Sunday, July 26, 2009
I'm always getting out of the market with at best + 10 pips. This happens on the majority of my trades. I know the more serious traders out there probably think this is really bimbo and maybe it is. However, I've done much worse in the past. Before, I was one step forward, five steps back. Now, I'm one step forward, two steps back. Is that ideal? No, but it's an improvement - so one gold star for me, although I'll hold off on the couch-jumping until I actually start making serious profits.
My best win YTD was +249.08 pips. My worst loss YTD was -74.33 pips.
I haven't had a really good trade since January.
Technically, I'm losing 74.77 pips this year. Don't forget I also blew up my trading account about two years back and am still not breakeven.
There's no turning back now. I've got my work cut out for me. If I keep trading little black dress (bearish divergence) and little red dress (bullish divergence) and finetune my money management strategy, my strategy is going to be sustainable. I have stopped the downwards trajectory and that's a small victory.
I know I have to keep at it - it's boring and I'm going at the pace of a turtle, but turtles are known for their longevity.
I honestly asked myself, am I still making excuses for myself for not being a better trader and for not going faster?
Well, I've now got:
1. a better strategy than coin flipping
2. a much more level-headed perspective on the market
What have I got to improve?
1. continue to keep my discipline
2. do the analysis and trade my plan - don't get into any more impulse trades (what really killed me was trading FOMC and the stop & reverse & reverse thing I did back in May when I was experiencing total emotional volatility)
3. my money management - particularly where trailing stops is concerned (i.e. what is the best way to trail your stop whilst staying in the trade?)
4. figure out exactly when my strategies will work best - under what market conditions should I use little black dress (bearish divergence) vs. little red dress (bullish divergence)?
5. stop making excuses for myself. If I'm just scared of getting into a trade, I need to confront those fears. And if I'm going to condemn myself for not getting into the trade in the first place, at least I should make it a real learning opportunity.
This week, I'll be travelling, so I won't be trading or blogging all that much. Perhaps the extra time to reflect on my trading is just what's required at the moment.
Thursday, July 23, 2009
Aside from the technical difficulties, some interesting trade ideas were bounced around, so it wasn't a complete waste of time.
Overall, the stock market rally is not overextended according to our friends at E*Trade.
Preferred stocks might be an interesting arena to look into in addition to undervalued international equities. TIPS might be another asset class to explore.
They seem to favour opportunities in large caps as well.
Chris Keith also poignantly mentioned: "Don't fight the Fed." So does this mean that my AIG is not the hopeless and lost cause I thought it was?
I believe in Divine Intervention, but not where my trading is concerned.
Leap of faith?
I have no excuse this time other than I'm attending the E*Trade webinar.
But that is a very lame excuse indeed. This webinar is kind of funny because they're having some technical issues. Not only are the PowerPoint slides not working, the presenter had to run to another room to finish the presentation. Oops... ok, now they've corrected the issues.
Wow, this is one of the fastest descents in GBP/JPY I have seen in a while. -50 pips in basically a few minutes. This has now moved too far beyond my ideal entry point, so I'm just going to let it run on without me. With the crazy way that DJIA rallied today, I'm not sure how good my original short GBP/JPY idea was anyway. Reading mixed signals... not my forte.
Maybe there's another GBP/JPY flight tomorrow?
Looks like I'm not the only shopaholic... financial troubles echo across the US...
This is why I'm semi-Republican. Notice most of the traditionally Democratic states are all the ones in major financial fiasco territory?
But I just realised my lovely broker E*Trade is offering CME e-Micro currency futures. If they take delivery on the actual currency, then I could be doing some arbitrage with this.
Why doesn't anyone talk about arbitrage strategies in forex?
Is it actually a viable strategy?
It'll be a lot more boring, but a lot more profitable I'd imagine.
It's like there was a surprise party that I wasn't invited to and I'm even all dressed up!
I'm glad I added to my NYX position yesterday. I'm +3.87% on that part of the position so far and am really looking forward to a full recovery of that position plus a good four figure profit.
All my other positions are basically status quo though. So one tree doesn't make a forest.
Our contingency plan has to be better than our original plan, right?
Why did I even make AIG my Plan B? Was I mesmerised by the glamour and glitz of a 1:23 risk:reward ratio? In trading, if you start out mesmerised, you will be tantalised by profits that seem to always elude you.
Risk:reward is only one component of trading. If we fail to get the analysis right, we are trading on emotion as much as if we were trading based on coin flipping.
Analysis trumps risk:reward in my diva opinion.
My AIG analysis was frankly bimbo. I had even failed to do my due diligence very well here. The reverse split had obviously been a public announcement. Yet, I was mesmerised and chasing the risk:reward.
1. Start with sound analysis. Bimbo In = Bimbo Out
2. Then, look at risk:reward.
3. Remember to trail your stops. Slippage is evil.
Now, if you'll excuse me, I have to get back to the drawing board. I've got some trading wounds that need to be nursed. No more excuses. No more bandaids on broken ankles!
I mentioned a while back that I had recently set up a portfolio targeting worksheet in Excel comprising of a scenario analysis that outlines my profit objectives at key market levels (52 week high, 50% of 52 week high, all-time high, etc). To alleviate my fears, I also calculated potential losses at the 52 week lows as a way of showing me that the worst is possibly over.
The more I think about it, the more I feel it is an over-simplified view of equity trading. With so many factors beyond our control, we really should be thinking of a contingency plan for the contingency plan.
I laugh about it now, but AIG was part of my portfolio recovery plan. I added a 300 share position in AIG right prior to its recent reverse split fiasco. From a position worth three figures, I was hoping to grow to a profit objective approaching five figures.
So was this realistic? At the time, it truly was. I could see AIG going to $32.25 from my $1.41 entry level. Now, after its reverse split, who would ever buy AIG at $621.80?
I'm definitely not an expert and you'll notice that with my bimbo posts here. But if we look at risk:reward from this perspective, shouldn't we be asking ourselves one critical question: if we set ourselves a risk:reward ratio of 1:10 or 1:5 or even 1:3, are we realistically going to achieve our target limit?
So how do we factor that into the equation? And if there are no guarantees in trading, how do we create a Plan B or a Plan C?
Because after all is said and done, our well-thought out plans could still end up being up in the air.
This AIG position is so small that I shouldn't lose any sleep over it. But then I would rather have placed this money in my Hermes Kelly/Birkin/Lindy Fund.
Wednesday, July 22, 2009
At this point, I just want to average in with a medium to long term mindset. I believe in the long term potential of NYX, so adding to the position is more important than getting the perfect entry.
Right now, it looks to me like the P/E ratios on a lot of stocks are way too high. Is this going to be sustainable? Even though I am long term bullish on equities, there's always a possibility of an equally sharp retracement.
The thing is no one wants to miss out on a good rally if the recovery is well on its way. There hasn't been a very significant retracement so far and yet everyone seems to want to tread carefully whilst not fully daring to believe.
If I'm too conservative, I'll get left behind. If I take too great a risk, it's equally undesirable.
I'm still strategising on the best way to get +10% this year. Should I be aiming for more?
With such expensive taste, I'd better!
Then, I found out that one of my good friends will soon be leaving my industry. This one will take a bit of time to adjust to.
Now, I have to be doing something to cheer myself up. My portfolio's down about 1.18%, so that won't do.
So, here it is - an introduction to some of the best 'Secret Watches' ever, in no particular order as they're all equally adorable. I do have to say I like the Piaget ones better - more modern and less pretentious. The Vacheron Constantin one is also quite lovely in a very elegant but understated way.
1. Piaget Limelight Love Letter
2. Piaget Limelight Party Watch
3. Piaget Limelight Flower Theme Secret Watch
4. Van Cleef & Arpels Secret Duo Watch Caresse d'Eole Watch
5. Vacheron Constantin Kalla Haute Couture à Secret
How does one begin to choose?
It would help to build up the savings account for it first, wouldn't it?
Some time back, Richemont also expressed an interest in Tiffany's hand. Can Tiffany stay 'single' for much longer?
There's a very fine line between being patient and totally missing the plane.
Oh... why is this always happening to me?
Quite frankly, this is going to be more of an emotional purchase for me if I get in at the current price of +/- $29. P/E is too high for my taste, so I am going to wait.
Tuesday, July 21, 2009
Right now, I've got two trade setups I can trade with a fair amount of confidence - little black dress (bearish divergence) and little red dress (bullish divergence).
So, I'm going to do what Warren Buffett advises and just stick to what I know.
It did get me thinking though. I'm always trailing my stops haphazardly, doing this pretty much on a whim. I'm going to start experimenting with moving my stop in a more consistent way. What I'm thinking of is moving it based on a percentage of risk, which would also be linked to the probability of the trade.
Getting into the trade, I would need to set an initial fixed stop. Once the trade starts moving in my favour, I'll start trailing the stop.
I'll calculate my trailing stops as follows:
x = Initial Fixed Stop expressed in pips
y = Probability of trade
Trailing Stop = xy
So, if my initial risk is 50 pips, and I feel that this trade has a 70% probability, then my trailing stop would be 35 pips. If my initial risk is 50 pips, and the trade has a 45% probability, then my trailing stop would be 22.5 pips.
I would only start moving my stop when my profit level is equal to my trailing stop.
Essentially, the more confident you are on the trade, the less you'll move your stop.
I'll experiment with this for a while and see how that works with live trading. The question remains: how fast can I move my stops?
Hahaha... I can't stop laughing at the downwards trajectory GBP/JPY has been on since I got out of my long GBP/JPY trade.
Clearly, there's a benefit in moving your stop - especially where Bernanke is involved!
Even if I end up with lots of 10 pip gains the majority of the time, that one time you don't move your stop could end up killing you.
Still, I need to now figure out which trades I can actually get more than 10 pips and stick to my limits as well.
For the other Brian Dolan fans out there, I recently named a trendline after him! I've learned so much from him really - such a modest gentleman.
Anyway, I've been following his webinars for a while and have noticed that he draws out lots of ever-flattening or ever-steepening trendlines. The trendlines on his chart usually then end up looking like a peacock or a fan.
The idea is to first draw out a major trendline that the market seems to be respecting at the moment. This would mean that there are lots of points touching that trendline, but never breaking it. You would then look for minor trendlines that are forming. If it's an uptrend, the minor trendline would need to be above the major trendline. If it's a downtrend, the minor trendline would need to be below the major trendline.
If price action fails to touch the major trendline, then this means the current trend continues to be strong.
It's such an interesting and compelling concept. Here's an example of one of the applications. You'll notice that price action broke above the Brian Dolan Line, after which prices started moving counter-trend with a lot more momentum. If I find a better chart example, I'll repost.
Did anyone think I would ever get out of a trade with more than +10 pips?
Finally, it's happened.
I was targeting anywhere from +100 to +300 pips on a long GBP/JPY trade about an hour back, but slippage is just so evil. This is why I think when setting your target, you should always account for 3x current spread and consider it as part of your risk:reward ratio prior to trading. So, if the spread is 10 pips and you want to target 100 pips, if you can only get 70 pips out of the trade due to slippage, would your risk:reward ratio still be good? If you're really conservative, I would even go for 5x current spread - whatever you fancy, really. We always need to have a good margin of error in our trading.
This trade was one where I noticed my other favourite setup - the classic bullish divergence. This one I'll call the little red dress - silk, of course!
I was so tempted to Stop & Reverse when the trade initially was about -20 pips against me. But I told myself to take the disciplined approach and honour my stop for once.
I knew sentiment was working in my favour on this long GBP/JPY trade. Equities futures were bullish at the time I made the trade. I also had a divergence on hand. I had to control my self-sabotaging behaviour.
So, I stuck to my trade and was rewarded with double my usual profit - exactly +20.67 pips. One cannot even buy a bottle of good champagne with this and you may find this funny that I would be couch-jumping at such a small profit, but I was at one point about +38 pips. Slippage and retrace risk are evil, I reiterate.
I would like to thank my forex broker (who else can patiently put up with my trading tantrums in such a gentlemanly fashion?) and also that inspiring video from Boris Schlossberg.
Wow, I can actually do this!
I'm going to now start daydreaming about more and more profits! : )
Monday, July 20, 2009
I think I'm done adding to this position for now. If it ever hits its 52-week high, I'm in for a high four figure gain anyway.
Why exhaust myself and worry about it too much, right?
Plus, if the whole reverse split scenario plays out, this could get very tedious.
I might do better adding to BAC or NYSE.
KO is on the brink of breakeven for me now, but that was more a dividend play for me. In hindsight, I should have allocated it to my Roth IRA account.
Sunday, July 19, 2009
I am not a millionaire and it'll take me time to get there, but imagine spending all this time building up your asset base only to have it eroded by the government with some unfair tax legislation after all your hard work. Democrat or Republican, it's just plain wrong. It is legalised larceny!
Why does the government need to stick its nose in everything? Get out of Iraq and we won't need to raise taxes on anyone.
Taxation has gotten out of hand when you take into consideration taxes at the Federal, State, and City levels. What is all this money being spent on? Cumulatively, the US tax rate will probably be about 50%, which is similar to the socialist nations in Europe. Anyone with a little bit of intelligence can see that if the US government reduces income taxes, the savings from this reduction in income taxes could be used to pay for healthcare by the individual. So, why do we need to increase taxes on anyone at all?
We need to reform causes for the high premiums and not put a bandaid on a broken ankle!
Fraud is ever-present in the insurance industry...
RNC Chairman thinks Obama is a socialist too... And I'm only semi-Republican
Warren Buffett On Sex...
Warren Buffett Invests Like A Girl... I'm glad this article was written by a woman...
Everything Buffett Needs To Know, He Learned Right Here... gotta get this book...
When Will Buffett Bounce Back... When was he ever down? Give the guy a break. He's the second richest man on the planet.
6 Small Steps Toward A More Normal Economy...
7 Reasons to Worry About Next Week... I would add AIG to this - next earnings date 3 August 2009...
Even Bears Say Worst Is Over. Now What...
What the World's Greatest Investors Are Saying Now: An Overview...
Broker Talk: The Case for Taking Profits...
The World's Greatest Investors: Bill Gross...
In order to really move to London, two things would have to occur. First, it would need to be a better career move for me. Secondly, the move would have to have a more positive impact on my finances.
I know socially it'll be a much better move. I think I've got more friends in London than I do in Belgium. It's good to have such an international social circle, but also partly the reason I blog so much. LOL.
Anyway, after doing some rough calculations, in order to maintain a similar lifestyle as I have now, I would need a six-figure expense account denominated in GBP every year. I spend nowhere near this amount right now, but this hyperinflation is due to the higher cost of living in London.
Moreover, judging from the salary structures in London, which is a highly competitive job market since there are just too many employees looking for jobs compared to the actual number of available jobs, we are looking at a major divergence between desire vs. what is actually achievable.
In my research, I've found some interesting articles about London:
UK House Prices... some more sticker shock here, but I would totally get riverfront property in London if I did have the money, especially with a favourable GBP/USD exchange rate... Perhaps right at the height of the global financial crisis would have been perfect timing, but who would have been brave enough to buy then? If you have the money, playing it right would mean buying GBP/USD at a good rate and then buying the property. Or if you're really good at trading GBP/USD, pocketing your forex profits and then going ahead and buying the property. On property that costs 483,177 GBP the USD difference could be a good six figures. If you were long GBP/USD at 1.4 and got out at 1.65 on the same 483,177 GBP position, you'd be +120,794.3 USD. That's already a good 17.8% gain on your original $676,447.80 investment. Interesting but risky trade, but I'm sure the Guys of London are doing this all the time! The opportunity might still be viable, so there might still be time to act on this proposition after you do your own homework. I would advise to also look into property taxes and other legalities.
Taxation in the UK... This has me ready to scream "No taxation without representation!" Remember if you think US policies are increasingly socialist, they are much more socialist in European countries.
Mainly for fun, I'm also now trying to find out the male to female ratio in London. If there are more females (i.e. competition) than males in London, then it definitely doesn't make sense for me to move to London. Then, there's always the question of quality vs. quantity. LOL.
Right now, I still want what I've got, so I have to be grateful as well.
I realise he's not going to be here all the time for me and I really need to stop this addiction to having someone validate my trades.
But am I ready to stand up on my own yet?
The thing is he's such a smart guy and is usually right. His boss should totally give him a raise even in this economy.
In any case, I do need to make a conscious effort to stop trading when this happens. This is usually also a time when I like to stop & reverse & reverse until I think I'm going crazy when the proper thing to do was not to trade at all.
I took some time to really look at the extent of my past financial mismanagement more closely this weekend. I asked myself, if someone else who was serious about financial management was managing my finances, would I be in a better position today? I can't be sure, but I looked at some examples of investors who have consistently gotten everything right the majority of the time - Warren Buffett, George Soros, Carl Icahn, Bill Gates, etc.
What I realised was that if we manage to steer clear of financial mistakes, this ends up putting us in a much stronger financial position over the longer term. Keeping in mind that the historical annual return from the stock market is only 10%, what we stand to gain is small in comparison to what we stand to lose.
Defensive money management is much more important than we give it credit for.
1. Guard what we have. I think this is so important that I'm going to put my money where my mouth is and be 70% cash and 30% investments all the time. Now, I need to find a safe way that I can grow that 70% cash position whilst safeguarding against inflation.
2. Establish a long term investing philosophy. Laugh all you want, but I've always wanted to have my own mini fashion and luxury conglomerate. I only realised recently that I'm already on my way. So far, I've only got Bulgari and Harry Winston in my portfolio, but I'm going to add others as well. By owning small shares in great companies that I really believe in, I am essentially building up the mini fashion and luxury conglomerate I've always dreamed of. My shares may be small, but I'm realising my dream.
3. Don't be afraid to start small. If you're investing in a new financial vehicle you haven't traded before, start with a small amount of capital. Do not invest too much too soon. This will give you time to learn the particulars of that market. One of the reasons I blew up my forex account so soon was because I hadn't learned all there was to know about the market. Whilst it is something to regret, I think I've learned my lesson now.
4. The same thing goes with trading a new currency pair or a new sector. If you usually trade GBP/USD and would like to switch to another pair, or if you're usually in energy stocks but would like to switch to financials, then test the water first.
5. Know what your mistakes are and learn from them. Don't beat yourself up though. Just do everything you can to prevent similar future mistakes.
6. Always go couture. You need to have a strategy that is custom-tailored to the individual that you are. If you try to take someone else's strategy and make it work, it might not necessarily fit you so well. I'm always trying to contradict people, myself included. My boss once told me that to get me to do something, he has to tell me to do the opposite of what he wants me to do. LOL. So that's why contrarian / counter-trend strategies seem to work well for me. But if you like to follow the trend and are good with that, there's nothing wrong with that.
7. Ultimately, the perfect trader will probably be one who can master both trend-following and contrarian investing. They would have the logic to see when it is most profitable to follow the trend and when it might be a better idea to take the opposite side of the trade.
8. Always take an OTT view. Once you have a strategy you're confident with, continue trading and finetuning it. However, don't forget that you have to look at the broader picture as well. (OTT = over the top).
Now, I hope I follow my own advice!
Friday, July 17, 2009
Take a look at the readers' comments as well. Some are quite interesting.
Wednesday, July 15, 2009
I've been wanting to move my portfolio over to Charles Schwab for a while, but now E*Trade's offering monthly market commentary that's actually quite insightful. Plus, it's a real hassle to move assets over to Charles Schwab. The process is supposed to take about a month. I reckon it would be easier to just open a new CS account and start from there.
Here's E*Trade's latest Mid-Year Outlook: Stock Rally in the Late Innings (I like that Rusty guy)...
I don't know who to believe any more - but definitely not AIG.
At least HWD still loves me - a little...
I'm going to need a new strategy, or perhaps just a bit more patience. I need to achieve at least a +9% ROI this year in order to keep pace with last year's performance. So far, I'm only +2.1% - do not laugh! It would definitely be more if I take profit on some of the partial positions where I'm gaining a good double digit profit, but I'm trying to keep a long term perspective here by staying in the trade longer for potentially greater gains. It is rather very telling when your ROA is higher than your ROI though. This bit is definitely funny, but not especially funny if you're the one going through it. My friend told me he's aiming for +8% this year, but he's probably got a portfolio that's about 10 x that of mine. When you've got a small portfolio, you need to aim for much greater returns.
Now that so many of my high-yield bonds are out, a key component of my strategy is off-kilter. I did add two new corporate bonds to my portfolio this year, but I don't expect these to offset the negative impact the few defaults have had on my portfolio.
Another damaging aspect is that my cash reserves are now earning very low interest compared to one or two years back.
Surprisingly, my forex trading is actually OK compared to equities and bonds. That's not saying much, but at least I've managed to slow the downtrend my account has been on. I've been checking the forex market at least twice a day - a few hours into the London session and a few hours into the New York session. I essentially still look for my little black dress setup. Making sure it's couture takes a lot of work (see The Perfect Storm post below).
I was tempted to check out other currency pairs, but then decided against it because I still don't know GBP/JPY like the back of my hand yet. I've got to focus on this pair and really learn how it moves. Right now, I recognise some of its patterns after having been trading it for about nine months.
Keeping my trading journal has been the best decision ever. Even though I don't review it as often as I should, it is definitely beneficial. I've been much more cognizant of my trading mistakes since starting my trading journal. It forces you to look at your trading setups and really understand what it is you should be doing better. I am going to have to do some practice trades though. I've realised that I keep saying the right things but not really doing the right things when it comes to trading. So, if I do a few practice trades where I mindfully go through the right steps, I think it'll start to really pay off.
What would probably be even better is for me to use the downtime when I'm not doing a live trade to do a practice trade. When I don't see my little black dress setup, I just don't trade. But if I utilise this time better and actually do something productive with it rather than reading John Mayer's tweets (always a LOL moment), I just might accelerate my learning even more. What could be better than actually making your own observations about the market and then developing your own theories about how things might pan out? I think that's pretty priceless experience.
Tomorrow's a new day, so I'm going to try to keep my head high!
Tuesday, July 14, 2009
Aside from the Harry Winston diamond watch collection, I haven't been this wowed by a watch for a while. The Piaget Limelight Paradise Watch in Tropical Seas Inspiration Theme with Brilliant-cut Diamonds, Emerald-cut Green Beryl, and Oval-cut Aquamarine Watch definitely gets my blood pumping, but I unfortunately do not have the budget for it at the minute - and probably will not for the next five years? The price is listed as on request, so a conservative estimate would probably mean it'll literally cost as much as a house.
This must be on every diva's wish list - beautiful but prohibitively unattainable.
They started cautioning us back in late 2008. Then, in early 2009, they issued another bankruptcy ultimatum to their suppliers.
I know I'm in the weird habit of contradicting myself a lot, but now I'm really ready to say please rip the bandaid off already. The karma is clearly on them, isn't it?
So, if you're a Finlay bondholder, please take action by demanding immediate payment of your bonds in writing to Finlay.
Sunday, July 12, 2009
Under the current trading conditions, one wrong move could have far greater than intended consequences. It may not seem like it, but I'm a lot more conservative with cash lately. So, it's much more important to maximise my two cents in the market. It'll also often mean that if I'm investing a certain amount in Market A, I won't go ahead and match a similar contribution to Market B.
This restriction has been another blessing in disguise as it led me to see that if I had compared opportunities in both the stock and bond markets for two recent investments, my potential reward could be much, much greater at much, much less risk. It's now a question of building up good trading habits.
On Friday, I was researching some bonds and noticed that there are now AIG bonds on the market with an annual yield of over 20%. If I had looked at AIG from a macro level and compared both its stock and bond issues, I would have seen very obviously that the bond is potentially the better play. The US government owns 80% of AIG. It won’t go bankrupt any time soon. And at a yield of 20% in my IRA, that would have been an excellent play for a two year note, especially given the recent AIG reverse split fiasco. I'm keeping the second one a secret for now. Last time I told my friend about a stock I wanted to get into, he bought it up before I had a chance to build up a position myself. LOL.
So, next time, I need to compare not only Stock A vs. Stock B, but also Stock A vs. Stock B vs. any corresponding corporate bonds.
This is a wife vs. mistress scenario! There's a very big difference between being a bondholder of a bankrupt company and a common shareholder of a bankrupt company. The bondholder will take legal precedence over the common shareholder.
For those wanting to buy GM common stock, please keep a cool head. The recent rally could be a combination of short covering and over-exuberant investors buying up the stock.
More on the GM reemergence from US News & World Report and The Motley Fool.
Thursday, July 9, 2009
The majority of my corporate bonds are now trading flat with the exception of Neiman Marcus and United States Steel - taking me one step forward as a viable candidate in the 2009 Most Disastrous Portfolio Contest.
Not to be outdone, I also missed out on a 700 pip move with a recent GBP/JPY short by getting out with just 10 pips. My strategy was to move my stop after getting to +20 pips, but it never got there whilst I was in the trade and started reversing, so I just took profit. In hindsight, I had managed my risk properly, especially considering the reversal would have taken out my stop, but at the same time, it doesn't make you feel any better seeing the 700 pip drop practically overnight.
Realistically speaking, if I'm going to continue moving my stops the way I do, this is going to continue happening. So, I'll just have to look at it as risk management, especially since if I don't move my stops, the trade could have turned into a loss instead. Even a small gain is better than a loss, I say. What I do need to now figure out is why my trading signals didn't show me that the 700 pip drop was imminent so that next time I see a similar signal, I'll be able to stay in the trade longer.
Back to my Junk Bond Queen status though, I've acquired most of my newly defunct bonds for less than 40 cents on the dollar, so the damage is relatively contained. However, the bankruptcy proceedings will take at least another year for most of these companies (Washington Mutual Bank, Lehman Brothers, Ion Media, and Metaldyne). I did acquire the WaMu and Lehman ones after they filed for bankruptcy at a ridiculously low price, but Ion Media and Metaldyne were sort of unexpected but not exactly shocking.
I don't expect Neiman Marcus or United States Steel to follow suit.
A few scenarios could play out following a bankruptcy:
1. Bondholders could receive a direct payout following the formal bankruptcy and liquidation proceedings. The widely accepted average recovery is about 30 cents on the dollar for unsecured creditors. The procedure could take a few years, so patience is required.
2. Bondholders could receive equity in the newly restructured company in the form of preferred or common stock. In this case, it is my belief that bondholders could be in for quite a substantial gain providing that the company is good to begin with. In hindsight, I should have bought myself some GM bonds immediately following its Chapter 11 announcement, but it's now too late.
3. Bondholders could receive new bonds issued by the newly restructured company. This, I'd say is the least favourable outcome. It's not unusual for a company that has filed for bankruptcy to repeat history.
The important thing to remember after a company files for bankruptcy is to file a proof of claim form as soon as possible.
In celebration of my JBQ status, I contradicted myself and bought some more replica art, including Max Klinger's incredibly beautiful Triton & Nereid as well as Gustav Klimt's Completion and The Kiss.
I've now got replica art everywhere.
Tuesday, July 7, 2009
The Worst Stocks to Buy Today... I don't know if I should be offended that AIG is not on this list? LOL.
I'm not exactly in an enviable financial position at the very moment, although I definitely won't complain either. I'm the first woman in my family earning the amount of money I do and I'll definitely be the first woman in my family with either a self-financed Hermes Kelly, Birkin, or Lindy - or all three.
People might be wondering why it has taken me over eight years to be on the precipice of obliterating my debt once and for all. Eight years is a long time, but I think part of the reason it's taken this long aside from my constant obssession with shopping is I had been investing and at the same time focused on debt obliteration most of the time. Now that my portfolio is down in the double digits, I wonder all the time whether I've taken the wrong path.
But at the time, given the benefits of compounding and low interest rates, I chose to invest and at the same time pay off my debt. Now, I know compounding can work against you too - especially when you're just starting out and don't know what you're doing. The blessing in disguise is that when I do finally become financially free, I won't be starting out from zero again. However much my portfolio will be worth then, at least I'll have relatively liquid assets.
Anyway, I do want to point out that one's mindset when investing with debt vs. investing when you're fully financially free will probably be very different. I've definitely committed some financially suicidal moves over the past few years, which if I had been fully financially free, would probably not have made.
So, looking back, did I take the wrong financial path? Maybe I shouldn't even look at it that way. All I know is I've taken all these steps to financial freedom. I had to work really, really hard, but that actually made me feel like I deserve financial freedom. Being who I am, I probably wouldn't have wanted it any other way. So, I should now focus on what I could be doing next to make my portfolio better than ever before.
It was quite interesting when Hillary Clinton was running for President (and I insist to this day that she should have been elected), she had suggested that home economics, including financial budgeting, be reintroduced into the education system. I'm all for it. I had to read a ton of books and do a lot of research to learn basic financial management skills. Even if you study at a university that is supposed to be specialised in finance, they won't teach you the basics - which is what's most important. For some people, this stuff might come naturally, but judging from the state of our economy, it's definitely not the case for the majority of people. So for anyone feeling terrible / lost / hopeless about their financial situation, you need to keep your hope up and know you can get out of it even if you're a chronic shopaholic like myself.
Anyway, back to the subject of investing vs. debt obliteration... if you're in a similar situation, do you choose investing or fast-track debt obliteration?
The short answer is if you know what you're doing with investing and if you could get very low interest rates, then investing whilst carrying debt makes sense. I was able to get interest rates of 3% or less about 50-60% of the time I was carrying a lot of debt. Back when I could get a 5.5% APY on a savings account, keeping the cash in my account made a lot of sense. Not anymore.
If, however, you've got astronomical interest rates, then investing with debt is financially sinful in my diva opinion. The historical rate of return on stocks is about 10% annually. Factoring in taxes and inflation, your expected rate of return on your portfolio must be much higher than your APR in order for investing to make sense.
Now, what can you do to get out of debt?
1. It may sound simple and it's going to be a bit of do as I say not as I do, but the first step is to ensure that what you do earn is greater than what you spend. Many people will look at their gross salary and think it's a lot and go out and basically spend it all and wonder why they have nothing left. Been there, done that. Looking at your net salary is what matters most in budgeting.
2. Be strategic and map out all your debt in Excel. List out any and all debt you have along with APR rates so that you're never in denial. Pay off the highest interest debt first.
3. Renegotiate your APR. Even if your credit score is not ideal, don't let it stop you from calling your bank and at least attempting to renegotiate your APR on any of your loans or credit cards. I do it all the time and banks are usually responsive as I have a good credit score. Even if you save 1 or 2% a year, your savings will add up.
3. What has helped me a lot during the past year is paying cash or using my debit card for every purchase. With cash, you can implement the envelope method, which is splitting your cash up into envelopes with labels such as utilities bills, rent, spa, dinner, etc. I know it sounds elementary, but it works!
4. Freeze your debt. Don't add to it. I put myself on a two-week financial diet last month, living on only 15 Euros a day. It was torture, but at the same time, I didn't feel any more or less happy. I did have to go to the spa much less, but when I did go, I ended up appreciating it more. To accelerate my debt obliteration, I may have to do this more often this year. For some more ideas, refer to The Motley Fool.
5. Perhaps most importantly, try to increase your cash flow. If you get a large tax refund every year, you can request to lower the amount of taxes deducted from your paycheck so that you don't give Uncle Sam an interest-free loan. And if you're really a workaholic, then you can get a second job.
Once you're financially free, congratulate yourself and never backtrack.
To stand on your own financially must be the most amazing feeling ever! Just a few more months to go...
On another note, I even made up my own expression today... cat calling the kettle black! Oops...
An even bigger oops? Barclays' new TV ad!
Now that's the cat calling the kettle black...
Monday, July 6, 2009
If we can get 25% of us together to demand immediate payment of our Senior Notes, we can accelerate the payment process and maximise our payout. (Should I be caring about any potential bad karma at this point? Finlay has indicated they have no intention to make the interest payment. If Finlay continues to operate, they will just be eroding their asset base away, leaving Senior Bondholders with a much lower recovery rate.)
Financially, it is in everyone's best interests to accelerate the process - especially for Senior Noteholders.
So, I say rip the Finlay bandaid right off.
Thursday, July 2, 2009
Rather than contending with institutional shareholders on what's considered fair to all shareholders of the company on any future issues, individual shareholders will need to battle the complacent U.S. government - far worse, in my opinion. As individual shareholders, our voice is only 20% of votes - which is a no-win situation. Even if all 20% of us agree, we're still only a minority. No wonder that horrendous reverse split scenario was approved.
One of the shareholders at the AIG meeting asked a very poignant question: "We don't see anybody being held accountable. Who's responsible? And who is going to be held accountable?"
The short answer is: ultimately, we as individual shareholders are the ones responsible. No one else will ever be able to safeguard our portfolios better than we will. So, we've got to be the ones doing the due diligence and creating a contingency plan.
Right now, I've only got a very small amount of money to invest, but I've got to maximise the effectiveness of this capital on all future trades. To start with, I recently created an asset allocation plan to determine the amount of capital I would invest every year in each market that I trade, including equities, forex, corporate bonds, and cash reserves. As my knowledge on investing expands, I plan to add other investment vehicles to my overall asset allocation plan. I intend to evaluate the performance of each investment vehicle on a bi-annual basis to determine if I need to rebalance my portfolio. By adhering to this plan, I will continue to ensure that my portfolio is well-diversified. I will also be able to quickly take action in case there's a once-in-a-lifetime opportunity presenting itself in Market A relative to Market B. Opportunity costs are often overlooked in my portfolio planning, so I've got to account for this in the future.
Secondly, I also created a portfolio targeting plan for my equities. This is basically a scenario analysis that enables me to forecast potential profit on positions by targeting the 52 week high and the all-time high. Other potential price targets could be 50% of 52 week high or 50% of all-time high, depending on your time horizon. The really good thing about this scenario analysis is that I started plugging in different numbers of shares - essentially playing around with the position sizes to see how that would affect P/L. This is very enlightening. On some positions, if you add more shares, you get a much better profit. Obviously, it's better to do the scenario analysis prior to buying any shares. Right now, I've done the opposite, which is buying the shares prior to the analysis. In the future, this will change. I will not only do this scenario analysis, but will also look at it from an OTT view - that is, I'll compare a few different stocks at once and choose the one that yields the best reward with the least risk.
Finally, I've got to make up for lost time. I've been financially irresponsible in the past, so now I've got to be much more careful and diligent. Rather than jumping in head first, I've got to first test the water a bit. After all, ultimately, we are the ones responsible.
Wednesday, July 1, 2009
Just when I thought I was finished nursing my trading wounds for good, I recently acquired a small position in AIG and failed to do my due diligence, which caused me to neglect the minor but major fact that they have announced a 1 for 20 reverse stock split.
The problem with this is that my position was small, so now I've only got 15 shares in AIG. I'm wondering if I should be laughing or crying.
OK, I could look on the bright side... I didn't invest too much to begin with, so this is where risk management works for you. But it's a bottomless pit in the sense that if I don't add more shares to a Reverse Split stock, I'll be waiting 100 years before it ever breaks even. In this case, it's probably not even worth adding more shares.
I'm going to do some more research on the whole topic of the Reverse Split and post any interesting info I find here.
For now, I've got to go back to nursing my C position. Please let other shareholders have enough sense to reject this whole Reverse Split notion. From my experience, a Reverse Split is never good. And I had such high hopes for Vikram Pandit. Sigh.