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Monday, November 9, 2009

Monday Challenge Project Summary: November 9, 2009

Previous Challenge Project Balances:

Investing Account Balance: $659.73
Stock / Futures Trading Balance: $1,571.21
Savings Balance: $150.03
Total Challenge Project Funds: $2,380.97

The original video explanation of the Challenge Project is to be found here.

Rule No. 2 of the Challenge Project states that each month, we can divvy up $100.00 as we wish between the various challenge project accounts. Some time ago I stated that I may split up Rule No. 2, into weekly segments; or, $25.00 a week.

For this week, the $25.00 weekly deposit is being transferred to the Challenge Project SAVINGS Account.

Any time that money is sent to the savings account, then we instantly strengthen a 'base' on the Challenge Project. It's because we use the savings account for three purposes
  1. Drawdown Kill Swith Fund: 25% at this stage of the game is to be used as a slush fund, when the accounts hit their "drawdown kill switch"
  2. Base Savings: Foundation of all asset accumulation, is a set "tier" of capital
  3. Emergency Savings: 25% in this stage is to be used as an emergency fund. The unexpected happens, and you should always, always have funds set aside for that purpose.
When we consider the purpose of the drawdown kill switch fund, we see that we are actually strengthening the foundation on the two other accounts; both the investment and trading account. Simultaneously the base savings is increased, and the emergency savings is increased. In essence, a contribution to the savings account is a type of 'small addition' to all three accounts.

Look at the balances on the Investing Account below. You'll notice that the "Drawdown Kill Switch / Slush fund" is growing to a point, that nearly, almost, covers our shortfall of cash that we are reserving for Dollar Cost Averaging the dividend stocks we are holding. One deposit to the Investment Account, and we're essentially covered. This is why I was not concerned that we had a shortfall for this D.C.A. cash reserve when I purchased the McDonalds (MCD) stock. Yes, our "value at risk" is rather high at the moment. But as I mentioned, it was important to note the markets low volatility. With that low volatility I knew we had 'time' before we would be in a situation where we would need access to that cash.

Account Migration:
The next order of business? Is the migration that the Challenge Project is currently undergoing, to a sub-account at ThinkorSwim. I have the second account set up at ThinkorSwim for the Investing DRIP account. I have withdrawn all of the cash from Sharebuilder, and moved it to ThinkorSwim. Therefore, the $137.41 is now at ThinkorSwim, not Sharebuilder.

For the time being, I am leaving the stocks held at Sharebuilder there. This is only temporary, as I will be initiating an ACAT transfer soon, to move the shares that I already possess, to ThinkorSwim.

In addition, I am turning off the DRIP for the McDonalds (MCD) stock alone and will receive straight cash for the dividend. The primary reason for this, is the impending ACAT transfer. It doesn't make sense to accumulate partial shares at the moment for McDonalds; that will only need to be sold off. ACAT transfers cannot transfer partial shares. This works out well, because MCD has also seen an explosive move upwards in the price of the stock.

Here are the new balances for each of the Challenge Project, after this weeks deposit ...

Challenge Project Balances After Rule No. 2 Deposit:

Investing Account Balance: $668.67
(YTD cash and equity up about 37.5% Return is about -1.77%)
  • 4.1377 shares of KO (DRIP on)
  • 3.0546 shares of JNJ (DRIP on)
  • 2 shares of MCD (DRIP on)
  • Cash: $137.41
-$60.00 of this cash I reserve to D.C.A. KO
-$60.00 of this cash I reserve to D.C.A. JNJ
-$80.00 of this cash I reserve to D.C.A. MCD
-This leaves a -$62.59 shortfall for D.C.A. cash
  • Additional $43.00 available from slush fund
Investing Account Balance Since Inception
(Can be Enlarged):

Stock / Futures Trading Balance: $1,571.21
(YTD cash equity up about 55.0%. Return on Capital is about 2%)
  • 3% risk tolerance gives us $47.13 to risk per trade
  • Additional $43.00 available from slush fund
Trading Account Balance Since Inception:
(Can Be Enlarged)

Savings Balance: $175.30
(YTD cash equity up about 42.5%. Return on Capital is about 1.49%)
  • $43.00 for a Slush fund / Drawdown Kill Switch fund
  • $89.30 for a Base Savings
  • $43.00 for Emergency Savings
Savings Account Balance Since Inception:
(Can Be Enlarged)

You'll note that the bar graph for the Savings Account has a different appearance this week. Here's the story on that one ...

When I moved the account out of ING Direct? I then deleted that account listing in my Quicken tracking software. I wasn't thinking at the time, but that deleted the history of that account. With that history deleted? Quicken could no longer give me a graph of the account. I had to create a spreadsheet in OpenOffice, go back through all of my blog posts and note when I made deposits to the account, and create a new graph. Thus, the difference in the graphs appearance.

We'll be back to the Challenge Project, next Monday.

* * *

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 over 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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