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Thursday, July 29, 2010

DTE Energy (DTE)

Those who are long time blog readers know that I've been long DTE Energy (DTE) for some time now (soon would be two and half years) in my own personal dividend accounts. With some smart averaging down with this stock and through DRIP, I've built myself up a nice sizeable, profitable position.

As I'm very much about talking about my exits, as well as my entrances ... I wanted to put a brief note out that I'll be looking at selling off all of this stock in the near future.

The reasons are not that I feel anything is wrong with the company. In fact ... in the next two weeks, the reasons will become more clear.

Suffice to say at this point? I've built up some great profits, and I'm going to grab them.

* * *

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.

Wednesday, July 28, 2010

Airelon's Trading Methodology (Series): Everything Must Agree (VIDEO)

"There will always, always, always be another trade ..." - Personal Axiom

I'm asked all of the time: "How do you trade?". And when asked, I freely share exactly how I trade. I've had videos here on the daily blog that reviews my own trades throughout the week, and discusses exactly how I trade. But the question will usually come up again and again.

I have discovered that it's best to put together "playlist series" that discuss topics that I receive inquires on a frequent basis.

So here I've begun a new playlist, or series, that discusses my own trading style and methodology. We've discussed a bit regarding the 'psychology' behind my trading methodology and money management, as well as how I approach trading each week, but looking to my edge first, and how I construct that edge.

Today, I want to talk a little bit about the different aspects of the edge and how they each relate to each other ...

(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 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.

A Brief Note ...

I know a few from Pittsburg and Pennsylvania were planning on meeting me in Akron on August 6th. Due to unforeseen events, I will * NOT * be in Akron from August 6th to 8th. I don't want anyone making the trip out that far to see me, only to find that I'm not there ...

Expect another blog update today regarding the continuing series that I began on my personal trading methodology.

That is ... if we don't have another tornado rip through here ... (The weather channel is predicting a 30% chance of, not a storm, but a tornado)

Tuesday, July 27, 2010

Did You Notice the Comments ...

... in yesterday's "Challenge Project" entry?

That's right ... there is a surprise on the way. I wanted to drop a brief note here ... juuusst in case you happened to miss it within yesterdays text entry. And as I mentioned in that entry, the more I plan for this "surprise"? The more excited I get about it.

And no ... I'm still not going to 'spill the beans' regarding this surprise. You'll just have to wait. It won't be too much longer though.

Suffice to say ... it's like I have always told folks: "Try to always put yourself in a win-win scenario"

Monday, July 26, 2010

Monday Challenge Project Summary: July 26, 2010

Previous $500 Challenge Project Balances:

"The Three Sisters":

Investing "Sister" Balance: $813.04
Trading "Sister" Balance: $1,944.63
Interest Bearing "Sister" Balance: $475.30

Total Challenge Project Funds: $3,232.97


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.

We're progressing to the $2,000.00 level of equity for the trading account. We have a bit more tweeking to do for the investing 'sister' as well, and continual tweeking to do for the sidepocket fund.

At this point, Rule No. 2 has been demonstrating and imparting the lessons of 'patience', and 'foundation building' for those that want to get started, but they don't have a lot of money. That lesson is almost complete, as the "foundation" of the Challenge Project, comes to a close, and we begin the next phase of building upon a "small account".

That being said, I also want to take this opportunity to say ... you'll see a bit of a 'surprise' for the Challenge Project shortly. I've said that a couple of times in the past, but this 'surprise' is on it's way. That's all I'm going to say for now ... so don't ask. :)

Suffice to say, and I'll leave you with this ... I'm getting more and more excited, the more I plan for 'it'. In fact, I was planning on waiting 6 months before I implement this 'surprise'. But the more that I plan for it the more I'm thinking I may scoot it up a bit, and make it much sooner.

Just stay tuned ...


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

Challenge Project Balances After Rule No. 2 Deposit:

Investing Account Balance: $818.59
(YTD the account is +2.435% YTD Return is about +1.175% Continuing Yield is approximately +6.96% in cash dividends and additional shares of stock)
  • 6.2367 shares of KO (DRIP on for 4.2367 shares)
  • 5.13 shares of JNJ (DRIP is OFF)
  • 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 $118.00 available from slush fund
Investing Account Balance Since Inception
(Can be Enlarged):


Stock / Futures Trading Balance: $1,969.63
( YTD cash contributions, equity and return up about 23.39 % )
  • 2% risk tolerance gives us $39.39 'at risk' levels
  • 3% risk tolerance gives us $59.03 'at risk' levels
  • Additional $118.00 available from drawdown / slush fund
Trading Account Balance Since Inception:
(Can Be Enlarged)

Savings Balance: $475.30
(YTD cash equity up about 137.3 % Return on Capital is 0 %)
  • $118.00 for a Slush fund / Drawdown Kill Switch fund
  • $239.30 for a Base Savings
  • $118.00 for Emergency Savings
Savings Account Balance Since Inception:
(Can Be Enlarged)


Total $500 Challenge Project Balance: $3,263.52

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.

Saturday, July 24, 2010

Week in Review: One Profit Does Not a Thesis Prove (PODCAST)

"Leave the Prediction to God" - Personal Axiom

Welcome to the Week in Week in Review podcast!

It was a profitable week. But I don't really feel that I can claim a "victory" in the market I was trading. Why? I discuss that in the following podcast, as I review all of the capital markets ...

(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.

And by the way? A big thank you to everyone for making this the number one "trading" podcast at Podbean ...

* * *

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.

Thursday, July 22, 2010

Johnson & Johnson (JNJ) Hedge

With the news lately of the lawsuits surrounding Johnson & Johnson (JNJ) products? I'm doing a couple of things to protect myself. I wrote some of this in an issue of "Airelon's Market Tactics", but as this impacts the challenge project, I will mention them here; albeit a bit modified.

This recent slide in Johnson & Johnson (JNJ) stock began with some complaints at a plant regarding “smudge and dirt” (I'm not kidding) around a piece of equipment at one of their plants. While that does not sound serious, in a “clean” environment ... it can be. The news quickly slid into discussions of 'deaths, but deaths that cannot be linked to Johnson & Johnson products'. I'm always in risk control mode. And all I know is that we've gone from a discussion of smudge and dirt in a clean room, to a discussion of death.

I really wouldn't care to be left holding a sizable position in Johnson & Johnson (JNJ) while the image of a dead child is paraded across the television set for the entire nation. No matter how unrelated to product, it's still being discussed in the same sentence in the press. And in today's world, image and perception is enough to convict.

Now in order to place my next comments in context, it may be wise to review a “Week in Review” podcast that I published some time ago … when I had a subscriber of the daily blog ask me what “I” would do, if I were a long term BP Investor. In that podcast, I described an option strategy for BP investors that could have saved them a bundle (Those 30 puts, after this bounce we've experienced in BP? Are still worth 2.91 up from 0.25). I'm going to lay out something similar here for Johnson & Johnson (JNJ).

Now the first part of the strategy, for larger accounts, I've already accomplished. I'm not talking about “Airelon's Market Tactics” now, but larger accounts. I'm turning off the DRIP. The dividend probably won't be paid until September 8th, but it's something that I need to do. I also bought a little more Johnson & Johnson (JNJ) at these levels on larger accounts. I am after all ... a dividend investor and we don't know what the future will bring. We could get a serious bounce at these levels. Johnson & Johnson (JNJ) after all, has been sitting on a mountain of cash and could weather this storm easily.

But I'm not stupid. As I said, we don't know what the future will hold, so I'll also be looking to hedge this position with put options. What is my 'breach' level? At first I thought I'd start buying these options at $56.00 but at this point, I'm going to go ahead and start buying them at a break below the region of support around $57.00.

Johnson & Johnson
(Weekly Chart)

Which option? The October 50 Puts, which as of right now, are going for about 0.48, or $48.00. How many? I'll purchase 2.5% of the existing Johnson & Johnson (JNJ) position in put options.

Again, these comments are in regards larger accounts.

What about the Challenge Project? First … again, the DRIP is off. That's just for starters and housekeeping.

Next, look at the exposure. $293.95 worth of Johnson & Johnson (JNJ). To put this in context … Johnson & Johnson (JNJ) could be wiped off the face of the planet tomorrow, and we're only talking about a trip to the store for groceries.

That goes back to my comments a few months ago regarding 'weighting' my sisters according to the economic environment we find ourselves in.

Regardless, the DRIP is off. The position itself is so small, that I cannot see buying a hedge to protect such a tiny position. But I may consider seriously beefing up the 'investing sister' account in the future, either through rule no. two, or some other measure. Stay tuned for details on that route.

* * *

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.

Wednesday, July 21, 2010

Airelon's Trading Methodology (Series): Constructing My Edge (VIDEO)

"Excellence is in the details. Give attention to the details and excellence will come." - Perry Paxton

I'm asked all of the time: "How do you trade?". And when asked, I freely share exactly how I trade. I've had videos here on the daily blog that reviews my own trades throughout the week, and discusses exactly how I trade. But the question will usually come up again and again.

I have discovered that it's best to put together "playlist series" that discuss topics that I receive inquires on a frequent basis.

So here I've begun a new playlist, or series, that discusses my own trading style and methodology. We've discussed a bit regarding the 'psychology' behind my trading methodology and money management, as well as how I approach trading each week, but looking to my edge first.

Today, I want to talk a little bit about how I construct that edge ...

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



Here's the link to the entry that I discuss my platform setup in ThinkorSwim ...

* * *

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.

Tuesday, July 20, 2010

Public Challenge Project Broker Statements ...

Each Monday I have a "Challenge Project" entry.

In the "introduction" on these entries, I pretty much say the same thing ...

"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."

And that link takes you to some snapshots I took some time ago of my broker platform, showing the balances. I do this, because I warn ones all of the time ... this industry (especially financial bloggers) is filled with crooks, cheats and liars. While I obviously keep my own accounts private ... I have decided to make public this "Challenge Project" that I began some time ago. To demonstrate a) what I'm doing here is real, and b) the principles that I discuss work in the real world.

The problem, is that the link in each weeks 'Challenge Project Introduction' takes you to snapshots I took off my broker platform some time ago. December 7th, 2009 to be exact. So I've decided to have a little entry with updated images from the broker platforms, that reflect the balances I mention on Mondays entries ...

Investing Sharebuilder Account Balance
(Can be Enlarged):

I also have a "ThinkorSwim" Investing Account that has averaged down positions of both Coca-Cola (KO) and Johnson & Johnson (JNJ). This allows for "partial DRIP" scenario that I have discussed in past entries.

Investing ThinkorSwim Account Balance
(Can be Enlarged):


Trading ThinkorSwim Account Balance
(Can be Enlarged):


SidePocket ThinkorSwim Account Balance
(Can be Enlarged):

Keep your eyes on those balances. Because by the time the Challenge Project is complete, the combined total will read in excess of $100,000.00.

I'll try to continue tomorrow with the new playlist series I am creating regarding my own personal trading methodology. We're having new siding put on the house, and the guys are banging like crazy on all of the exterior walls putting it up. Which doesn't exactly make a great environment to create a video ...

* * *

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.

Monday, July 19, 2010

Monday Challenge Project Summary: July 19, 2010

Previous $500 Challenge Project Balances:

"The Three Sisters":

Investing "Sister" Balance: $818.86
Trading "Sister" Balance: $1,944.63
Interest Bearing "Sister" Balance: $450.30

Total Challenge Project Funds: $3,213.79


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 SAVING Account.

From time to time, as a buttress of support to both the investing and trading accounts simultaneously; I'll be making deposits to the savings 'sister' account.

The value of a savings account is not simply interest earned. I have the cash in a place that's not earning interest (at the moment, that can and will change). The value of savings ... is that it's savings.

Seriously ... it is a buttress, or support, and in effect, a type of "tier capital" in times of drawdown. I could use that 'sidepocket' immediately, and pop up the trading account to $2,062; or the dividend investing account up to over $900.

But there's no reason to at the moment. Rule number two has our trading account growing at a good clip, and I can use it towards the investing account should we begin to experience significant drawdown.

But should that situation develop in the future, then I want the savings 'sister' account in good shape, and ready to go.


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

Challenge Project Balances After Rule No. 2 Deposit:

Investing Account Balance: $813.04
(YTD the account is +2.469% YTD Return is about +1.209% Continuing Yield is approximately +6.96% in cash 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 $118.00 available from slush fund
Investing Account Balance Since Inception
(Can be Enlarged):


Stock / Futures Trading Balance: $1,944.63
( YTD cash contributions, equity and return up about 21.83 % )
  • 2% risk tolerance gives us $38.89 'at risk' levels
  • 3% risk tolerance gives us $58.33 'at risk' levels
  • Additional $118.00 available from drawdown / slush fund
Trading Account Balance Since Inception:
(Can Be Enlarged)

Savings Balance: $475.30
(YTD cash equity up about 137.3 % Return on Capital is 0 %)
  • $118.00 for a Slush fund / Drawdown Kill Switch fund
  • $239.30 for a Base Savings
  • $118.00 for Emergency Savings
Savings Account Balance Since Inception:
(Can Be Enlarged)


Total $500 Challenge Project Balance: $3,232.97

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.

Sunday, July 18, 2010

Week in Review: Anyone can Hedge. Anyone. (PODCAST)

"So, in a way I was hedging and saying that if the Olympic stuff doesn't work out at least I can be a lawyer." - Frank Shorter

Welcome to the Week in Week in Review podcast!

Yes, it's a little late (which I'll explain), but here it is ... my personal weekly review of the capital markets. I discuss the equities market, some currencies, the commodities markets, a brief stint on the bond market, and even the housing market. All with the theme ... Anyone can hedge ...

(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 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 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.

Friday, July 16, 2010

Airelon's Trading Methodology (Series): I Look to My Edge (VIDEO)

"The seasonality factor continues to play a big part in this market" - Joe Sunderman

I'm asked all of the time: "How do you trade?". And when asked, I freely share exactly how I trade. I've had videos here on the daily blog that reviews my own trades throughout the week, and discusses exactly how I trade. But the question will usually come up again and again.

I have discovered that it's best to put together "playlist series" that discuss topics that I receive inquires on a frequent basis.

So here I've begun a new playlist, or series, that discusses my own trading style and methodology. We've discussed a bit regarding the 'psychology' behind my trading methodology and money management.

Now let's begin to discuss how I approach trading each and every week ...

(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 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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Thursday, July 15, 2010

Airelon's Trading Methodology (Series): Overleverage and Shredding into Swing Trading (VIDEO)

"When you combine ignorance and leverage, you get some pretty interesting results." - Warren Buffett

I'm asked all of the time: "How do you trade?". And when asked, I freely share exactly how I trade. I've had videos here on the daily blog that reviews my own trades throughout the week, and discusses exactly how I trade. But the question will usually come up again and again.

I have discovered that it's best to put together "playlist series" that discuss topics that I receive inquires on a frequent basis.

So here I've begun a new playlist, or series, that discusses my own trading style and methodology. We've discussed a bit regarding the 'psychology' behind my trading methodology and money management.

In this entry, we're going to finish up some thoughts from the last entry, as well as talk about how I graduate an account from day trading, to swing trading

(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 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.


Share

Monday, July 12, 2010

Monday Challenge Project Summary: July 12, 2010

Previous $500 Challenge Project Balances:

"The Three Sisters":

Investing "Sister" Balance: $796.72
Trading "Sister" Balance: $1,919.63
Interest Bearing "Sister" Balance: $450.30

Total Challenge Project Funds: $3,166.65


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.

Investing Account:
As I discussed last week, unfortunately the Challenge Project is still so small, that we can't really purchase a whole lot in the way of hedges. But we can use rule no. two, which we did last week, right as the market started to rally. Beautiful timing.

Trading
Account:
This week, we're bumping up the trading account. Obviously, the next "capital" level we need to cross is that $2,000.00 region. We cross that and get closer to $3,000.00; you'll be seeing more trades occur within the Challenge Project trading account ...


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

Challenge Project Balances After Rule No. 2 Deposit:

Investing Account Balance: $818.86
(YTD the account is +2.469% YTD Return is about +1.209% 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: $1,944.63
( YTD cash contributions, equity and return up about 21.83 % )
  • 2% risk tolerance gives us $38.89 'at risk' levels
  • 3% risk tolerance gives us $58.33 '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: $3,213.79

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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Sunday, July 11, 2010

The "Three Sisters"

"The general who advances without coveting fame and retreats without fearing disgrace, whose only thought is to protect his country and do good service for his sovereign, is the jewel of the kingdom" - Sun Tzu, The Art of War"

I have related on many occasions, that in 2003 I began to develop my own personal "three sisters" portfolio management system.

What is the "three sisters"?

The “three sisters” is my portfolio strategy that can provide fantastic returns through trading, cash flow through investing, and a firm foundation to the other two accounts through savings. It allows for the accumulation of assets on three diversified fronts. I keep these “sisters” as separate accounts. When one of the “sisters” or accounts is having a hard time, then one of the other 'sisters' who is having a better time 'helps out' the other sister. There is the added bonus, that each “sister” or account, tends to give the other accounts “boosts” during good times. So let's move on, and discuss the first 'sister'.

The Trading “Sister”
"A ship is safe in harbor, but that's not what ships are for." - William Shedd

Of course, the "sexiest" of the three sisters? Is that of trading. Trading promises the possibility for fantastic returns, along with associated risk. Trading, is what any “market junkie” loves about the market. Pouring over charts, and planning plays. Entering trades and hoping for big profits.

Of course, there can be periods of drawdown. Drawdown is a losing trade or period of losing trades; and it is a fact and reality of life in trading. All too often, market educators fail to mention the inevitability of drawdown. Which is why you'll generally only hear the honest, and real traders will talk about their mistakes, and bad trades. So of the “three sisters”, this is one is by far, the most demanding. One mistake? And this 'sister' will take you to the cleaners. Since developing this strategy, I have had years where I enjoyed 356% returns (definitely my best to date). I have had years where I enjoyed 30% returns. One year however … it was 2003. Well, I have talked publicly about 2003. I ended the year down, -3.57% for the year. All of that good work I had built up over the course of months? Gone, because of one mistake.

I learned my lesson. I have never repeated that mistake. But at the same time, I was looking at a lot of hard trading work down the drain. You can't eat off of -3.57%.

Enter, the second sister. Investing.


The “Investing” Sister
"The Most Powerful Force in the Universe is compound interest." - Albert Einstein, attributed

I have talked for years, ad naseum that investing is not trading, and trading is not investing. So again, I will spare you that speech. I am aware that there are those who do not like the concept of investing. I'm not here to debate the pro's and con's of investing versus trading. That's an argument as old as fundamental analysis verses technical analysis. It is interesting to note however, that many accomplished traders use both fundamental and technical analysis. So to, rather than argue against a method of involvement with the capital markets? I do both. I trade, and I invest. Investing is simply another method I use to generate cash flow, and accumulate assets at low prices. And let's face it, the only thing that matters in the end, is performance.

However, since investing is much different than trading, it is important to note that I keep my investing accounts, separate from my trading accounts.

Investing is the second "sister" as it were, in the three sisters methodology. As an investor, I have also talked about the fact that I am a dividend investor. The root philosophy and the kernel behind my approach, was the “Dogs of the Dow” methodology using mid cap and large cap stocks. Again, I have talked at length about the strengths and weakness of this approach, and you can find those posted discussions for free. So I will not spend time here explaining or arguing for that approach.

But since I am a dividend investor? This allows for the freedom of receiving cash from dividends. Yields as high as 5% annual. Try getting that yield from a savings account, or even a Certificate of Deposit (CD) at the moment. Reinvesting the dividends if I so choose, thereby compounding the return on a single purchase of the stock itself. Over time, this can really, really add up. You in essence, receive more shares of the stock, for free

Reinvesting the dividends is done through brokers that engage in the DRIP or Dividend ReInvestment Plan. And when an investor engages in “DRIP” or the reinvestment of their dividends, they begin to unlock the power of compounding. At any time, DRIP can be turned off, and an investor can begin to receive straight cash dividends off of the assets that he has previously compounded.

And let me tell you, it's a very satisfying feeling, sitting in a beautiful restaurant in the heart of Querétaro Mexico, enjoying fine food and wine with friends. Knowing that you haven't look at the markets in two or three days? You haven't sat in your computer chair glued to the monitor having to manage short term trades? But you're still receiving cash dividends on stocks that have compounded their position size for you.

Yeah. That's a very good feeling.



The “Savings” Sister
"I save money when I'm working so that I never have to take a role simply to pay the bills.” - Gary Sinise, Actor

This is the sister that everyone wants to be friends with ... but no one wants to date.

Especially in the current environment. With the Fed prime fund rate essentially at zero, interest rates at financial institutions around the country have plummeted. When I began with this portfolio strategy, one could open up a money market account, and enjoy 4.1% interest on their money. I would at times take a percentage of my annual return, and feed it to my investing account.

Now, it's hard to find a long term Certificate of Deposit (CD) that offers 3.0%. But I think that really highlights the strength of the “three sisters”. Because really, you don't have to be earning a fantastic rate, for this sister, the “Savings” sister, to perform her job.

Because these 'sisters' or accounts, help one another out. And this 'sister' is by far, the most helpful in her purpose, or reason for 'her' existence.

The savings account is split into three purposes, and used for three separate reasons, and by different percentages at different stages in the accounts growth.

  • Drawdown Kill Switch Fund
  • Base Savings
  • Emergency Savings

If you are not familiar with my outline of money management principles, again, you can review that information for free. It will explain what I mean by both a “Drawdown Kill Switch” (Some call this the 'ruin level' of an account, that is a percentage of the account capital that the trader does not want to risk any more capital, and stops trading), and why I have a fund dedicated to supplementing an account, once the drawdown kill switch is tripped. To summarize briefly, if the trading account or investing account were ever to reach this “kill switch” level in terms of drawdown? Then a percentage of the savings account could be used to supplement the drawdown that the other account experienced.

Honestly though, that is only used in the beginning. I have not used my own personal drawdown killswitch fund in years. But it's still there, if need be.

In addition, everyone should have a base savings. In better times, the entire savings account would be earning interest, and I will soon talk about how the accounts 'feed' one another. Hopefully, a way can be found out of the current liquidity trap that has occurred in reccent years, and we can once again return to days of actually earning interest on our savings. What a radical thought eh? It should also be noted that I do keep physical metals, actual bullion as part of my base savings. But bullion cannot put food on the table.

Regardless, a percentage of the savings accounts are also used for emergency savings. I don't care what someone's level of wealth is, everyone needs to maintain an emergency savings fund. If you have $5,000,000.00, and you develop a critical, debilitating illness? Despite having good health insurance, you had best hope that you have access to liquid funds. There are any number of emergencies that can arise in our lives. I know, I've watched it happen. I've watched patients on cancer regiments have their retirement savings eaten up, despite having health insurance.

And yes, I keep this function as a part of my “three sisters” methodology, although at first it may not seem related to trading or investing. Because when I generate money in the markets, having these accounts as part of my portfolio strategy reminds me that no matter what sort of success I'm enjoying? Life is a precious, fragile thing, and I should do my best to prepare for unforeseen events.

Weighting, Performance and Metrics
"Performance is your reality. Forget everything else." - Harold S. Geneen

As I mentioned earlier, performance will differ, from year to year. I have had 356% return years. I've had years where I returned 30%. In my personal accounts for the current year of 2009, I'm up about 32% on the investing front, 40% on the trading accounts, and up 1.49% on the interest bearing accounts at the time of this writing. And yeah … then there was 2003. -3.57% yield. So yes ... performance differs from year to year.

As those who have taken to heart the outline of the principles of money management know, I keep strict track of my recent performance statistics. In fact, I believe this is one of the most glossed over aspects of money management.

So twice a year, I review the performance of the 'three sisters' accounts. I dedicate two days of the year, for this purpose. On July 1st and on December 24th of each year. On July 1st, I look for the accounts with the largest percentage returns, or profits. I start with a 3% baseline of the profits of the most profitable account, and feed it to the Dividend Investment account. If the most profitable account is the Dividend Investment account? Then I feed 1% of it's profits, to the savings account. Why? Because summer (usually) is a weak time period for stock prices. It's a way to assist my Dividend Investment account for what could be (though not this year) weaker prices. It is also a way to assist the dividend investment account, so that the account is in a position to better dollar cost average dividend prices by the end of the year, which is when the equities markets (usually) rally. It is also on July 1st that I find the stocks that have had the strongest gains in the portfolio, and turn the DRIP plan for that stock off for the summer and receive straight cash instead.

On December 24th, I again review what is my most profitable account. I start with a 3% baseline of the profits of the most profitable account, and feed it towards the Savings accounts. I take a 2.5% baseline of that same, profitable account, and feed it to either the 'first' or 'second' sister, but not the third 'savings' sister.

I did mention that those percentages are only a baseline. I also consider where we are at economically, and what accounts I feel will need the most help. In 2007, I talked quite publicly about the fact that I began pouring money from my savings accounts into my investing accounts based purely on the fact that I knew that those accounts were about to suffer massive drawdown, as I felt the equities market would suffer a severe downturn.

So there is an aspect of “weighting” the different 'sisters' according to the economic environment we find ourselves in. This aspect can become very discretionary.

---

And there you have it. My very own personal "three sisters" portfolio management system.

* * *

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.

Saturday, July 10, 2010

Week in Review: Trading Means the Crowd Must Be Wrong (PODCAST)

"My job is to make people money. If I don't include every factor that moves a stock-market psychology included-then I'm not doing my job." - Thomas Kurlak

Welcome to the Week in Week in Review podcast!

This week, I want to talk a lot about seeing Fundamental News, and timing a trade? As well as commodities, the credit markets, and my thoughts on a documentary that was released that discusses the recent history of the industry of investing and trading ...

(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 download this podcast.

Here is a link to the series of episodes that contains the movie: "Floored".

I loved that it wasn't a 'sob story', of how we should all feel sorry for floor traders. The one drunk in the middle of the movie was talking about the immoral "every man's dream". All I could think was ...

"It's interesting how how the access to large sums of money demonstrates a man or woman's inner morality, goals and aims in life. What I desire is for my Father to be proud of me."

I'll be re-posting the Happy Hour show for tomorrow's 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 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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Friday, July 9, 2010

Airelon's Trading Methodology (Series): An Account as it Relates to my Markets (VIDEO)

"Modesty: Understanding and acknowledging ones' limitations"

I'm asked all of the time: "How do you trade?". And when asked, I freely share exactly how I trade. I've had videos here on the daily blog that reviews my own trades throughout the week, and discusses exactly how I trade. But the question will usually come up again and again.

I have discovered that it's best to put together "playlist series" that discuss topics that I receive inquires on a frequent basis.

So here I've begun a new playlist, or series, that discusses my own trading style and methodology. We've discussed a bit regarding the 'psychology' behind my trading methodology. Now let's begin to discuss the money management, of my methodology ...

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


Here is a link to the video that I mentioned in the beginning of this video, on "Money Management Performance Statistics" on Youtube, in the Money Management Playlist.

Here is the link
to the blip.tv version of the video on "Money Management Performance Statistics".

* * *

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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Tuesday, July 6, 2010

"Airelon's Trading Methodology" (Series): What is Your Problem? What is My Problem? (VIDEO)

"Historical methodology, as I see it, is a product of common sense applied to circumstances." - Samuel E. Morison

I'm asked all of the time: "How do you trade?". And when asked, I freely share exactly how I trade. I've had videos here on the daily blog that reviews my own trades throughout the week, and discusses exactly how I trade. But the question will usually come up again and again.

I have discovered that it's best to put together "playlist series" that discuss topics that I receive inquires on a frequent basis.

So here I've begun a new playlist, or series, that discusses my own trading style and methodology. Before we get to the charts, and the let's discuss the psychology behind my trading methodology ...

(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 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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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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Saturday, July 3, 2010

Week in Review: Know Your Buy Points Ahead of Time (PODCAST)

"Prediction is very difficult, especially about the future." - Neils Bohr

Wow.

I've gotten two sorts of emails this week. Either questions regarding the credit markets, and inquiries as to why the bonds are rallying. Or questions regarding my thoughts on the direction in the equities market.

But I don't predict. I react.

So perhaps a better question would be ... what's my 'sentiment'? I discuss that in this podcast ... because I pick my 'buy points' ahead of time.

(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 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 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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