Value Blog Review Year End Results 2008

As long time readers of this blog will remember my first year of investing in 2006 resulted in a 19.62% return. 2007 was my second full year investing and I am quite pleased that I was able to achieve a return for the year of 29.75%.

While I am obviously pleased with the absolute return, I am obviously satisfied with the relative return when compared to the various indexes, i.e., DOW, S&P, etc. Moreover, I have also achieved my stated goal from a relative point of view by earning a greater return than the risk free rate on what I would earn paying off my mortgage.

Overall my first two years have produced an annualized return of 26.82%. While I hope, and will try, to continue this blistering pace for the next 25 years, my expectation is that it won't. That is because two good years could be entirely the result of good fortune as opposed to any skill on my part. With that said, for those interested, in my next couple of posts I will discuss those things that I believe contributed to my success.

First Half 2007 Results - Corrected

One of the reasons I am not Bill Rempel is I am math challenged. This morning, after writing this post late last night, I realized I made an error on my spread sheet. I had the dates off and therefore the number was wrong.

For the first six months of 2007 my year to date, annualized, is 14.96%. Using a simple interest calculation (current balance divided by January 1, 2007, starting balance plus any contributions without regard to date made) reveals a gain of 13.9%.

Sorry about the confusion. Suggestions on a good summer math camp I can send myself to will be appreciated.

Trade Review: BUD

Selection

BUD was a stock I bought as an idea on an undervalued or oversold company, depending on your style of investing. The main reason for purchase was just to get my feet wet and I felt BUD at that time was undervalued enough to present with a sufficient margin of safety that would preserve my capital. So I bought. And then I sold.


Results

On February 16, 2006, I bought Anheuser Busch (BUD) at $41.88. On October 4, 2006, I sold BUD at $48.37 (dividends included). I had a gain of $6.49 a share (dividends included) or just about 13.4% in 230 days.


Bottom Line

At the time of purchase BUD was, again depending on your style of investing, either as undervalued or oversold as it had been since 1992. BUD is getting close to its all time high, so it may be a chance to try out Howard's style.

Trade Review: MSFT

Inspired by Bill, Trader X, and Ugly, I have decided to discuss trades I have made. These early trades were made as an educational endeavor to understand buying and selling of stocks using minimal amounts of capital. For the most part I bought and sold these shares as I developed my investing and trading process.


Selection

MSFT was a stock I bought as an idea on a undervalued company. The main reason for purchase was just to get my feet wet and I felt MSFT at that time was undervalued enough to present with a sufficient margin of safety that would preserve my capital. So I bought. And then I sold.


Results

On February 16, 2006, I bought Microsoft (MSFT) at $26.80. As usual I cannot say that there was any particular signal that stood out at that time due to my newness, so again I would describe it as a random entry as discussed in Trade Your Way to Financial Freedom.

On April 24, 2006, I sold MSFT at $27.20. I had a gain of $0.40 a share or just about 1.5% in 67 days. Measured as R, my gain of $0.40 was 0.33 R. Why did I sell? At that time I cannot say I had any real reason to sell. I was not nervous or anything. I simply though I had a better investment I could use the money to buy.

Looking back at the one year chart at Yahoo it is clear, in hindsight, that I was real lucky to sell because MSFT took a nose dive a few days later.


Bottom Line

While at the time of purchase it was fundamentally undervalued it was clearly overvalued from a technical standpoint. But sometimes it is nice to be lucky, I just don't count on it all the time.

Trade Review: PETM

Inspired by Bill, Trader X, and Ugly, I have decided to discuss trades I have made. These early trades were made as an educational endeavor to understand buying and selling of stocks using minimal amounts of capital. For the most part I bought and sold these shares as I developed my investing and trading process.


Selection

PETM was a stock I bought as an idea on a undervalued growth company. The main reason for purchase was just to get my feet wet and I felt PETM at that time was undervalued enough to present with a sufficient margin of safety that would preserve my capital. So I bought. And then I sold.


Results

On February 16, 2006, I bought PetsMart (PETM) at $25.99. As usual I cannot say that there was any particular signal that stood out at that time due to my newness, so again I would describe it as a random entry as discussed in Trade Your Way to Financial Freedom.

On June 12, 2006, I sold PETM at $26.34 (which includes the .03 cent dividend paid in April). I had a gain of $0.35 a share or just about 1.3% in 116 days. Measured as R, my gain of $0.35 was 0.18 R. Why did I sell? At that time I cannot say I had any real reason to sell. I was not nervous or anything. I simply though I had a better investment I could use the money to buy.

Looking back with what I know now, the Average True Range (thanks Bill) was $.63 and therefore my R was $1.89 (understanding why R is important comes from Trader Mike). Based on that, my initial stop of 1R should have been $24.10 and a 1R target of $27.88. Following the chart at Yahoo

It is clear, in hindsight, that PETM never came close to hitting the initial stop after I purchased. Looking at the Yahoo chart PETM hit a high close on May 10, 2006 of $29.18. Using a stop I would have exited at $27.38 on May 17 at the close. A stop would have resulted in a gain (with dividend) of $1.42, or 5.4% in 90 days. Stated as R, I would be up .75R.


Bottom Line

Once again I had a entry which, had I used a strict stop, would have resulted in a better gain than I actually realized.

Trade Review: KO

Inspired by Bill, Trader X, and Ugly, I have decided to discuss trades I have made. These early trades were made as an educational endeavor to understand buying and selling of stocks using minimal amounts of capital. For the most part I bought and sold these shares as I developed my investing and trading process.


Selection

KO was a stock I bought as an idea on a undervalued company. The main reason for purchase was just to get my feet wet and I felt KO at that time was undervalued enough to present with a sufficient margin of safety that would perserve my capital. So I bought. And then I sold.


Results

On February 16, 2006, I bought Coca-Cola (KO) at $41.36. As usual I cannot say that there was any particular signal that stood out at that time due to my newness, so again I would describe it as a random entry as discussed in Trade Your Way to Financial Freedom. With the benefit of hindsight, one could say that KO spent much of 2005 in a light down trend and then had the 20 dma cross over and above the 50 dma in early 2006 as seen here at StockCharts.

On May 4, 2006, I sold KO at $41.90. I had a gain of $0.54 a share or just about 1.3% in 77 days. Measured as R, my gain of $0.54 was 0.32 R.

Why did I sell? At that time I cannot say I had any real reason to sell. I was not nervous or anything. I simply thought I had a better investment I could use the money to buy. Looking back with what I know now, the Average True Range (thanks Bill) was $.556 and therefore my R was $1.67 (understanding why R is important comes from Trader Mike). Based on that, my initial stop of 1R should have been $39.69 with a 1R target of $43.03.

Following the Yahoo Chart it is clear, in hindsight, that KO never came close to hitting the stop, with the lowest point in early April at around $41.04. Looking at the Yahoo chart, KO has been a great trend since the day after I sold. In fact, sticking with my trailing stop I would actually still be in the trade today with a stop loss set at $46.93. Using today’s close I would have an unrealized gain (with dividends) of $8.48, or a gain of 17.1% (about 14% ex-divd) in a little under 11 months. Stated as R, I would be up 5.08R.


Bottom Line

Once again I had a entry which, had I used a strict stop, would have resulted in a decent gain.

Trade Review: Year End Part 3

Obviously in order for me to justify investing/trading I have to confirm that I add value. One way to determine that is measuring my results against a benchmark. Before I do that I must say that I am more inclined to be in the "absolute" return camp.

By measuring success to an arbitrary benchmark I may end up unknowingly limiting my chance for success by making decisions which look favorable as compared to the benchmark but reduce my chance for a larger return. Moreover, the idea that I did not do so bad in any given year as long as I beat selected benchmark seems a bit ridiculous. If my benchmark were the DJIA and that index was down 15% in a given year while my portfolio was only down 5% I would not feel inclined to celebrate that I "beat" the benchmark by 10%. I would be pretty pissed that I lost 5%. So I much rather just focus on maximizing my return without reference to any benchmark.

With that said, I do think that it is important to compare results to a benchmark as a way to determine whether I actually added value to my portfolio. In other words, should I stick with investing for my own account or should I admit that I would be better off seeking help from a professional or even using ETF's to index.

Taking a cue (as I often do) from Bill Rempel I went ahead and used the S&P 500 as a benchmark. In the archive of Bill's original Nodoodahs blog Bill explains why and how to measure returns using the SPY as a proxy for the S&P 500. So I just went ahead and did that as Bill described.

Using the various dates I deposited money into my account as hypothetical purchase dates and using the closing price on each date as my purchase price, I "bought" shares in the SPY. Following that strategy would have resulted in an annualized gain of 13.22%. Therefore, compared to my actual 19.62% return it would appear that I did add value.

There is another benchmark that I am using that is also important to me and a bit more personal. Much of investing is about opportunity cost, you have a limited supply of money to invest and have to decide where to invest it. Like many, my largest debt is my home mortgage and paying it off is a goal I have. Now obviously every dollar I pay down the mortgage is worth xx amount of percent saved, lets say 6%. So if I have $1,000 and send it towards principal, I will earn 6% guaranteed.

When I decided to start investing I told myself that I would do so only if I could at least match that 6% rate of return. If I could not then I saw no point of investing and figured I might as well just start paying down the mortgage. Well so far I did okay this year when compared to that benchmark and will have another go at it in 2007.

Obviously this is my last post of the year. I just wanted to say thank you to all those who have visited and to those who I have corresponded with. It has been a great year for me and all of you were a large part of my success. I just wanted to say thank you.

I look forward to the upcoming year and hope that it is a good year for all of us. To start the year off right, look for my first post of the New Year where I explain just how it was I successfully invest this past year.

See you next year...LOL.

Trade Review: Year End Part 2

Here are how some of the numbers breakdown to my last post on my year end results. Of course, I am no Bill Rempel or Geoff Gannon, so my math may not be perfect.

As I mentioned in the last post, I ended up with a 19.62% annualized gain. The first set of numbers below are the month to month gain or loss from the prior month. The second column is the annualized percent on a month to month basis. It is interesting to note that I should have went flat (all cash) at the end of November. Guess I stayed to long at the party.

Note: I added money several times through the year and used George's spreadsheet as discussed in this post to figure out the numbers.

Jan 0.01% 0.01%

Feb -1.00% -1.00%

Mar 3.58% 2.79%

Apr 1.92% 3.38%

May 0.93% 4.52%

Jun -2.79% 1.00%

Jul 1.26% 2.57%

Aug 5.28% 9.29%

Sep 0.47% 9.91%

Oct 5.39% 12.80%

Nov 5.35% 26.70%

Dec -2.56% 19.62%

I will continue tomorrow with a comparison to a couple of benchmarks to see if I was able to add any value.

Trade Review: Year End Results

I will follow up later this weekend with a monthly breakdown, but I just wanted to drop a quick note to record my year end results.

At the end of my first year investing I can report that I achieved a 19.62% annualized gain.

Later this weekend I will share with you how I did it.

Trade Review: JNJ

Inspired by Bill, Trader X, Tapeworm, Ugly, I have decided to discuss trades I have made. These early trades were made as an educational endeavor to understand buying and selling of stocks using minimal amounts of capital. For the most part I bought and sold these shares as I developed my investing and trading process.

Selection

JNJ was a stock I bought as an idea on a relatively undervalued company. The main reason for purchase was just to get my feet wet and I felt JNJ at that time was undervalued enough to present with a sufficient margin of safety that would preserve my capital. So I bought. And then I sold.

Results

On February 17, 2006, I bought Johnson and Johnson (JNJ) at $58.98. As usual I cannot say that there was any particular signal that stood out at that time due to my newness, so again I would describe it as a random entry as discussed in Trade Your Way to Financial Freedom. With the benefit of hindsight, JNJ was overbought, as a check of the chart shows selling as measured by RSI on a monthly basis (as Bill Cara advocates) may have been overdone in late 2005-early 2006.

On April 24, 2006, I sold JNJ at $58.50. I had a loss of $0.48 a share or just about -0.8% in 66 days. Measured as R, my loss of $0.48 was -0.18 R.Why did I sell? At that time I cannot say I had any real reason to sell. I was not nervous or anything. I simply thought I had a better investment I could use the money to buy.

Looking back with what I know now, the Average True Range (thanks Bill) was $0.887 and therefore my R was $2.66 (understanding why R is important comes from Trader Mike). Based on that, my initial stop of 1R should have been $56.32 and a 1R target of $61.64.

Looking the chart on Yahoo it is clear, in hindsight, that JNJ never came close to hitting the stop, with the lowest point in early March at around $57.50. In fact JNJ traded within the ATR for about four months and did not cross over until the close on June 21st at $61.79. Following the Yahoo chart, after the high of $61.79, JNJ came close to hitting the trailing stop a week later on June 28th, closing at $59.23, a mere ten cents away from the trailing stop at $59.13. After that point JNJ made a multi-month move up to the high on October 23rd of $69.41. Using that high close and setting the trailing stop at $66.75, the stop would have dictated a sell on November 8th using the $66.15 close.

Adhering to a stop would have kept me in the stock for a 10.8% gain in a little over 7 months. Expressed as R that is 2.70.


Bottom Line

Once again I had a random entry which, had I used a strict stop, would have resulted in a decent gain.

Trade Review: CEF

Inspired by Bill, Trader X, Tapeworm, Ugly, I have decided to discuss trades I have made. These early trades were made as an educational endeavor to understand buying and selling of stocks using minimal amounts of capital. For the most part I bought and sold these shares as I developed my investing and trading process.


Selection

CEF was a stock I bought as an idea on a metal play. The main reason for purchase was just to get my feet wet on buying a stock in a sector I thought was in a trend. At the time I did not really know much about trends, but since then I have found that a good place to learn more on trends and what to do with them is Howard Lindzon’s, blog. CEF seemed a good way to take advantage of what I thought was a positive trend. So I bought. And then I sold.


Results

On February 27, 2006, I bought Central Fund of Canada (CEF) at $7.66. As usual I cannot say that there was any particular signal that stood out, so again I would describe it as a random entry as discussed in Trade Your Way to Financial Freedom. With the benefit of hindsight, it is clear that it was clearly overbought, but not violating the trend.

On April 20, 2006, I sold CEF at $9.20. I had a gain of $1.54 a share or just about 16.8% in 53 days. Measured as R, my gain of $1.54 was 2.44 R.

Why did I sell? At that time I cannot say I had any real reason to sell. I simply was amazed that I had gained 16.8% (or 2.44 R) in less than two months and figured it was due more to luck than skill so I better take while the taking was good. Again looking back with what I know now, the Average True Range (thanks Bill) was $.212 and therefore my R was $.63 (understanding why R is important comes from Trader Mike). Based on that, my trailing stop should have been $.63.

Following a chart it is clear that CEF made a high on 4/19 of $9.84 and then closed down at $9.08, a loss of $0.76 cents. So my “gut” decision to sell, even though I had no idea, was actually the right thing to do based on the trailing stop of $0.63 cents. In hindsight, my decision to sell was actually sound based on the trailing stop, although I had no idea of that at the time.


Bottom Line

I did not use a stop and got lucky. Once again I had a random entry which worked out well based on the stop. Stops are showing themselves helpful in protecting profits.

Trade Review: LXK

Inspired by Bill, Trader X, Tapeworm, Ugly, I have decided to discuss trades I have made. These early trades were made as an educational endeavor to understand buying and selling of stocks using minimal amounts of capital. For the most part I bought and sold these shares as I developed my investing and trading process.


Selection

LXK was one of the first stocks I bought. The main reason for purchase was just to get my feet wet. I did do some research (among other things, a good fundamental look at LXK at the time of purchase can be found at Geoff Gannon's Gannon On Investing blog) and felt it to be suitable for purchase. So I bought. And then I sold.


Results

On February 16, 2006, I bought Lexmark (LXK) at $47.80. I cannot say that there was any particular signal that stood out, so again I would describe it as a random entry as discussed in Trade Your Way to Financial Freedom. With the benefit of hindsight, and with what I have learned this past year at Bill Cara's blog, I can say that my buying was partially supported by the fact that the daily, weekly, and monthly RSI were at or near an oversold level.

On April 24, 2006, I sold LXK at $46.91. I had a loss of -$0.89 cents a share or just about 1.9% in 67 days. Measured as R, my loss of $0.89 was -0.28 R.

Why did I sell so soon? I cannot say I had any real reason to sell. Mainly just a FNG getting nervous. Again looking back with what I know now, the Average True Range (thanks Bill) was $1.07 and therefore my R was $3.22 (understanding why R is important comes from Trader Mike). Based on that, my stop should have been $44.58.

Looking back at the one year chart (and using the closing price), it is clear that the closest the stop came to getting triggered was the close of $45.01 on May 12, 2006. A stop as described above would not have been hit. The question then is, if I had known to use stops I would have been better off?

Umm, does a bear crap in the woods?

Following the one year chart it is clear that LXK bounced off that low close of $45.01. On May 31, 2006, LXK closed at $57.25 and then closed at $53.80 on June 9. Using a stop may have got me out at around $53.80, for a $6.00 (11.2%) gain or 1.86 R in about 4 months.


Bottom Line

Using a stop would have turned my small loss into a decent gain. So far using a random entry with an ATR stop would have done much to improve my results. Clearly stops are helpful in removing some of the emotion a new trader may have.

Trade Review: TUES

I am starting a new feature. Inspired by Bill, Trader X, Tapeworm, Ugly, and others I have decided to discuss trades I have made. These early trades were made as an educational endeavor to understand buying and selling of stocks using minimal amounts of capital. For the most part I bought and sold these shares as I developed my investing and trading process.

Selection:

I had followed TUES for several months as it slid from $23.00 in the spring to the low teens by mid-summer as can be seen from this chart.

http://stockcharts.com/h-sc/ui?s=TUES&p=D&st=2006-01-01&id=p23970090786

After reading the annual reports, looking at the numbers of the last several years, and visiting the local store, I felt that the company would be a good investment. Looking at the above chart I had noticed that it hit $12.11 in early July, bounced back and found support in the high $12 low $13 area in late August-early September. By mid-September I felt (based on fundamental research and price action) that it would be a good time to buy. So I bought. And then I sold. Let’s look at the results.

Results:

On September 12, 2006, I bought Tuesday Morning (TUES) at $13.23. I can’t really say that there was any particular “signal” that stood out, so I would not disagree describing it as a random entry as discussed in Trade Your Way to Financial Freedom.

On September 28, 2006, I sold Tuesday Morning (TUES) at $14.20.

I had a gain of $0.97 cents a share or just about 7% in 16 days. Why did I sell so soon? I am a FNG that’s why. When you are JAFO as I am at this point and make 7% in sixteen days, I say “thank you very much I will take my money and go home now, please.”

At the time I did not understand the Average True Range or how to use it. In hindsight the ATR (using a 15 day period) was .0373 on the day I bought. Applying Bill Rempel’s “Super Size” formula my downside risk would be $1.12. Obviously in hindsight I sold way to soon and missed the big part of the move, but it could have turned out just as easily that I bought too soon and bounced off the 20 or 50 MA instead of waiting to see it cross-over, as it did several days later.

Getting back to the R (or Z as Tapeworm calls it) now that I have read Trader Mike’s blog (and Van Tharp’s book) I know that I should have measured R and trailed the stop. Using the closing prices as a marker, TUES hit $18.04 on November 16 and $16.89 in the big sell-off on November 27th. So using a trailing stop of $1.12 my actual gain would have been about $3.66 and not the $0.97 I actually received. So while I made .86 R, if I had used a trailing stop I would have been out with about 3.26 R. For the anti-R group the difference was the 7% made against the unrealized potential of 21%.


Bottom Line

I would like to believe that my selection was based on some skill on my part. Or it could have been luck. Or it might have been that oil took a dump in September and pulled up the whole retail sector. What I do know for sure is 1) I made some money, but could have easily lost some as well; and 2) I need to use a trailing stop.