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Mid Year Performance

 

Aloha all, I’ve been lazy for a month without any addition to the blog. Gonna try to turn the ship around if I can. 

When I started this blog earlier this year I summarized my performance for 2017 in my two trading accounts. I have an IRA that I call my speculative account and a taxable account that I call my conservative account. 

For 2017 I made about 75% in the speculative account and about 35% in the taxable account, which I will now call my moderate account.  

So now as we approach the end of the second quarter I am happy to report that since January 1st of this year I am up about 29% in the speculative account and DOWN about 6% in the moderate account 

If you combine the accounts, I am up about 10% overall. My professionally managed accounts are up about 2.5% over the same period. 

Some may ask why I don’t manage my whole account rather than put up with this meager 5% annualized return on the managed accounts? The answer lies in the divergence of my two accounts. If I did this and practiced what I do in the moderate account then I could be down 6% instead of up 2.5% on the bulk of our assets. There’s no guarantee I can duplicate what I do in the speculative account. Remember, too, that there are no tax implications in the speculative account. And besides, I’d have to go back to not sleeping at night. 

I make too many daily trades to really document them here but over the last month or two I have pocketed some really good gains in $AMZN, $TWTR, $SQ, $TSLA among others. I went into this early quarter with both calendar put spreads and calendar call spreads in these names. Slowly I have sold off the put spreads and rolled the call spreads up. I am preparing to add some put spreads to all the names I am long now. 

I’ve got two recommendations for the 2-3 people that read this. First the Animal Spirits podcast can’t be beat, you can find it here and here. 

Secondly I’ve read Joel Greenblatt’s ‘The Little Book That Beats the Market’. Check out the synopsis on Amazon here, and it’s relevant website here. 

As always, please comment! God knows I have 50 or so registrations a day, are they all bots? (Simple answer is yes, but why are they doing that?) 

What losing teaches us, if we are willing to learn.

Do you have a plan? Are you disciplined with your execution? Or are you stubborn? 

I have been out of town, well specifically I’ve been in Maui for a few weeks. Kitesurfing . . .  

The question everyone asks me back here in the ATX is did I see the eruption on Kilauea? Is there a lot of ash? 

To be honest, if you didn’t watch the news or check the internet, you wouldn’t have known anything was happening the next island over. Maybe it’s different now that Pele has blown her top so to speak, but as long as the trade winds are out of the north east, I bet it’s the same.  

During my writing absence I read a great book, Jim Paul’s “What I Learned Losing a Million Dollars”. To inappropriately sum it up the worst that can happen to a trader/investor is to have a run of success. Enough success to start to think you are smart and your shit doesn’t stink. That’s called personalizing your success. Instead of having a disciplined plan, you wing it thinking that your intuition will get you through lean times. You believe you are “right” and will be dogged to stay the course even if the evidence mounts that you should change direction.  

Then a loss starts to come along and you double down, thinking that you know better. A small loss turns into a big loss. Then you personalize the loss and start going through the stages of grief. Now your impaired and future decisions get even harder. You second guess your decisions. You think the market is going against you. You start to think there are those manipulating the market just to screw with you. 

Paul says to avoid this is to have a plan and stick to it. Don’t buy a stock until you have an exit plan, both up and down. Then execute the plan. Realize you’re not that smart, that sometimes you’re lucky. 

I think he’s right and I actually came to the same conclusions over time, but it took Mr Market reminding me over and over that he doesn’t care if I make money or not. Hell, he doesn’t even care if Warren Buffett makes money or not. 

I’d love to tell you I research my entries to a name and have the exit plan laid out. But options are a different beast. Within the same name you can bet on it going up, down or sideways and you can place a bet for several different time frames. So my plan seems pretty haphazard. But over the years I do end up with a way of doing things that suits me well. And keeps it fun. 

It took me a while, but now I don’t have to be right. I just want to play the game and make some money! 

Bears Fully in Control on Options Action $GOOGL $BA $XLE

 

Anyone who watches (or in my case, listens to the podcast) of Options Action you will not be surprised that there is a strong bias to the downside.  

However, this week April 20, the show went Full On Bear (FOB). There were three trades highlighted on Alphabet, Boeing and the S&P Energy ETF, XLE. Dan was FOB on GOOGL, thinking that it goes below 1000. and Carter Worth was FOB on the XLE and Mike was FOB with BA.  

To be fair, Mike was less bearish on the XLE buying a calendar put spread which bets on consolidation. Dan, of course, thinks you should buy . . . . wait for it . . . . A PUT SPREAD!  What a surprise. 

Mike’s trade on BA was also less bearish than Dan usually promotes as he sold a credit spread. This will also pay off in a consolidation. 

Don’t get me wrong, I can be bearish on stocks as well. In fact I buy some long dated put spreads when things go up. For instance I was buying some Apple put spreads with the stock trading around 178, because you never know what can show up around earnings. Now I can sell them for a profit. 

But being overwhelmingly bearish is just as bad as being irrationally exuberant. I think it’s just so prevalent on CNBC because it plays well into their overall theme of trying to scare the audience. This brings you back to watch more.  

It also sounds ‘smart’ to be bearish. It makes it seems like you have more information and more insight than the average analyst. 

Sometimes shadows are not bears, sometimes they are bulls and sometimes they are just shadows.  

When does diversification become a bad thing? $SPY $QQQ $IWM

The Animal Spirits podcast is fast becoming one of my favorites for keeping up to date on what’s happening in the financial world. I don’t think I am alone in this. I still watch CNBC mostly to catch Fast Money Halftime but even then, I mostly watch that show to see what Josh Brown’s take on the markets is.  

The common thread between these two sources is that Josh Brown, Ben Carlson and Michael Batnick are all relatively young guys and all three are associated with Ritholz Wealth Management.  

On the most recent podcast of April 11, Episode 24 they reference a quote from Lazlo Birinyi in the New York Times from October 24, 2009. “My issue with diversification beyond that (stocks and bonds) is that an incremental or arithmetic increase in the number of decisions you make leads to a geometric increase in the degree of difficulty (to outperform)”. 

This arose from a discussion on the story that Drew Brees lost several million dollars investing in diamonds thinking, or being advised, that diamonds would outperform stocks and bonds. 

How does this relate to us? Maybe if you are going to speculate on something outside of the traditional market such as art, or Bitcoin, or watches or diamonds, you should only invest what you are prepared to lose. Just assume the value is going to zero. I would only increase the size of my position if I was felt strongly that I knew the market in that asset.  

It’s not only about making money, it’s also about getting a good night’s sleep! 

Where’s the Outrage, Business Pundits? $AMZN $BABA $MELI

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I’ve said many times its best not to take political sides when you are investing or trading. 

That is not to say that you cannot or should not have political views, but that you should be agnostic so that your trades can be with less emotion than would otherwise be present. 

I still believe this, but this latest attack on Amazon by President Trump has me incredulous. What I don’t understand is why the rest of the financial news feed is not incredulous as well. I’ve only heard one on CNBC so far that seems to realize how nuts this is, Steve Leisman. 

You all know the story. Because Jeff Bezos, the founder and major shareholder in Amazon bought the Washington Post sometime back, President Trump is out to get Bezos (or as the reporting goes, “to f**k with him”) because he doesn’t like the coverage the Washington Post gives him as President.  

President Trump says that the USPS is losing money because of Amazon and that they are not paying their fair share of state and local taxes. 

This is Putin-esque. He is trying to do damage to a company he believes is controlled by Bezos as revenge or pay-back. This means that companies are no longer going to be rewarded for innovation, good deal making, or excellent execution, but instead whether or not Trump likes the founder.  

This is NOT a level playing field, this is picking winners and losers. This is trying to hurt one of the USA’s largest companies, largest employers and largest tax payers. Yet Trump institutes tarriffs to help much smaller steel and aluminum companies because he is tryiing to shore up the Rust Belt vote.  

If Obama had done this, there would have been howling from the financial news industry. Rick Santelli would have popped a vein on his head and Larry Kudlow would have banged the table. “Free market capitalism is the fastest path to prosperity”, right Larry? 

This sure doesn’t look that Free Market Capitalism to me and these fools need to be called out for it.  

Ultimately how does anyone choose which stocks to buy? Do we have to get a list from Trump?