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Sunday, November 29, 2009

Monday Challenge Project Summary: November 30, 2009

Previous $500 Challenge Project Balances:

"The Three Sisters":

Investing Account Balance: $747.59
Stock / Futures Trading Balance: $1,571.21
Savings Balance: $175.03
Total Challenge Project Funds: $2,493.83

I told you the Challenge Project wasn't really dead. :) The original video explanation of the Challenge Project that began with $500, 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, there is no weekly deposit, as this is the fifth monday of the month. We have already used rule no. two to it's full extent this month.

So let's summarize the Challenge Project here at the end of November.

Last week, I stated that there was still a lot of work to do with the "Investing Sister", of the Challenge Project. In addition, I also 'snuck' in a little comment, and mentioned something called ... VaR, or Value at Risk, and I stated that the VaR was 'till exceedingly high'. So what am I talking about? Well, let's try to break this down very simply.

Well, when traders or investors review my money management playlist, a question that I am often asked when they get to the video on "risk analysis"?

"Dan, do you mean you only risk 2% with all of your trades and investments combined? Or 2% per investment?"

I always tell them that I mean 2% per trade or per investment. In other words, if I'm looking at going long Sugar, and Long Cocoa? Then there is a 2% risk per trade for the long in Sugar, and a 2% risk for the long in Cocoa.

It's not very often that I have two trades on at the same time. I am a directional trader to some extent, and I stay pretty focused on my trades. I mean, when it comes to multiple trades? It happens. Occasionally. However, the "investing sister"? That has multiple investments by it's very nature.

Put very simply, the Value at Risk measures the total risk of an account, at any one time. It depends on the investing environment, as to how you want your VaR allocated. When times are good? It's not unusual to have a very high VaR. I remember two or three years ago, hearing financial advisers repeat the refain: "You never want to be majority cash. Only have about 8% cash available".

Funny how you don't hear that any longer eh?

This is why I made the statement last week ...

"So cash deposits will continue with the Investing account for some time, even after we have covered the reserve needed for future Dollar Cost Averaging ..."

Because I decided very early in this recession that for my own investing, that it would be good to be majority cash, even in the investing account, or about 90% cash, leaving only about 10% of assets VaR. At the current time, we have some cash in the "Investing Sister", and in essence, we also have our reserve for Dollar Cost Averaging our positions. Thus my comment "We still have a lot of work to do for the "investing sister"

And at the same time, moving forward? We will continue our contributions towards the trading account, and the interest bearing account.

Remember, the DRIP Dividend ReInvestment Plan for McDonalds is OFF

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: $743.30
(YTD cash and equity up about 53.2% Return is about 2.78%)
  • 4.1377 shares of KO (DRIP on)
  • 3.0546 shares of JNJ (DRIP on)
  • 2 shares of MCD (DRIP if now OFF)
  • Cash: $187.41
-$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 -$12.59 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:
(YTD cash equity up about 42.5%. Return on Capital is recently about 0.40%)
  • $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)

We'll be back to the Challenge Project, with a continuation of rule no. two, 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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