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Thursday, December 31, 2009

Challenge Project Summary For 2009 (TEXT and VIDEO)

"However beautiful the strategy, you should occasionally look at the results." - Winston Churchill

I thought as the trading year has now officially come to an end, I would review the low funded Challenge Project for 2009. So let's examine each of the 'three sisters' individually. On the bottom right hand side of the blog, you'll note that I have a "box" that keeps track of each of the movement made in the "three sisters" of the Challenge Project.

So let's review the movements of the Challenge Project for the last year. Then I'll be able to erase that box for 2009, and begin anew for 2010. Let's begin with the Investing Account ...

Investing Account Balance: $799.13
(YTD cash and equity up about 64.8% Return for 2009 is 3.04%)
  • 4.1665 shares of KO (DRIP on)
  • 3.0779 shares of JNJ (DRIP on)
  • 2 shares of MCD (DRIP is now OFF)
  • Cash: $238.51
-$62.00 of this cash I reserve to D.C.A. KO
-$62.00 of this cash I reserve to D.C.A. JNJ
-$82.00 of this cash I reserve to D.C.A. MCD
-This leaves $32.51 cash available
  • Additional $50.00 available from slush fund
Investing Account Balance 2009
(Can be Enlarged):

Let's begin with the worst of the bunch for the "Investing Sister". In 2008, I bought into my own personal "white whale". Bank of America (BAC). The very first purchase for the investment account rocked me. Hard. I bought in at $30.55 on June 16, 2008. I still think that the conditions, at the time, were fine. A lot of traders contantly told tell me that "Bank of America (BAC) is junk. Get away from it."

Were they right? Well, in the end, the results make it appear that way, but not for the reasons that I was constantly hearing. I had figured that any troubled assets they were holding, were worse off than what they were reporting. And even considering that, their balance sheet was still better than any other big bank out there.

Bank of America (BAC) - 2009
(Can be Enlarged):

The problem, was the vultures. Oh yeah, then came the vultures. I firmly believe what occurred, is exactly what Ken Lewis said happened. They had the cash. And the government needed institutions with cash to save garbage companies and institutions. They were strong armed into the Merrill Lynch deal, then being 'told' they would cut their dividend, and the rest is history (Someone want to tell me how it is that you do due diligence for a purchase like that over a weekend?).

Now I'm not going to bellyache over this loss, which incidentally I also experienced in my own personal accounts and was by far the worst loss of the year. Because in the end, I violated one of my own rules. I have a personal rule when it comes to investing and trading. "If it's all over the financial news, don't go near it". I violated my own rule, and I paid the price. If I'm going to be honest with myself? I think it's because I got cocky after last years "World Series Grand Slam" in my personal accounts with Anheuser-Bush / Budwieser.

Regardless of all that, I was at least able to drip in 30% of another share when I sold out of BAC, at $12.20 this year, for a loss.

It didn't bother me too much, as the money management strategy I had implemented for this project was such that it wouldn't really impact me for too long. I mean seriously, rule no. 2 completely recoups that loss in a little over a month. But yeah, it sucked, as it was the very first investment for the Challenge Project. It would have been nice to see things turn out differently.

Moving on, then there is Johnson and Johnson (JNJ) ...

Johnson & Johnson (JNJ)
(Can be Enlarged):

We have managed to "DRIP" in another 10% of another share throughout 2009; and our return on this position thusfar is 12.43%. Now only gathering 10% of one share per year is no way to build assets. But remember, this is starting a process of compounding. In addition, as the other "sisters" grow, they will assist this "investing sister" as the entire project moves forward. In fact, the newsletter subscribers have already seen this happen, since that newsletter deals with larger accounts.

Johnson and Johnson's (JNJ) balance sheet still looks wonderful. Revenues are up while operating margin is being kept low.

(Can be Enlarged):
So although I'll be concentrating on the Trading account in the coming quarter? I mean ... just look at those fundamentals. If I can garner more cash into the investing account within the next quarter for another purchase, I'll definitely be picking up as much Johnson and Johnson (JNJ) as money management principles will allow ...

Next on the list, was Coca-Cola (KO) ...

Coca-Cola (KO) - 2009
(Can be Enlarged):

We have managed to "DRIP" in another 16% of another share when it comes to Coca-Cola (KO); and our total return on this stock is 5.96%. It would have been nice to Dollar Cost Average (DCA) the position back in March, but quite honestly, we started the Challenge Project off with such a strong handicap, that there simply wasn't the funds available to do it.

And next there was McDonalds (MCD) ...

McDonalds (MCD) - Last Quarter 2009
(Can be Enlarged):

We have already received one dividend of $1.10 from MCD for the Challenge Project on 12/14/2009. No, I'm not DRIP'ing this stock, and there's a very real reason for that.

First of all, all of the stocks that are currently with Sharebuilder will actually be ACAT'd (Automatic Customer Account Transfer) over to ThinkorSwim. Any partial shares? They'll be sold off, as ACAT between firms cannot transfer partial shares. So at this point, I'll just take the cash from McDonalds (MCD) as it's had a healthy increase in the stocks value.

In addition, I don't want to lose the gains I've managed to garner in these stocks. So for Johnson and Johnson (JNJ) and Coca-Cola (KO) I'll wait until either a) I can grab an entire share for the stocks through DRIP, or b) garner more shares by dollar cost averaging (DCA'ing) the stocks if the cash is available.

To DRIP another full share of McDonalds (MCD) would take a long time. Therefore at this point, it's either a) sell MCD at $75.00 and take the profits, looking to re-enter down the road or b) just grab more shares in the new account, turn the DRIP on there, and continue to gather enough dividends from the account at Sharebuilder, until we've seen a healthy profit, and sell her off.

Finally, for the Investment Account, we have our Cash position ...

Cash Position - 2009
(Can be Enlarged):

There were a couple of hedges I took on throughout the year. An SPY Put, and a few days on the FAZ when I was a little concerned. So the overall returns could have been greater. But when the market has you worried? I'll always take a well placed hedge and smaller returns any day.

Of the cash above, much of it is reserved to further dollar cost average (D.C.A.) the stocks we already own. $62.00 is reserved to DCA Coca-Cola (KO), $62.00 is reserved to DCA Johnson and Johnson (JNJ) and $82.00 is reserved to DCA McDonalds (MCD).

Now, we can move on to the "Trading Sister" account balances.

Stock / Futures Trading Balance: $1,596.21
(YTD cash equity up about 57.5%. Return on Capital is about 2%)
  • 3% risk tolerance gives us $47.88 to risk per trade
  • Additional $50.00 available from drawdown / slush fund
Trading Account Balance 2009
(Can be Enlarged):

By concentrating on the Investing Account Sister for the last half of the year, the equity curve on the Trading Account has suffered just a bit. I look forward to correcting that in the first two quarters of 2010. Now let's move on to the "Savings Sister" account ...

Savings Balance: $200.30
(YTD cash equity up about 62.75%. Return on Capital is about 0.125%)
  • $50.00 for a Slush fund / Drawdown Kill Switch fund
  • $100.30 for a Base Savings
  • $50.00 for Emergency Savings
Savings Account Balance 2009
(Can be Enlarged):
No interest is yet being garnered on this accounts funds due to the Fed's actions. But this account? For it's tiny size? This account works like a 'corner stone' for the rest of the Challenge Project due to it's 'three-fold' purpose.

Total $500 Challenge Project Balance: $2,595.65

Total Challenge Project Balance 2009
(Can be Enlarged):

Keep in mind too, that as I mentioned in the previous entry, though the end balance is correct on the above graph, the balance before that point is skewed lower by just a bit ...

What follows, is a supplementary video that accompanies the above data when it comes to the Challenge Project ...

(Video Included. If you're seeing this entry elsewhere and cannot see the Video? Click here to view the entry ...)

* * *

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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