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Monday, July 5, 2010

Monday Challenge Project Summary: July 5, 2010

Previous $500 Challenge Project Balances:

"The Three Sisters":

Investing "Sister" Balance: $768.34
Trading "Sister" Balance: $1,919.63
Interest Bearing "Sister" Balance: $450.30

Total Challenge Project Funds: $3,138.44


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 INVESTING Account.

Investing Account:
First, let's get to a bit of record-keeping.

On July 1st, Coca-Cola (KO) paid out $0.44 per share. And remember, in having our dividend stocks in two separate brokerages, we have a "split" DRIP scenario.

In other words, we had 4.1998 shares of Coca-Cola (KO) at the Sharebuilder accounts that hold the "Challenge Project" accounts, where the DRIP plan is on, and Sharebuilder allows for giving partial, or fractional shares through DRIP. So with the dividend paid there ... we now have 4.2367 shares of Coca-Cola (KO).

We have 2 shares of Coca-Cola (KO) at the ThinkorSwim account. Since ThinkorSwim allows for DRIP, but only in whole shares, and two shares of Coca-Cola (KO) do not pay enough of a dividend to give an entire whole share of Coca-Cola (KO) ... then we receive cash instead of more shares. This again bumps up our cash balance again for the ThinkorSwim account. Year to date, we've received $3.50 in cash dividends or about 0.451%; in addition to the dividends from the partial shares we've picked up.

Now that we have that bit of record-keeping caught up and out of the way, let's talk about the balances.

As I've mentioned for a few weeks, I expect a lot more pain in the stock market in the months to come. That's not a prediction. Just an expectation.

Now in my newsletter? The "Model Dividend Account" is approximately $5,000.00 (We started out with $4,000). I say that, in order to say that the newsletter Model Account is large enough to use index put options to hedge, or "insure" against downturns in the stock market when the time is right. Hedging in this manner, I've been able to mitigate much of the damage of the recent stock market downturn. Year to date, that account is only down 0.53% as opposed to the stock market, which is down 8.3% for the year. In much larger accounts, a small position in SDS as an "insurance hedge" has been able to mitigate much of the damage to an even greater extent.

But the Challenge is not a "larger" account. Not by a long shot. And as I mentioned earlier, I expect a lot more pain in the stock market in the months to come. That's not a prediction. Just an expectation. So how do we protect against downturns in the market with an account the size of Challenge Project accounts? We rely on rule number two instead of a hedge, and thus the reason for this weeks deposit to the Investing account.

Even without the ability to hedge the account, I'm more than pleased that the dividend bearing DRIP account for the Challenge Project is still beating the stock market by 6.772%.


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

Challenge Project Balances After Rule No. 2 Deposit:

Investing Account Balance: $796.72
(YTD the account is -0.3016% YTD Return is about -1.528% Continuing Yield is approximately +6.96% in dividends and additional shares of stock)
  • 6.2367 shares of KO (DRIP on for 4.2367 shares)
  • 5.13 shares of JNJ (DRIP on for 3.13 shares)
  • Cash: $181.49
-$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 $163.90 cash available
  • Additional $112.00 available from slush fund
Investing Account Balance Since Inception
(Can be Enlarged):


Stock / Futures Trading Balance: $1,919.63
( YTD cash contributions, equity and return up about 20.26 % )
  • 2% risk tolerance gives us $38.39 'at risk' levels
  • 3% risk tolerance gives us $57.58 'at risk' levels
  • Additional $112.00 available from drawdown / slush fund
Trading Account Balance Since Inception:
(Can Be Enlarged)

Savings Balance: $450.30
(YTD cash equity up about 124.8 % Return on Capital is 0 %)
  • $112.00 for a Slush fund / Drawdown Kill Switch fund
  • $226.30 for a Base Savings
  • $112.00 for Emergency Savings
Savings Account Balance Since Inception:
(Can Be Enlarged)


Total $500 Challenge Project Balance: $3,166.65

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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