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Monday, April 26, 2010

Monday Challenge Project Summary: April 26, 2010

Previous $500 Challenge Project Balances:

"The Three Sisters":

Investing "Sister" Balance: $828.30
Trading "Sister" Balance: $1,751.47
Interest Bearing "Sister" Balance: $400.30
Total Challenge Project Funds: $2,970.00

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.

Ok, there is a lot to discuss this Monday, in regards to the Challenge Project.

Let's start off, by talking about McDonalds (MCD), that we have thusfar gained $2.20 in dividends. As I have mentioned previously, I sold the stock off at $70.92 from the original purchase price of $58.20. I have made the comparison, that portfolio management is similar to playing chess. And when playing chess, you have to think about the move in front of you, as well as every possible variation of what that decision will accomplish. So, I have generally found that when a decision is usually a 'profitable' decision, when it accomplishes more than simply 'making money'. In other words, it opens up 'futures maneuvering on the chess board' so to speak.

First of all, we took profits, which is always a good thing right?

But allow me to explain my thought processes a bit more. This taking of profits occurred much, much more quickly than it usually does for a "investing" sister. However, the strength of this stock displayed itself immediately. As I mentioned previously in the comments section of one blog entry ... it's just the speed with which this one "manifested" itself. To tell you the truth? I've never had this happen before. Where a stock absolutely exploded in strength as quickly as this one has.

In addition, McDonalds (MCD), for as much as I believe in their strength? They don't have the history of paying quarterly dividends as does, say, Johnson & Johnson (JNJ). If this was Johnson & Johnson (JNJ), and the stock was sitting at $90.00? I'm still not sure that I would take my profits on Johnson & Johnson (JNJ). The reason? The history that Johnson & Johnson (JNJ) have behind paying quarterly dividends, as well as increasing those dividends.

For example, if you look at my Johnson & Johnson (JNJ) holdings, you will note that I have the same level of profits build into JNJ through my DRIP accumulation as I did into McDOnalds (MCD). But I have zero interest in taking profits and selling my Johnson & Johnson (JNJ) shares since I have only begun to accumulate the shares I wish to hold for this company. More on that in future blog entries.

What other good comes from selling this stock?

Cash. It frees up some cash for the 'investing sister' account. Obviously it frees up the cash that was tied in the equity of McDonalds (MCD), but it also frees up the cash that I had reserved to use to dollar cost average (D.C.A.) shares of McDonalds (MCD) down the road. Since we have a little more cash to play with, then I am going to increase the amount that I am reserving to dollar cost average more shares of Coca-Cola (KO) as well as Johnson & Johnson (JNJ).

Now, let's turn our attention to this weeks contribution, which went to the "savings sister" account.

With enough additions to the 'trading sister' account, we are nearly forced to add capital to the 'savings sister' account. In increasing the capital we add to the 'savings sister', we thus increase the 'slush fund', which can keep up as a 'side pocket' drawdown fund for the trading and investing account.

We will continue to focus on the "Trading Account" with rule no. 2 in the future.

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

Challenge Project Balances After Rule No. 2 Deposit:

Investing Account Balance: $818.83
(YTD the account is up +2.465% YTD Return is about +1.178% Yield is approximately +6.28% in dividends and additional shares of stock)
  • 5.1665 shares of KO (DRIP on for 4.1665 shares)
  • 3.1014 shares of JNJ (DRIP on)
  • Cash: $336.94
-$60.00 of this cash I reserve to D.C.A. KO
-$140.00 of this cash I reserve to D.C.A. JNJ
-This leaves $136.94 cash available
  • Additional $106.00 available from slush fund
Investing Account Balance Since Inception
(Can be Enlarged):

Stock / Futures Trading Balance: $1,751.47
( YTD cash contributions, equity and return up about 9.729 % )
  • 2% risk tolerance gives us $35.03 at risk levels
  • 3% risk tolerance gives us $52.54 at risk levels
  • Additional $106.00 available from drawdown / slush fund
Trading Account Balance Since Inception:
(Can Be Enlarged)

Savings Balance: $425.30
(YTD cash equity up about 112.5 % Return on Capital is 0 %)
  • $106.00 for a Slush fund / Drawdown Kill Switch fund
  • $213.30 for a Base Savings
  • $106.00 for Emergency Savings
Savings Account Balance Since Inception:
(Can Be Enlarged)

Total $500 Challenge Project Balance: $2,995.60

Total Challenge Account Growth 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.


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