

We talked about strategy. I was long oil at the time, profitably, and he told me he was shorting oil. I was troubled by that but figured that 1) he has the track record, 2) our divergence on the thought process is good for overall diversification of my portfolio.

So I took the plunge and sent him my $20,000. The fund proceeded to lose 33% of its value in that single month after I invested. Damn timing. The oil trade back fired. I believe that was the biggest single monthly loss for the fund since inception. Damn Murphy's Law.

I debated whether I should take the money out or not. But I decided to keep it. I could not take it out after a single bad month. The manager promised to stick to his old successful strategies going forward. I knew if i took the money out the fund would deliver a 100% return the following month. So I left the money put.

Things went quiet for a while, with small losses and small profits. Then January of 2008 happened. Some French bank imploded due to some rogue trader. The market had its worst January ever and took a big dive. Turns out the my Hedge fund manager had decided to sell naked S&P 500 puts. The fund blew up, losing almost 60% in a month. Ouch!!!

After couple more of nondescript months, I pulled the remainder of the money out.
This blog will chronicle the journey of what is left of the money going forward.

The Setup

The money will be invested using mechanical trend following system that I developed using TradeStation. The idea is very simple, enter a position in the direction of the dominant trend. Trail with a stop. Exit the position after a firm close violating the stop. I am skipping the details of how the actual system works and the system itself is a constant work in progress. None the less, the basic idea remains the same. I have more details on my trend following system and philosophy on blog.livememories.com.

I trade a portfolio using the system and track it in real-time on blog.livememories.com. In that portfolio I take some discretion into entering positions and exiting positions, not always following the signals perfectly. That portfolio also has many positions, long and short and tends to keep a good chunk of money parked in cash and makes almost no use of margin borrowing. Though a margin account is used for shorting.
I also do not track dividends, interest and commissions on that portfolio. Finally that portfolio uses options, mostly covered calls but can also buy options and sell naked puts. The portfolio tracked here will not use options in any form.

The portfolio tracked here will aim to always be fully invested, using margin borrowing at times. It will only be invested in one position at a time, either long or short. The trades will faithfully obey my mechanical system with no discretion for exit and entry. The only discretion would be to the choice of stock or ETF to use.

I will keep track of cash, interest received, interest paid, dividend received and dividend paid out in case of shorting. The portfolio is with Zecco trading so it will mostly not pay commission. At this time Zecco offers 40 free trades a month for accounts over $2500. I do not anticipate paying commissions.

The trading will start on or after May 1st, 2008. There will be very limited postings done on this blog. I will maintain a tracker, probably using Google Docs, that shows all the transactions and the current size and state of the portfolio. Transactions will be marked in that tracker but no corresponding posts unless I have something significant to say or unless a milestone is achieved.
Most postings will remain on blog.livememories.com.

Happy Speculating.