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Thursday, April 23, 2009

Oh Covestor, Whatever Shall I do With You?

"Do not put your faith in what statistics say until you have carefully considered what they do not say." -William W. Watt"

Those who have followed this blog know for some time know that I've had a rather tenuous relationship with Covestor.

What is Covestor? Well, let me quote Wikipedia on this one:

"Covestor is an online real-trade sharing service to enable self-directed investors to compete with professional fund managers. Launched in June 2007, and founded on the belief that successful investment strategy is not the sole province of money management firms, Covestor enables investors to share real investment decisions, gain recognition and earn fees by helping others" - Wikipedia

Basically, it works like an auditing service. Any investment decision I make? It audits that decision, and as a third party demonstrates that publicly, yes ... 'Dan is truly trading and investing his money, and that Dan isn't making this stuff up. He really does this, and truly made that trade.'

Well ... sort of. That's the theory.

Unfortunately the 'theory', and the actual execution are far removed from one another. I have three Covestor accounts at the current time, and all of them are very much removed and below my actual performance. Why? Because Covestor a) does not track cash, b) does not track DRIP deposits and accumulation on my investing accounts, c) does not track gains and losses made on Commodity Futures or Index Futures, and d) does not track gains and losses made on Futures options.

I instantly fell in love with the concept of Covestor. A third party that could demonstrate to anyone that I truly trade and invest my money. A third party that could demonstrate that I know what I'm talking about. But as those who have followed this blog for sometime know, every one of the above asset classes is very important to the way that I trade and invest my accounts.

I am slowly coming to the realization that if you only actively trade equities? Then Covestor is a wonderful auditing service. But for someone like myself? A DRIP dividend investor who also actively trades? At times, trading derivatives? Well, it really does nothing. In fact, it's hurting my actual image as an investor, and a trader.

For example, look and click on the following widget that I often include on this blog that audits my Challenge Project Trading Account:

Not too hot. Sure it's beating the market and every mutual fund out there, but that's an audit of a trading account. It should be doing much better since trading is my actual business. That's the account that I use to demonstrate to the low funded. And the low funded need to be doing much better than what that widget demonstrates.

But remember, Covestor does not track my gains and losses made with Commodity Futures, or Futures options. It does not track cash. And not a few of my last trades have been with Commodity Futures Options, and Commodity Futures contracts. Therefore, all of the results that Covestor demonstrates are completely skewed.

So what is my actual perfomance? Well, here is my account equity for the trading account as it has actually grown since the Challenge Project began:

(Click to Enlarge this Image):
That is far removed from what Covestor shows:

The following is a snapshot from my broker, showing trades were not reflected in Covestors numbers in just the last 30 days:

(Click to Enlarge this Image):

And with such a tiny account? Those numbers have a great deal to do with my actual performance.

So I've come to the difficult decision that I will no longer include Covestor widgets on this blog. If anyone wishes for me to display some proof of the trades that I discuss? I will be more than happy to provide broker snapshots as I did with the above images.

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Note: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 13 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.

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