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Monday, May 24, 2010

Monday Challenge Project Summary: May 24, 2010

Previous $500 Challenge Project Balances:

"The Three Sisters":

Investing "Sister" Balance: $819.11
Trading "Sister" Balance: $1,819.63
Interest Bearing "Sister" Balance: $425.30
Total Challenge Project Funds: $3,064.04

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. We 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.

Trading Account:
The new balances are reflected below. We are now up nearly 16%. It's still not enough, but it's quickly getting there. In fact, on the trading account, what I find most encouraging is that we are only about $56.00 away from entering the next 'phase' or 'stage' for the Challenge Projects' Trading Accounts growth.

This is why you've seen that the increasing frequency and number of trades that I have been taking. Our money management strategy states that as the account grows, via rule number two ... we can take more trades according to recent money management metrics. Soon enough, we'll have the trading account out of the 'tiny' account phase, and into the 'small' account phase.

Eventually, the account grows to a position such as that experienced in the newsletter. At that time, there will probably be many, many posts in regards the Challenge Project trades, as well as portfolio management decisions for the Challenge Project.

Investing Account:
As I mentioned in both the recent 'review video' entry, as well as in the "Week in Review" podcast, I averaged down with both Coca-Cola (KO) and Johnson and Johnson (JNJ) in the challenge project. Before the end of the year, we have ... at the very least ... $200.00 coming in to the Investing account via rule no. two to spread between cash reserves, new purchases, and reserves for dollar cost averaging. That's the bare minimum amount.

The biggest hit to the 'investing sister' at this stage in the game, is the commissions. Subscribers to my newsletter are aware of this, as this was a topic I just recently discussed. The reason being, is that since the newsletter is only a few months old, it took is still within the 'beginning stages' of constructing a "model portfolio" with a dividend investing portion. I'll repeat my comments from the newsletter ...

"The biggest hit to the dividend bearing 'investing sister' account at this stage of the game, has obviously been the commissions ($5.00 per purchase at ThinkorSwim). This is the reason you see the initial disparity when it comes to the return on equity and the cost basis for any chart that represents the dividend bearing portfolio.

However, this is a very well understood dynamic and feature of dividend investing portfolios when they are begun. The accumulation of dividends that will begin to reinvest into more shares for each stock will more than make up for this initial disparity in the long run. In short … it's understood by every dividend investor that commissions always deliver the biggest hit in the beginning before compounding really begins to take effect."

And we have, at the very least, another $200.00 in the next few months to be added to this investing "sister", to continue to build this process along. Again, do the math on dividend investing. It takes some time before the compounding begins to take effect. But intelligent "averaging purchases" must take place for that compounding to start taking effect.

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

Challenge Project Balances After Rule No. 2 Deposit:

Investing Account Balance: $786.58
(YTD the account is -1.57% YTD Return is about -2.781% Continuing Yield is approximately +6.96% in dividends and additional shares of stock)
  • 6.1998 shares of KO (DRIP on for 4.1998 shares)
  • 5.1014 shares of JNJ (DRIP on for 3.1014 shares)
  • Cash: $154.53
-$3.73 of this cash I reserve to D.C.A. KO
-$13.86 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: $1,844.63
( YTD cash contributions, equity and return up about 15.56 % )
  • 2% risk tolerance gives us $36.89 'at risk' levels
  • 3% risk tolerance gives us $55.34 '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: $3,056.51

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 14 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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