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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.

Wednesday, December 30, 2009

Honesty can Save Your Life

I grew up in a quiet suburb in southeastern Michigan. Our city was not really 'attached' to the metro sprawl of Detroit, as were a lot of other cities like Pontiac, Wyandotte or Warren. On the other hand, we were not as far removed as some of the more rural areas, say, like Chelsea. We were sort of 'related' to the metro sprawl, which was related to Detroit. Therefore, although we had quick access to larger cities and could be there within minutes, we also had a few woods around us.

So as a child of suburbia in the 1980's; I did as all boys do (at least, they used to do before the days of the Playstation) and played in the woods. Also as a young boy, I naturally had a mischievous streak. Just to give you an example, I still remember to this day ... my oldest brother and I ... (I couldn't have been more than six years old) we would go out to the woods, and he would have me help him light fires. Yeah, that's right. Fires. Why? God only knows. The best reason I can come up with, is that we were young boys. That's about all the reason there was. We'd create these elaborate fire ditches, and piles of leaves, and just have fun watching a 'fire go'.

Yeah ...

So that gives you some idea of the sort of brainless things I would find to fill my time with as a youngster.

Of course as my parents watched me grow up, and as I had two older brothers, they knew that they had to try to protect us from ourselves. So while they would let us play in the woods, there were some areas they would tell us not to go near. For instance, near the street that I lived on, in one section of the 'surrounding woods' there was a really, really old barn that was falling down in on itself. That was an area that I wasn't supposed to play. They had no problem with me going to a nearby pond and catching frogs, and tadpoles and all sorts of other creatures. Mom even let me come home with a pet garter snake for a while. But they wanted to keep me safe, so they had this "mean" rule about not playing near an old decrepit barn that was falling in on itself. Go figure eh?

Did I listen? Of course not. I ignored them on more than one occasion. I remember one winter, the neighbor kids and I figured out a way to climb up on top of the roof of this barn (I'm surprised the roof didn't give way beneath us), and we piled up snow on the ground, and we'd jump off of the roof into the snow.

Ah ... how little boys decide to spend their time.

Well one day, I think I may have been 12 or 13 years old at the time, some boys from the neighborhood and I decided we would play our games throughout the woods. I can't even remember what game we were playing. I was playing with a neighbor friend Eric, his younger brother Chad, and I think that our friend Rico may have been present. Regardless, we were running through the woods away from one another. I do remember that much. And of course I'm darting around the area where I'm not supposed to be, near this old barn.

So at one point, I scamper behind that barn as fast as my little feet will carry me. And I remember stepping down, and this wooden plank flying up and nailing me. You know, as a rake would fly up and hit you if you were to step onto the concave blades? I would say this plank of wood was about two feet long and one inch thick, and it hit me right on the thigh. And the most memorable part of this? Is that it didn't move.

I had a piece of wood? Attached to my leg, from below my hip, to my knee. And it's not moving. It was like Dan was a "wood magnet".

Yeah ... you guessed it.

As I start to pull the piece of wood off of my leg, I'm starting to feel this massive, stabbing pain. Sure enough, there is a long jagged nail at the end of the piece of wood. By this time, all of my buddies are gathered around me as they hear me yell out in pain. They watch as I proceed to pry this piece of wood off of my leg, and watch the nail extricate itself with (not to gross ya out ... but ... ) pieces of meat and blood that remained attached to the nail.

So I proceed to hobble off towards home, my buddies following closely behind me, with blood all over my pants. Instead of worrying about the two and a half inch nail that had impaled itself into my leg? I'm worrying about getting caught by Mom and Dad for playing where I should not have been playing. Before we even made it out of the woods, I instantly start forming my 'plan', so that they won't find out what I was doing. Because god forbid that my parents find out the truth.

I figured out that I'd go home ... sneak in through the back door ... and head down to the basement. I'd set the washer to 'cold' to get rid of the blood stain, and wash the jeans. I'd clean out the wound, patch myself up and be as good as new.

Now as I hobble home, my buddies are helping me out as well as watching in morbid fascination as my jeans become soaked with blood. And they keep telling me ...

"Dan, you need to go to the hospital man"

Nahh! I'll be fine. I can already put a little weight on the leg. It'll heal up.

"No, Dan, you need to go to the hospital"

I remember my one friend Eric saying over and over again. "Dan, you need to go to the hospital, this is serious. You could have tetanus"

Tetanus? What's that?

"It's the rust that gets in your blood, poisons your body, and kills you. It can get to be pretty painful."

What?

"Yeah, it can kill you man."

Nahhh, I'll be fine. I think ... Maybe ...

And that conversation went on for the ten minutes it took me to get home..

I kept thinking ... I'll just go home, deceive my parents and everything will be 'ok'. And I did. I got home, and I cleaned myself up. I threw the jeans into the washer, and put a large band-aid on the leg. I got away with it. I got away with getting hurt, and no one knowing about it. I got away with playing where I shouldn't be playing. I got away with it.

But Eric's words kept on pounding through my mind. And after about a two hour conversation with myself, I decided to approach my mom and tell her what had happened.

It probably saved my life.

Because when we arrived at the doctors, and they checked me out? They quickly discovered that I still had pieces of rust around and inside the wound that I had covered up with the band-aid. Naturally, I got the tetanus shot and my entire body began to stiffen. After a few days the doctors were confident that I was 'out of the woods', pardon the pun.

Now I say all of that, to say this.

I learned early on, that honesty ... it can save your life. At our congregation last night, we were all discussing the value of honesty. A point was made in a publication, that I thought was just beautiful.

"There are few things you will ever find in life that are more valuable than a reputation as an honest, trustworthy person. And think of it - anyone can build such a reputation! It does not depend on your talent, wealth, looks, social background, or any other factor beyond your control. Nonetheless, many fail to acquire the treasure of a good reputation. It is a rarity..."

How true.

And what is rare? Is also valuable.

To be a profitable trader? You first of all must be honest with yourself. That's not to say that honesty is easy. Dishonesty and deception is a temptation to begin with, because it may seem as if there are immediate, gratifying, positive or profitable results for doing so. So it's not always easy. I'm reviewing the sub accounts so that I can have a "$500 Challenge Project Summary of 2009" entry, for release tomorrow. It'd be nice to sort of 'skew' that entire mess I had with Bank of America (BAC) somehow. The temptation to do the 'dishonest' thing is always there. But in the end? Honesty always trumps any short term gains made from dishonesty.

Especially in an industry that is rife with crooks and scammers. I watched a special yesterday on Lou Pearlman. Wow. It's incredible the hard work and lengths that people will go to, in order to dishonestly scam people out of their money!

We also live in a world, where it is increasingly common for people to think that they are living honestly, but deceitfully try to paint themselves in a more positive light than what all of the facts would truly reveal. That 'deceptive mindset' is one reason why I've tried to be very honest about how I got started in the markets, and how long my 'learning curve' actually was. And to be sure, for some time short sighted guys like Lou Pearlman and Bernard Madeoff live very, very well for a time. But dishonesty is always a losers game in the long run.

To end this entry ... as I was just discussing the $500 Challenge Project? I had mentioned some time ago that when the Challenge project savings funds transfer posted in the new "savings" account, I would post the confirmation picture. So here it is ...

Snapshots of Accounts:
(Can Be Enlarged)
The Challenge Project deposit for this week still hasn't posted, but that accounts cash will read as $238.51 with the new deposit, instead of the $213.51 that is currently showing.

* * *

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.

Tuesday, December 29, 2009

An Economic "Spin Network" (PODCAST)

"Reading is to the mind what exercise is to the body." - Joseph Addison

Ok.

So what's the "real" problem in economics?

Is it that everyone needs to be on the gold standard? Is it the fault of fiat currency? Is it interventionist policies? Is it Keynesian Central Banks and Governments? Is it the single reserve currency of the U.S. Dollar? Is it the OTC markets?

Well, I'd never say that I have the solution, or that I have found the problem. But I outline in the following podcast at least one problem that I rarely, if ever, have seen addressed ...

(Podcast Included. If you're seeing this entry elsewhere and cannot play the podcast? Click this link to go to the exact podcast entry ...)




Click here to Download this Podcast.

It is also important to note, that the concepts that I am discussing in the above podcast go beyond a simple delta variable in quantitative risk modeling. I'm talking about an actual complexity fractal (I really need to brush up on my complexity mathematics) that changes the interactions between different economies, and loops back and changes the original state.

So all of the above is to say ... that I think the complexity problem in and of itself? That's the problem! Economics is treated as "deterministic in it's ability to predict results" in some circles, and especially when determining risk. Traders are most guilty of this. And it's not deterministic. It's not.

People still use Copula Gaussian distribution's to model economic risk for pities sake! Systems as complex as economic systems, are not linear, they are not deterministic! Systems as complex an economic systems are non-linear.

* * *

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.

Monday, December 28, 2009

Monday Challenge Project Summary: December 28, 2009

Previous $500 Challenge Project Balances:

"The Three Sisters":

Investing "Sister" Balance: $773.13
Trading "Sister" Balance: $1,596.21
Interest Bearing "Sister" Balance: $200.30
Total Challenge Project Funds: $2,569.64

Introduction:
The original video explanation of the Challenge Project that began with $500, is to be found here. The Challenge Project is basically a demonstration of a model that anyone could at least follow along with on a weekly basis. It is my attempt without cost, to help out the 'little guy' when it comes to investing and trading by providing an example, a 'model' as it were ... as run by myself as a professional trader with real money, in sub-accounts that I own; following my own three sisters portfolio management system; albeit modified a bit to operate with low funds. From time to time, I provide snapshots of the broker statements.

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 INVESTING Account.

I stated in previous "$500 Challenge Project" entries, that the focus was going to begin to turn towards the trading and savings accounts. But before we closed 2009, I wanted rule No. 2 to be applied towards the investing account. Call it "one last hurray" for the investing account, before the focus turns towards the trading and savings accounts, for the first quarter of 2010.

In addition, from this point forward, each time I contribute towards the investing account, I will raise the amount that I am reserving for future dollar cost average purchases on each stock by $2.00.

This marks the last "Challenge Project Entry" for 2009. The main goal in this phase, has been increasing the account balances, the actual capital. I've said that a million times. At the time of this writing, the Investing account balance is up 67.5%, the Trading account balance is up by 57.5%, and the Savings Account is up by 62.75%. So I'd say that the "goal" was adequately accomplished. Soon enough, all of those 'annual percentage gain' numbers will reset to zero, as we enter 2010.

Here are the new balances for each of the Challenge Project ...

Challenge Project Balances After Rule No. 2 Deposit:

Investing Account Balance: $803.81
(YTD cash and equity up about 65.75% Return is 3.90%)
  • 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 Since Inception
(Can be Enlarged):


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 Since Inception:
(Can Be Enlarged)


Savings Balance: $200.30
(YTD cash equity up about 62.75%. Return on Capital is about 0.25%)
  • $50.00 for a Slush fund / Drawdown Kill Switch fund
  • $100.30 for a Base Savings
  • $50.00 for Emergency Savings
Savings Account Balance Since Inception:
(Can Be Enlarged)



Total $500 Challenge Project Balance: $2,600.32

Total Challenge Account Growth Since Inception:
(Can Be Enlarged)



We'll be back to the Challenge Project next Monday, in 2010 ...

* * *

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.

Tuesday, December 22, 2009

The "Airelon Conspiracy" (VIDEO)

"The popularity of conspiracy theories is explained by people's desire to believe that there is - some group of folks who know what they're doing" - Damon Knight

"Never blame conspiracy when blatant incompetence is just as likely an explanation" - Personal Axiom

Wow. I had that entry a week or so ago, regarding "The markets can drive you crazy ... literally". And the messages started pouring in like crazy. Pardon the pun.

I have a nephew who is functionally autistic. He is autistic, but he can operate and function in modern society.

Is there such a thing as "functionally crazy" ?

I'll talk about that, in the following vlog entry. This entry is sort of like "The Markets Can Drive You Crazy ... (Literally)" - Part II. I'm going to forewarn you though. The logical fallacies that are included within this video are so many and varied? That it just might make you a little dizzy ...

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



I mean ... seriously ...

Here's the conversation as it went:


I replied as I mentioned in the video ... and then his reply


I replied as you heard in the video. His reply ...



Now at this point? I let him know - you're a hypocrite. You mean to tell me, that you sold a system to other people for $125 a month? You took $125 from other individuals? You took in their hard earned money by their sweat and by your own admission you couldn't trade profitably!!?? You're a hypocrite!! You were selling something that you yourself couldn't do. His reply ...


Now at this point, I'm trying to work with this individual one on one. Here I am, trying to protect his identity? Trying to help him? And what does he do? Expose himself by posting a comment to my profile page!


Wow. You can't invent that sort of crazy.

I was trying to kindly keep your identity hidden ya goon! I was trying to help you privately! And this entire entry was not to sit and argue with a fool. That's not the point. It highlights my earlier entry, which is ....

The markets can drive you crazy ... literally ... if you let them.

I can understand the case to be made for just locking people up in an asylum on general principle. I'm not saying I'm condoning that line of thinking. But after receiving hundreds of messages like THAT one? I can understand it.

The problem with my "Airleon Conspiracy" though, is that it makes a bit of sense. I obviously need some practice coming up with something that's more 'whacked out'. The point, however, is that I literally, made it up on a dime. I just made up something while I was talking into a camera - with zero facts to prove it, as the thoughts came into my head. There is no proof. It's a complete and utter fabrication.

* * *

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.

Monday, December 21, 2009

Monday Challenge Project Summary: December 21, 2009

Previous $500 Challenge Project Balances:

"The Three Sisters":

Investing "Sister" Balance: $783.94
Trading "Sister" Balance: $1,596.21
Interest Bearing "Sister" Balance: $175.30
Total Challenge Project Funds: $2,555.45

Introduction:
The original video explanation of the Challenge Project that began with $500, is to be found here. The Challenge Project is basically a demonstration of a model that anyone could at least follow along with on a weekly basis. It is my attempt without cost, to help out the 'little guy' when it comes to investing and trading by providing an example, a 'model' as it were ... as run by myself as a professional trader with real money, in sub-accounts that I own; following my own three sisters portfolio management system; albeit modified a bit to operate with low funds. From time to time, I provide snapshots of the broker statements.

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.

This weeks deposit to the challenge project savings account will help us to begin firming up our foundation for both the challenge investing and challenge trading accounts. However, since we've done a lot of maintenance with the investing account, the account that will truly benefit by attention to the savings account, will be the trading "sister" account.

As it currently stands, one loss in the challenge trading account hits the "draw-down kill switch", and the account needs to stop trading. So as we've done a lot of work to show some "love" to the investing account over recent months, that now we can begin to focus on the trading and the savings accounts. Because any increase to the "Challenge Savings Sister" account automatically firms up that account, and the "reserve" for the challenge trading account.

Switching gears here for just a bit, I also seemed to have forgotten to mention that not only was a dividend paid on the McDonalds (MCD) stock last week, but I also received a DRIP purchase for the Coca-Cola (KO) stock. Here is a picture of the confirmation ...

(Click to enlarge)

So this means we've accumulated over 16% of another share of Coca-Cola (KO) stock since the time of the purchase, by engaging in DRIP.

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: $775.07
(YTD cash and equity up about 59.35% Return is 3.22%)
  • 4.1665 shares of KO (DRIP on)
  • 3.0779 shares of JNJ (DRIP on)
  • 2 shares of MCD (DRIP if now OFF)
  • Cash: $213.51
-$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 $13.51 cash available
  • Additional $50.00 available from slush fund
Investing Account Balance Since Inception
(Can be Enlarged):


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 slush fund
Trading Account Balance Since Inception:
(Can Be Enlarged)


Savings Balance: $200.30
(YTD cash equity up about 62.75%. Return on Capital is about 0.25%)
  • $50.00 for a Slush fund / Drawdown Kill Switch fund
  • $100.30 for a Base Savings
  • $50.00 for Emergency Savings
Savings Account Balance Since Inception:
(Can Be Enlarged)



Total $500 Challenge Project Balance: $2,573.58

Total Challenge Account Growth Since Inception:
(Can Be Enlarged)



The above chart of the total challenge project funds is just a bit off, although it is accurate. Does that sound contradictory?

Allow me to explain ...

When I moved the Slush / Emergency Fund Account around a month or so ago, the old account was deleted out of my tracking software; Quicken. The tracking software is what generates most of the above graphs. I could no longer include that account into my graphs, since I deleted the account from Quicken. Therefore, since that account in Quicken was deleted, any graphs that are created do not reflect the Slush / Emergency Fund as it existed in previous months.

I have recreated the slush / emergency fund as an account in Quicken when I moved the account over to ThinkorSwim. Therefore, the above chart is showing a large "spike" up in the last month, on the last bar. This is simply due to Quicken now tracking all $200.30, into one month; from that move ... instead of the "gradual build" that the slush / emergency account has experienced. After those funds post up, then I will be displaying another "snapshot" of broker confirmations ...

I just thought I should explain, if you were curious about that last bar on the "Total Challenge Project Funds" graph. 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.

Saturday, December 19, 2009

Week in Review: I Hate "V" Bottoms (PODCAST)

"When someone cries "fire" in a crowded theater, a contrarian is the person who first checks to see if there really is a fire before rushing to the door" - Anonymous

Welcome to the Week in Review!

A "V" bottom is a bottom in the market, where the market dips down, and then rises without ever looking back. And I hate them. I talk about that, in the following "Week In Review" Podcast ...

(Podcast Included. If you're seeing this entry elsewhere and cannot play the podcast? Click this link to go to the exact podcast entry ...)




Click here to Download this Podcast.

On Monday we'll talk about the $500 Challenge Project.

You may have noticed some of my "story like" blog entries over at the Davian Letter. Well, I'm going to have an entry like that here at my daily blog next week. It has to do with the incident my life, where honesty? It literally saved my life. I'm convinced that I would be dead if it weren't for my decision, to be honest about something I had done.

* * *

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.

Friday, December 18, 2009

Friday Trade Review for December 18th, 2009 (VIDEO)

"In business, words are words; explanations are explanations, promises are promises, but only performance is reality." - Harold S. Geneen

Here it is ... my very first "Friday Trade Review" video, that will review my trading for the last week, based off of comments in last weeks "Airelon's Market Tactics" ...

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



I promise to try to make future "Friday Trade Review" videos much shorter ...

* * *

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.

Wednesday, December 16, 2009

Fear and Loathing in Economics ... (VIDEO)

"Anyone can hold the helm when the sea is calm." - Publilius Syrus

This is an exact quote from an article I read yesterday ...

"I am so terrified of what's coming"

I have a lot to say on that topic, because over the years I have come to find out that fear in and of itself ... can kill you. As well I mention a new feature on the way for this blog ...

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



I find it so interesting that in times of economic distress? Everyone with a degree in any field is suddenly an expert in economics. It's gotten beyond ridiculous.

* * *

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.

Tuesday, December 15, 2009

Closing up Trading for the Year of 2009

$500 Challenge Project Accounts:

The Three "Sisters":

Investing "Sister" Balance: $783.94
Trading "Sister" Balance: $1,596.21
Interest Bearing "Sister" Balance: $175.30
Total Challenge Project Funds: $2,555.45

First of all, a quick note for the Challenge Project ... another dividend was received on the 15th, this time by the McDonalds (MCD) stock. Since the Dividend ReInvestment Plan was turned off for the Challenge Project for McDonalds (MCD), then another $1.10 cash was added to the Investing account share basis; bringing the total cash in the Challenge Project Investing Account to $213.51, most of which is reserved for dollar cost averaging the dividend stocks are already held.

In addition, like many professional traders ... I'm closing up shop for 2009.

The markets are getting 'thin', and will only become more 'thin' until the end of the year. In other words, a lack of liquidity tends to cause them to behave erratically. I said it elsewhere ... 2009 is drawing to a close. Many professional traders begin to 'close up shop' until the next trading year begins. They become very 'hesitant' to damage any of the gains that they've experienced during the previous 12 months. And that's not unreasonable. After all, this is a business where one dumb decision can undo a lot of great work.

Monday was a really messy day for me. Not horrendous. Just ... messy. I made one mistake that could have cost me dearly. Thankfully, I squeaked out of it. I'll have a video on that later on this week. Actually, I'll have quite a few videos in the future that deal with trading the markets. More "charting" videos. But more on that later.

So I'm going to try to enjoy the time off. With the markets behaving erratically, I'm going to join the increasing ranks of traders who start to 'close up shop' for the year. Right now it is as if all traders and investors are playing a game of "last one out of the markets, close the door behind you ..."

I've been working on getting back into shape. I used to run three kilometers three times a week. I barely put in two yesterday. I'll see if I can ramp it up to three by January ...

* * *

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.

Monday, December 14, 2009

Monday Challenge Project Summary: December 14, 2009

Previous $500 Challenge Project Balances:

"The Three Sisters":

Investing "Sister" Balance: $751.26
Trading "Sister" Balance: $1,596.21
Interest Bearing "Sister" Balance: $175.30
Total Challenge Project Funds: $2,522.77

Introduction:
The original video explanation of the Challenge Project that began with $500, is to be found here. The Challenge Project is basically a demonstration of a model that anyone could at least follow along with on a weekly basis. It is my attempt without cost, to help out the 'little guy' when it comes to investing and trading by providing an example, a 'model' as it were ... as run by myself as a professional trader with real money, in sub-accounts that I own; following my own three sisters portfolio management system; albeit modified a bit to operate with low funds. From time to time, I provide snapshots of the broker statements.

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 INVESTING Account.

Aha! We've covered the shortfall for the cash needed to Dollar Cost Average (D.C.A.) all open dividend positions. If you note the balances below, we have $12.41 left over. So basically ... we have some breathing room. While we are on the topic of "The Investing Sister" account, the next "tasks" to perform is to build up the cash for a new purchase, while simultaneously building up the "reserve balances" for dollar cost averaging. In other words, instead of having $60.00 to reserve our position in Coca-Cola (KO)? Get the Challenge Project to a position where it has $118 to dollar cost (D.C.A.) our position in Coca-Cola (KO).

But the main story with the Investing "sister" account? Is that we have breathing room, and flexibility for any eventuality.

So now, moving forward? No we can begin to focus on the Trading account once again. This also means focusing on the "savings sister" since any increase on the savings accounts simultaneously strengthens our ability to have multiple trades before we run the risk of the "drawdown kill-switch" being hit.

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: $779.91
(YTD cash and equity up about 60.58% Return is 4.64%)
  • 4.1377 shares of KO (DRIP on)
  • 3.0779 shares of JNJ (DRIP on)
  • 2 shares of MCD (DRIP if now OFF)
  • Cash: $212.41
-$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 $12.41 cash available
  • Additional $43.00 available from slush fund
Investing Account Balance Since Inception
(Can be Enlarged):


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 $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%)
  • $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 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.

Saturday, December 12, 2009

Week in Review: Volatility Relationships (PODCAST)

"The reality is we're all looking at the price per gallon of gasoline and heating oil, and even cord wood, and we're seeing prices that are volatile, and I don't think anybody can accurately predict what we'll be paying for these commodities in two weeks, let alone two months." - Martin Murray

Welcome to the Week in Review!

Not only is it important to look at the relationships between markets? But it's also key to look at the volatility of those inter-market relationships ...

(Podcast Included. If you're seeing this entry elsewhere and cannot play the podcast? Click this link to go to the exact podcast entry ...)



Click here to Download this Podcast.

* * *

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.

Thursday, December 10, 2009

Compounding is Chugging Right Along ...

"Learn to use ten minutes intelligently. It will pay you huge dividends." - William A. Irwin

$500 Challenge Project Accounts:

The Three "Sisters":

Investing "Sister" Balance: $751.26
Trading "Sister" Balance: $1,596.21
Interest Bearing "Sister" Balance: $175.30
Total Challenge Project Funds: $2,522.77

First of all, I just wanted to send out a note that now, "Airelon's Market Tactics" #1, #2, and #3 are all free over at the Davian Letter to puruse to see what you would enjoy. I tell you what, this last week? #5? I knocked em' out of the PARK! Sorry, but I saw this drop in Oil coming from a mile away. Those sort of trades are beautiful.

What I wanted to say originally though, was just a small note for the Challenge Project here ... a dividend was paid on Johnson & Johnson (JNJ) on 12/8/2009 in the Challenge Project sub-account. The Dividend Reinvestment Plan was engaged for this stock, therefore instead of cash, more partial shares of the stock were gathered, 0.0233 more shares to be exact.


Confirmation Snapshot:
(Can Be Enlarged)


Basically, since I originally purchased Johnson & Johnson (JNJ) for the Challenge Project, we've gained about 1/10th of a share, added to the size of the position. In my own personal view and opinion? For free. The beauty of compounding is just beginning ...

* * *

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.

Tuesday, December 8, 2009

The Markets can Drive you Crazy (Literally) ... (VIDEO)

"You cannot survive without that intangible quality we call heart. The mark of a top player is not how much he wins when he is winning but how he handles his losses. If you win for thirty days in a row, that makes no difference if on the thirty-first you have a bad night, go crazy, and throw it all away." - Bobby Baldwin

Trading the capital markets, and providing liquidity to the economic flow? Many people compare this, to playing poker.

Because if you let it ... the markets? They can drive you crazy ...

Literally ...

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



I hope this also illustrates, that if you are low funded? Why it is so important to add funds to your accounts at regular intervals ...

* * *

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.

Monday, December 7, 2009

Monday Challenge Project Summary: December 7, 2009

Previous $500 Challenge Project Balances:

"The Three Sisters":

Investing "Sister" Balance: $747.36

Trading "Sister" Balance: $1,571.21
Interest Bearing "Sister" Balance: $175.30
Total Challenge Project Funds: $2,493.87

Introduction:
The original video explanation of the Challenge Project that began with $500, is to be found here. The Challenge Project is basically a demonstration of a model that anyone could at least follow along with on a weekly basis. It is my attempt without cost, to help out the 'little guy' when it comes to investing and trading by providing an example, a 'model' as it were ... as run by myself as a professional trader with real money, in sub-accounts that I own; following my own three sisters portfolio management system; albeit modified a bit to operate with low funds. From time to time, I provide snapshots of the broker statements.

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 TRADING Account.

I told you I hadn't forgotten about the trading account ...

Now ... the question may arise ... when are we going to have another trade in the trading account? Soon. But there's still some more work to do. Take a look over the balances below. Do you see where the Trading Account needs a little help?

...

Personally, I think the "drawdown kill-switch" fund could use some more love. Because as it stands, the trading account could probably only experience one loss, before that "trigger" is hit. So we'll also be spreading rule no. 2 over to the savings "sister" in the future. The end goal for the next phase of the game ... would be to create a "kill switch" of three losing trades in a row.

What is an average loss? Well, the Challenge Project thus far has had an average loss of approximately $66.00. Therefore, it would be reasonable, to have the "drawdown kill-switch" fund built to approximately $200.00. This will require that we begin to build the "Savings Sister" up to about $800.00. That would give us a "drawdown kill-switch" amount of about $200.00.

Now I'm not saying that we won't have a trade for twenty five weeks (that's how long it would take to build up the "savings" sister to $800). What this does tell us however, that in the future, the savings "sister" will need a lot more love, to allow us to trade more actively. We could have a trade right now. But with one loss, the kill-switch would be hit, and we would need to either stop trading, and allow rule no. 2 to recoup the loss and additional funds for account growth? Or we'd have to drain the kill-switch fund.

Therefore, as we build up the savings account in the future, it will allow us to trade more and more actively, once the trading account reaches a reasonable balance.

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: $745.06
(YTD cash and equity up about 53.58% Return is 3.10%)
  • 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: $1,596.21
(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 $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%)
  • $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)


In addition, with all of the shiesters that are drawn to this business, I think it is important from time to time, to include snapshots of the broker account balances; in order to demonstrate to readers that this isn't "make believe". Dan trades real money ...

Snapshots of Accounts:
(Can Be Enlarged)


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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