It’s all magic. Anyone can become a millionaire without special anything. All you need is money, and … abracadabra … magic works itself. That magic is compounding, like a snowball rolling down the hill.
Albert Einstein – Compound Interest quote (not proven he actually said it)
As Einstein once said, “the most powerful force in the universe is compound interest.” Well actually, nobody can confirm the quote’s true author. It’s just credit to Einstein himself to give the quote more weight. More weight as in the snowball rolling down the hill. More weight as in your investment account balance increasing.
Past S&P 500 Returns
Over the past 40 years (1978 to 2017), S&P 500 has had an inflation-adjusted annualized return rate of 8.11%, after having dividends reinvested.
After dividends and compound interest, $1,000 investment in 1978 would be $22,661*.
Over the past 30 years (1988 to 2017), $1,000 investment would be $9,595*.
Over the past 20 years (1998 to 2017), $1,000 investment would be $2,623*.
Over the past 10 years (2008 to 2017), $1,000 investment would be $2,054*.
* Note the investment values above are before any brokerage fees and taxes.
That just includes the initial investment. It doesn’t include periodic investments. Let’s include periodic investments as an example.
Time Is Power
Below you will see two people, Jacob and Kelly, making a periodic investment until they retire at age 65. The only difference is that Jacob starts investing at age 20. Kelly starts out late, at age 30.
Their investment will yield inflation-adjusted 5% annual return, and 2% dividend yield which automatically gets reinvested.
Jacob and Kelly, Investments
Jacob started out earlier and invested $20,000 more than Kelly. However, he came out way ahead of her by a whopping $499,659. Time is money. The power of time and compound is real. Very real!
Start investing as soon as you can. The earlier, the better.
Start investing as much as you can. The bigger, the better.
Before you close this article, one more thing. You notice how a male (Jacob) made way more money than a female (Kelly)? Highlighting income inequality.
Oh, wait! One more thing. You notice how a female started out so late than a male? Highlighting other gender gaps across four thematic dimensions: Economic Participation and Opportunity, Educational Attainment, Political Empowerment, and Health and Survival.
Anyway, thank you for listening today. I mean reading. Have a nice day.
There are two ways to make money: humans and invested money. Humans work to make money. That money either gets spent or invested. We need both!
Lack of Financial Literacy
The problem is that almost half of Americans don’t own stocks. From 2009 to 2017, the average percentage of Americans who owned stocks was 54%, down from an average of 62% eight years before. The figure includes individual stocks, 401(k) plans, shares in an equity mutual fund or an IRA account. Understandably, income is highly correlated to U.S. stock ownership rates.
The problem lies in the lack of financial literacy. It’s in human nature to spend money to fulfill our present needs and wants. The emotional desire to spend more now throws out the need to think long-term. (For example, don’t shop while you’re hungry). Investing is savings since you didn’t spend the money on a $3 coffee or $1 bottled water.
Invest = Save
With that being said, side hustles are needed. The point of side hustles is to make extra income and diversify your cash flow. Most side hustles takes your time. Most side hustles hire you. The only side hustle that doesn’t require time and you are the boss is investing.
By investing, I don’t mean in penny stocks and individual stocks. By investing, I mean index funds or ETFs. By investing in index funds/ETFs, you cannot be fired, nor do you need to take time out of your schedule to work on it.
By investing in the market, there is no income tomorrow. By investing in the market, it increases your probability of financial stability (and happiness?) in 5-45 years. If investing now, you’re not spending. By not spending, you may not feel happier in the present. But most of the times, we buy things we don’t need. Investing increases the probability of better future consumption in which life circumstances might be worse than it is now.
Fun/Sad Fact: There’s a couple in NYC making $500,000 a year and only has $7,300 left to save. That’s still a lot, but only 1.46% of their gross income. They could have more savings if they were disciplined. (I don’t know them personally, so they still could be disciplined).
Stay Disciplined
Building wealth is so easy, except it is hard to do it consistently. There are two types of people in the world; disciplined investors and non-disciplined investors.
In order to be disciplined, it’s important to think long-term by having assets allocation in sync with your current life situation, and by doing that you’re likely to maintain the portfolio in market volatility. After all, the market always goes up in the long-run. After all, the Dow Jones index will hit a million (current: 26,500.00) in 99 years.
Historical logarithmic graph of the DJIA from 1896 to 2018. Source: Wikipedia
Another way to stay disciplined? Let the technology invest for you. Most investment accounts allow automatic investments. Even little as $20 a week can add up in the long-term. Apps like a micro-investing Acorns app is helping an average-Joe invest more than he usually would, without the emotional attachment since he doesn’t really notice the money leaving his checking account.
Sure, investing has its risks. But, stick to long-term. Non-invested money loses its value due to inflation. Take the risk and that risk will reap your rewards.
When the stock market increases, the rich get richer, so do you. (maybe you’re already rich so you belong in the rich category. Well “rich” is a subjective term to everyone). Your wages may not grow, at least your investments are growing.
Just wait and you’ll get your reward. While you wait, do other things such as other side hustles that require your time. Or go hiking. Or learn to play guitar. Whatever interests you.
I didn’t even mention saving in an employer-sponsored retirement account. I mean, 3/4 of U.S. employers offer 401(k) match. That match is FREE MONEY! Freeeee, something Bernie Sanders would love.
In 2017, I focused less on a personal forex portfolio, and more on other portfolios as capital deposits in the latter reached the same amount as the personal FX portfolio. In this post, I will be discussing three currency portfolios; active trading strategies, carry trade strategy, and cryptocurrencies.
Active Trading Forex Portfolio
Since inception (09/29/2015, I actually started trading in 2011), personal forex portfolio is up 33%. For 2017, it returned 8.39%. For 2016 and 2015, the portfolio returned 32.82% and 117.48%, respectively. So why the big differences in percentages since inception and yearly returns? More money was deposited into the account over time. As a result, I have risked much lesser capital per trade. The portfolio size is 10 times bigger than it was in 2015, or 100 times bigger than it was in 2011. Thus, the returns in % terms are much smaller, but in nominal amounts, much bigger.
In 2017, the maximum drawdown was almost 7%. When the drawdown increased 2% in a week in the middle of the year, I knew I had to change certain positions. 2% move in a week was a big deal considering I was focused less on the personal FX portfolio. Once I closed certain positions and opened new positions, the drawdown went back to its average of 3.5% within two weeks and stayed below that level since then. Risk management is very important!
I don’t have other metrics, such as monthly returns, standard deviation, and Sharpe ratio, as I did for 2016 because the ex-broker who provided me with the useful statistics was banned from the U.S., for defrauding customers and engaging in false/misleading solicitations.
Carry Trade Forex Portfolio
During early 2017, I wanted to create another forex account solely focused on one strategy. I didn’t want the carry trade positions mixed with active positions. So I opened an account with a different broker, Oanda. I initially deposited about 4% of my capital, amount I can afford to lose.
I made some mistakes in the beginning. The first trade was shorting EUR/TRY, whose interest differential is the highest, A.K.A higher yield. I started to lose a lot of money as the only carry trade in the account kept going in the opposite direction of my favor (EUR/TRY kept rising), talks of ECB tapering its balance sheet appreciated the euro and the situation in Turkey depreciated the lira.
Within several months, my unrealized losses were about 30% of the portfolio. I couldn’t do anything about it to manage the risk as my hands were tied due to work. I had to set up the carry trade portfolio in a way I barely have to worry about the fluctuations in unrealized P/L. When work ended for the summer, the portfolio drawdown was its highest, almost 50%.
I learned that the key to successful carry trade is to leave plenty of margin in the account for the pairs to fluctuate without wiping out your account. So I deposited 1% more capital into the account to prevent margin call. Immediately afterward, I changed my positions. I shorted some of the highest yielding currency pairs with negative correlation to EUR/TRY. Within a month, the drawdown went from 50% to 30%. Currently, it is just above 20%. Risk management is very important!
For its first year, the portfolio is up 14%. The 14% comes from the interest returns on the positions as it rolled over to the next day. However, when the unrealized losses are taken into account for 2017, the portfolio is down 23%. Carry trade is a long-term trend following strategy that requires patience and risk management.
This is an instance of humans thinking they can do something well, but things go sideways when they put their actual money, relationships, etc. at risk. I initially believed I could make some money easily with the carry trade. When the time came to have a real money at risk, I made mistakes and learned a lot! This is why I won’t be overconfident in things unless I actually have a good experience in it. Not just for professional life, but also for personal life.
Cryptocurrencies Portfolio
Ahhh. Cryptocurrencies. The hot talk of the moment. Like everybody else, I’m up big time. I started buying cryptocurrencies in July. As of this writing, the portfolio is up 143%. I know I know, 143% is nothing compared to the actual returns of the cryptocurrencies. I currently hold Bitcoin (BTC/USD), bitcoin cash (BHC/USD), Ethereum (ETH/USD), and Litecoin (LTC/USD). If all the cryptocurrencies were to drop 99%, I will only lose 5% of my capital and continue to live as usual. To clarify, I’m not actively trading them.
I bought $ETHUSD (Ethereum) between $135.79 and $142.98. Still holding it. Might buy more (will be tweeted live). Not sure about bitcoin yet
As the ethreum was skyrocketing, litecoin was also joining in the action. I added little more litecoins then.
As I have said in the “Long Cryptocurrencies” article, “I have no idea where Bitcoin price will be at tomorrow, next week, next month, next year, next decade.
For 2018, let’s see if I open another FX account. This one just might be algo-based.
Let’s get to the ugly truth. Since inception (July 2014), my passive portfolio is up only 2.18%, 19 times less than the market return during the period. For 2017, the portfolio returned only 3.82%, 6 times less than the market return. Um….um….um, let me try to justify the low returns.
My peers and people jealous of me would be laughing like this:
Kuroda’s evil laugh
2014-2015
When I opened the account in the summer of 2014, TD Ameritrade gave me 2 months to trade for free. So during that time, I wanted to fill the account with stocks. The only problem was I did not know which stocks to buy. At the same time, I did not know how to research potential investments.
Mostly guided by “expert” recommendations and positive headlines, I bought some stocks which destroyed my portfolio, including Ford (F), J.C.Penny (JCP), Cisco (CSCO), General Electric (GE), and General Motors (GM). In 2015, I still did not know which stocks to buy. I wanted to do my own research. I decided to research all the stocks that were bought the previous year.
From my research, I found CSCO, GE, and JCP attractive. So I decided to keep them in the portfolio. I even wrote about CSCO and GE on the blog. I did not write on JCP as I was not profoundly convinced. Funny thing is I have never shopped at JCP, just at its competitors. Even my mother did not like J.C. Penny.
I did not like F, yet I decided to keep F in the port because it was not worth getting rid of them at $10 commissions. For GM, I was on the fence. In addition to these names, I decided to research new names and bought some of them. 70% of my portfolio was in cash in January of 2015. In December, it was 42%.
The new stocks I bought in 2015 were non-dividend yielding risky names, such as Bellatrix Exploration (BXE), Twitter (TWTR), and GoPro (GPRO). All of which did not work out well to this day. BXE, because I tried to find a good energy company at the time every energy companies were distressed. I’m very active on Twitter and use GoPro most of the time. So I wanted to invest in them. At that time, I thought Twitter would get acquired, and GoPro management would start to turn things around, and the Karma Drone would be positive for the company’s financials.
2016-2017
In 2016, I continued to research new stocks. However, I did not invest in any of them. I deposited more money into the account during that year. At the end of 2016, 82% of the portfolio was in cash.
I always found real estate interesting. Used to read about them. My interest in the real estate market skyrocketed after my first ever internship, at a small real estate firm. In January of 2017, I decided to buy WPC, a Real Estate Investment Trust (REIT). During the year, I also bought Verizon (VZ). I did not want the remaining cash in the port to sit idle. So I decided to purchase free commission based short-term bond funds, very stable dividend yielding cash parking (and one high-yield ETF). At the end of 2017, 17% of the port was in cash.
Over the past month, I have been researching consumer goods companies. I’m looking to add one to the port. When I do, I will be sure to write about it.
10 Equities
I’m currently holding 10 companies; CSCO, GE, GM, BXE, WPC, JCP, F, TWTR, GPRO, and VZ.
All shares of 10 different companies belong to 1 class: domestic equity. 62% are in large cap., and 38% are in mid-cap.
On February 16, 2015, I recommended going long Microsoft (NASDAQ: MSFT) when the share price was $43.95. Since then, it is up 101%*. I made a mistake of not buying when I wrote about it. “Put your money where your mouth is, Khojinur.”
On April 12, 2015, I recommended going long General Electric (NYSE: GE). Since then, GE is down 33%*. Dividends are automatically invested in new shares. Average price I paid for the shares is $26. I’m down 29%. Despite the 50% dividend cut recently, I’m staying with the stock for two reasons. The cost-cutting will be the best bet for us the shareholders. The $7 commission fee won’t be worth it, especially since the stock was bought in 2015 when I had less money. If I can open second Robinhood account, I’ll transfer from Ameritrade to the free-commission based brokerage.
In the summer of 2015, I wrote about CSCO (part 1, part 2 AND 4Q FY’15 earnings report). Since the first article, the networking giant is up 44%*. Average price I paid for the shares is $25.11. I’m currently up 57%.
On November 21, 2015, I wrote my first article on LLY and believed it was overvalued (it still is). Since then, the pharmaceutical company is up a mere 1.25%*. The second article on LLY was posted a year after the first article. I personally am not short the stock as I cannot short.
On December 26, 2015, I recommended going long GoPro (NASDAQ: GPRO) and believed it was a buy. Since then, the action camera maker and I are down whopping 59%.
On May 2, 2016, I recommended holding FireEye (NASDAQ: FEYE). Since then, the cybersecurity firm is down 15%.
On January 20, 2017, I recommended going long W.P. Carey (NYSE: WPC). Since then, the REIT is up 11%*. Average price I paid for the shares is $61.44. I’m currently up 10%.
On May 9, 2017, I recommended going long Verizon (NYSE: VZ). Since then, the telecom is up 46%*. Average price I paid for the shares is $46.05. I’m currently up 47%.
*dividends not calculated
Estimated the portfolio dividend yield is 2.48% (that is very similar to the 10-year yield), with largest being 6% and lowest 0%. I plan to increase the portfolio dividend yield by getting rid of non-dividend yielding stocks and/or buying dividend-yielding stocks. That will happen fast, if I can make second Robinhood account and transfer the portfolio to there.
When I started doing research in-depth and writing down my findings and thoughts, everything started to improve. Writing is powerful!
Every new trade and investment will first be announced on Twitter. Almost always!
Happy New Year! I have no resolutions since every day is like a new year for me.
In 2017, I focused more on active equity/commodity portfolio than the other portfolios as I finally was able to trade free of commissions, found more opportunities there and had money saved up from off-book jobs.
WHAT A BORING YEAR…for the stock market. Sometimes, boring is good. S&P 500 was up 21.64%.
The geometric average return since the financial crisis is 8.42% (2008-2017). Geometric average better reflects the returns over time since there’s always volatility in the market and volatility lower investment returns.
Since inception (November 2016), active equity/commodity portfolio is up 15.74%. For 2017, the portfolio returned 11.86%,way way below the market. No wonder active managers are not anyone’s favorites at this time.
Figure 2: Active Equity/Commodity Portfolio (Robinhood) P/L since inception (Nov. 2016). The white line represents the start of the year.
I will address the significant drawdown you see in figure 2 at the bottom of this post.
The biggest gain of the year, both in a percentage and nominal terms, came from the first trade in 2017. The trade was long NUGT (3x leveraged gold ETF). I believed gold was unfairly beaten down and would recover around the new year as portfolios would be rebalanced and uncertainty with Trump’s economic plans at the time would force investors to hedge their portfolio. And that’s what happened in January 2016. I closed the position at 28% gain.
While trading 3x leveraged ETFs, Be cautious as they always go down even though the underlying security goes up. The structure of leveraged and inverse ETFs are different than most retail investors think. They are not a good idea to be held for a longer time and as a significant portion of a portfolio.
The biggest loss of the year, both in a percentage and nominal terms, came from the 5th trade in 2017. The trade was long TVIX (2x leveraged volatility ETN, not ETF). I believed volatility would pick up from February to March (and it did a little bit). However, after TVIX underwent 1:10 reverse split in mid-March, I did not want to risk having the ETN go to single digits once again. So I closed the position at 17% loss.
To briefly sum up, the biggest gain was 28% and the biggest loss was 17%. In positive nominal terms, the profit was three times larger than the loss (positive number).
At the time, both NUGT and TVIX were a significant portion of the portfolio (Robinhood). Over time, I deposited more money into the account as I saved up from off-book jobs and summer internship. The account is now 6 times larger than it was at the beginning of 2017. Larger account allowed me to have more flexibility and lower my exposure to a single trade.
Top 3 Trades and Bottom 3 Trades
Current Positions:
I can only go long securities on Robinhood. Current positions are VRX (The biggest gainer at the moment, 112%. 14% of the portfolio), ORCL, XIV, ILMN, OMER, PSQ, SH, COL, TEVA, MTSI, and AXON (The biggest loser at the moment, -77%. 0.5% of the portfolio).
When talking about % gains on trades, traders should also look at those trades as a % of the portfolio. If I’m going to speculate on a one-time event, such as FDA ruling on a drug, I’m going to have a small exposure to that company (such as AXON). If I am profoundly convinced on the fundamentals of the company and/or technicals of the stock, I will have a higher exposure to that company (such as VRX).
It’s important to point once again these gains/losses are unrealized. The returns are subject to change…until the position closes.
Both PSQ and SH are inverse ETFs of the market. I have bought them as a small hedge for my portfolio as I’m long individual U.S. stocks.
Why am I long the stocks mentioned above? I will not go in-depth here.
$VRX: Extension of debt. Time flexibility to restructure the company.
$ORCL: Unfair share-price beat down after positive earnings report and market, in general, is trending higher.
$TEVA: TEVA calls were active after Allergan (AGN) was halted. Speculated upcoming positive news for TEVA. The week after, new CEO news. Sticking to TEVA as the new CEO has a great reputation and I’m confident his tenure will reward the shareholders.
$MTSI: Calls active and social media sentiment.
$AXON: Speculation on Alzheimer drug data. Chances were low, but I believed even a small positive side of the drug would help the stock price. I was wrong. Was initially 2% of the portfolio. Now 0.5%. Still open as I have nothing to lose.
Get Out?
Over 12% loss of value in less than 2 months (Fall 2017). The face is from the movie “Get Out“
As you saw in figure 2 (and figure 3 below), there was a large drawdown in the portfolio. Over 12% of the portfolio lost value in less 2 months. Why was that? It was largely due to VRX and TEVA tumbling. Both were little longer-term strategy and high conviction both companies would turn itself around. After 2 months, both stocks rebounded and hit 52-week highs afterward. Other stocks in the port during the 2 months were performing fine.
If it is one thing I learned as a trader, it is that high conviction leads to an ego which then leads to losses most of the time. So did I have an ego in this case? I don’t believe so. I was sticking to the initial trade strategy on VRX and TEVA, and there was no material news. It was the market noise. If the company fundamentals changed, then I might have changed my strategy on the trade (either close, cut down, or buy more shares).
Upcoming ‘Portfolio Performance’ articles will be on other portfolios.
Big-Risk = Big-Return is true for individual securities. But not for a portfolio. A common misconception for investors (and traders).
Risk-Reward has a positive correlation, but it’s not perfect.
Risky securities are diversifiable by lower correlated/negative correlated securities. By buying low correlated securities to hedge your risky security, are you lowering your upside? No. You’re lowering your downside.
For investors, capital preservation is more important than the growth of capital. The bigger the investment loss, the greater the gain required to break even. A 20% investment loss requires a 25% gain to get back to the initial investment value. Whereas a 40% loss requires 67% and 70% loss requires 233%. The best offense is a good defense.
The Importance of Downside Protection
If you invest $10,000 in S&P 500 ETF and a recession causes the market to drop 30%, the $7,000 value would need to gain 43% to get back to $10,000.
Let’s look at the following 3 portfolios, each with a different strategy:
Portfolio 1 is invested 100% in S&P 500 (SPY).
SPY’s annualized standard deviation is 15%.
Portfolio 2 is invested 60 and 40 in S&P 500 (SPY) and Investment Grade Bond Fund (FBNDX).
Both are 0.31 correlated, based on annual returns.
FBNDX’s stdev is 4%.
Portfolio 3 is invested 33.34%, 33.33% and 33.33% in S&P 500 (SPY), Investment Grade Bond Fund (FBNDX) and U.S Real Estate ETF (IYR), respectively.
IYR is 0.69 correlated to SPY. 0.63 correlated to FBNDX. Correlation is based on annual returns.
IYR’s stdev is 21%.
* I initially wanted to backtest them for 30 years, but since IYR was the only real estate ETF I could find with the earliest fund inception date (June 2000), the backtest is from Jan 2001 to Dec 2016.
Each portfolio is rebalanced annually. Dividends and distributions are reinvested. Taxes and transaction fees are not included.
Here’s the growth of each portfolio over the past 16 years.
3 Portfolio Backtest (Inflation Adjusted). January 2001 – December 2016
Port 1 has returned annual growth rate of 3.26%, after inflation.
Port 2 has returned annual growth rate of 3.36%, after inflation.
Port 3 has returned annual growth rate of 4.75%, after inflation.
Portfolio 1 and 2 have very similar returns. However, the traditional 60/40 portfolio (port 2) took much less risk than all-in portfolio (port 1).
Port 2 had a maximum drawdown of 35% while port 1 had 51%. Portfolio 2’s standard deviation (9%) was almost half the stdev of portfolio 1 (15%).
Port 3, on the other hand, had 45% max drawdown with a standard deviation of 11%, both in the middle of port 1 and port 2. However, they returned much higher.
3 Portfolio Backtest. January 2001 – December 2016. The “Final Balance” and “CAGR” numbers you see above are not inflation-adjusted.
Downside protection strategies may help prevent investors from their bad habits of overreacting to downside volatility and incorrectly timing the market, missing the boat of high returns. Over the past year, S&P gained 18.10% while an average investor gained half of the growth.
S&P 500 vs Average Investor Return. 1-Year up to September 8, 2017. Source: Openfolio
If you are a passive investor, consider downside protection strategies to limit volatility and build wealth over the long-term.
Diversify portfolio with:
Bonds (Finance 101) such as Treasuries, high-yield bonds, TIPS, etc.
International equities (different geographies, different returns/risks), such as, emerging and frontier market equities, etc.
I endorse the idea of employing a multi-asset strategies that lower the downside potential while increasing the upside potential or even decreasing the upside potential less than the decrease in the downside potential.
I am not saying you should allocate your portfolio to every asset there is. It depends on your goals, lifestyle, risk preferences, your responsibilities, the investment % of your overall capital, etc etc etc.
How you allocate each security is up to you (or your financial advisor), or me me me me.
No portfolio is risk-free, but minimizing the downside can help mitigate the pain inflicted by market “fire and fury” and a changing risk landscape in globalization era.
If you have any questions/comments/suggestions, feel free to contact me personally and/or leave a comment below.
PS: Maybe make Bitcoin/Ethereum/Litecoin 5% of your portfolio.
PS: Active traders should also minimize the downside risk, especially if you work, have school, etc.
PS: Never mind. Thank you for reading. Don’t forget to subscribe.
In the previous two articles, I wrote about my forex trading and equity investments performance for the first quarter of this year. In this article, I will talk about my 1st quarter performance for equity/commodity trading.
For the first quarter of 2017, my active trading performance for equities and commodities (commodity ETFs) was up 3.51%.
Equity/Commodity Trading Portfolio (Robinhood) P/L The white line represents the start of the year.
For years, I could not trade equities and commodity ETFs due to commissions. Thanks to Robinhood, I’m not able to trade for free.
I closed the SCO position a month later at 22.55% gain, the biggest gainer of all positions closed during the first quarter of this year.
My biggest loss came from VelocityShares Daily 2x VIX Short-Term ETN (TVIX). I thought volatility would pick up in the coming month (and it did a little bit). However, after they underwent 1:10 reverse split on March 16th, I did not want to risk having the ETN go to single digits once again, so I indeed closed the position at 17.27% loss.
In nominal terms, the 22.55% gain on SCO is 3 times larger than the 17.27 loss on TVIX.
There are other positions that made and lost money. But overall, my portfolio was up 3.51% in the 1st quarter.
Current Positions:
I can only go long securities on Robinhood. My current positions are SPXS, WFC, LULU, DIS, EXPE, VRX.
I went long on Direxion Daily S&P 500 Bill and Bear 3x Shares (SPXS), which is inverse of S&P 500, because I believe investors are underestimating the negatives of Trump’s policies. Once investors realize the negatives of Trump’s fiscal policies and/or his actual policies are less stimulative as he proposed, the market will take a dump.
A lot of people think tax rate will be reduced to 15%. I have been watching some of Trump’s TV interviews, especially on Fox News, and it seems Trump himself does not believe tax cut will be 15% or lower. He basically said it might have to be little higher, say around 20%.
I also watched Trump’s body language and I believe Trump is not confident in what he’s saying about his fiscal stimulus plan as he was during the campaign.
So when the actual plan is released, investors will be disappointed.
SPXS is also a small hedge for my portfolio as I’m long individual U.S. stocks.
I’m also long on Wells Fargo (WFC), Lulelemon Athletica (LULU). I believe the plunge on LULU is overdone and could fill half of the gap. WFC fell after the earnings report last week. General bank earnings are trending higher and Well Fargo is no different. I went long on WFC also due to technical purposes.
I’m also long on Disney (DIS). I bought just at the start of rumors that Apple (AAPL) would buy Disney.
I’m also long on Expedia (EXPE). See this awesome tweet thread.
1/ I’m gonna buy $EXPE (short-term). Here comes the reasons…
And finally, I’m long Valeant (VRX). I went long on the pharmaceutical company the day after Bill Ackman revealed he cut his $4 billion loss.
Valeant recently extended the maturity of their debt until the early 2020s, which gives them about 5 years to restructure their capital and the company. Plus, they have over $5 in cash for each share.
Just because Ackman lost big on VRX does not mean he’s not a great investor. He is a great investor (that’s why he’s rich?). If you watch his presentations and talks, he knows about he’s talking about. He does his research and deeply cares about other people. At least that’s what I think.
The current positions I mentioned above can change at any time or reverse. Thank you.
In the previous article, I talked about my performance for Forex portfolio in the first quarter of 2017. This article will lay out the equity investments portfolio performance for the 1st quarter. Unlike for forex, I don’t have much performance results for equity investment portfolio….at least for now.
Cash is trash.
For the first quarter of 2017, my stock investment portfolio was down 1.31%.
In the 1st quarter, I bought W.P. Carey (WPC). In this Seeking Alpha article, I laid out why I bought the diversified REIT.
First, I had a lot of cash sitting in my portfolio. Cash did not add any value to my portfolio.
Second, the ETFs barely moves and yet offers attractive dividends that would be distributed every month, with low expense ratio. Instead of having cash be lazy, the ETFs provided free money since they barely moved in price.
And lastly, the ETFs were commission-free through my broker, Ameritrade. When opportunities arise, I can freely liquidate the ETFs position(s).
All three reasons provided me with great flexibility and free money. The average SEC 30 Day yield from the “big four” is currently 2.43%.
And lastly, I also bought iShares Core Conservative Allocation ETF (AOK). I bought this ETF for the same reasons I bought the “big four” ETFs; low risk, low fees, and attractive dividends.
The portfolio of the five ETFs mentioned above returned 2.77% in the past 5 years, with the largest quarterly loss at 2.65% in the 4th quarter of last year and the largest quarterly gain at 1.70% in the 1st quarter of last year. Year-to-date, it’s up 1.32%.
Estimated investment portfolio dividend yield is 2.8%, with largest being 6.4% and lowest 0%. I plan to increase the portfolio dividend yield by getting rid of non-dividend yielding stocks and/or buying dividend-yielding stocks.
I did not sell anything in the portfolio during the first quarter. However, I’m planning to make some changes this quarter, which will be released in the 2nd quarter performance article. But first, I will probably tweet out the changes.
32.30% of my portfolio is currently in cash. I plan to cut that in half. How will I do it? I’m not sure yet. I’m doing research on multiple companies. The one that stands out will be bought and an article about it will be posted, mostly likely on Seeking Alpha.
Note: Equity/Commodity active trading portfolio (Robinhood) performance will be posted later.
As you may know, I published my forex performance for 2016 and since inception. From now on, I will also share my quarterly performance. March 31st marked the end of first quarter, here are my performance results for FX trading.
Forex Trading Performance – Q1 2017
For currency trading, I was up 2.15%. I know, it’s low (in % terms at least). But, allow me to explain.
Before this year, my currency trades used to be in 1,000 units (or 0.01 lots), lowest I can trade. Since I usually had about 10 positions, each of 1,000 units, the nominal amount was large enough. After depositing more money and getting a clear picture of my Forex performance, I decided to increase my trades to 2,000/3,000 units (or 0.02/0.03 lots) for each position.
Getting a clear picture of my performance – average gain/loss, drawdown, trade duration, the percentage of profitable trades, etc – helped me improve my performance significantly.
This quarter [Q1], I further minimized my drawdowns. By minimizing drawdown, I minimized my returns. And that works for me. Stable uptrending P/L with a low risk.
It is true Forex is way riskier than other assets classes due to its leverage, mostly 1:50. But, that does not mean your portfolio has to include a lot of risks.
While 2.15% return this quarter from Forex trading is low, it’s still big in nominal terms for me and I’m getting a much better understanding of my weakness/strengths as I look through the metrics.
I don’t have the key metrics (besides the returns) and charts to share with you for this quarter for one reason: FXCM was Banned from the U.S. (I’m not even surprised after what happened on January 15, 2015).
FXCM is a retail FX broker and my former broker. They were banned by CFTC for defrauding retail foreign exchange customers and engaging in false and misleading solicitations.
As a result, FXCM customers were automatically changed to a different broker, Forex.com by Gain Capital Holdings, on February 24th. Unlike FXCM, this broker did not offer an analysis of trades. In addition to that, a third-party software did not offer an analysis of trades for Gain Capital’s customers since the broker did not allow the software to be connected with it.
Good news is that I’m currently in process of changing the platform to MetaTrader, which will make it easier for me to track performance metrics. The other platform, ForexTrader made it harder for tracking key metrics.
For the next quarter’s results, you can expect to see more performance metrics for FX trading.
Live On Twitter
As you may know, I tweet out trades/investments I’m making. That’s one of many reasons you should follow me on Twitter if you haven’t already. One of many ways I measure success is through twitter followers, believe it or not.
Sold $USDJPY 0.02 lots. Over 2 std dev. move, plus 200 SMA, 50% fibs and RSI below 30. Plus diversification to already existing positons pic.twitter.com/OQh694a7fG
Over the past 40 years (1977 to 2016), S&P 500 has had inflation-adjusted annualized return rate of 7.20%, that’s having dividends reinvested. That means $1 grew to $16.14.
Without dividend reinvestment, S&P 500 has had annualized return of 4.12%, which means $1 grew to $5.02.
Can you see the power of time and compounding? I hope you see it.
S&P 500: Inflation-Adjusted, With Dividend Reinvestment
Let’s assume you’re 20-years-old, saving $1,000 each year for the next 40 years. When you’re 59, you will have $40,000 in cash. That is considering zero inflation.
Now, let’s assume you invest in the market that will give you inflation-adjusted annualized return of 5%, without dividends. When you’re 59, you will have $97,622.30.
Lastly, let’s assume you invest in the market that will give you inflation-adjusted annualized return of 5%, with 1.5% annual dividend. When you’re 59, you will have $141,731.09.
Oh My God! The Power of Time and Compounding!
If you want to invest, invest now. Don’t let all-time highs scare you.
S&P 500 is currently yielding 1.93% dividend. Since the late 1800s, the lowest dividend yield was 1.11% in August 2000. The average dividend yield is 4.38%.
The returns you see above and below are before taxes. Tax laws might be different in 2056.
In this post, I will outline some of my plans to be a very long-term investor. I’m mostly trader and investor with less than the 5-year horizon.
Money Should Not Be Emotional
Over a year ago, I tried to open a ROTH IRA (retirement) account. After filling out the answers to countless questions, the application asked me to provide a proof of income. At the time, I did not have a job. So I just gave up on the application and did not think about it until last January.
I spent so much money in December and January alone, the expense amount freaked me out. I asked myself two key questions:
What can I do to save more?
What are the non-mandatory expenses?
One of the ways I can save more is, believe it or not, recycling bottles/cans (I don’t consider it income). In a family house of 6, we drink a lot, especially water. I drink about 12 bottles of water a day….using the same bottle. I fill the bottle with boiled water. Others just waste the bottles. I rather profit from people’s mistakes.
All those bottles collected in about two weeks made me $5.65, worth almost 6 pizzas, 2 each day. Or 6 yogurts, 3 each day.
Figure 3: Bottles + Cans = Cash
If I make $10 every month for two hours of work, I can make $120 a year. That money can add up over the long term once invested in dividend-yielding ETFs.
I will not continue collecting bottles/cans (side hustle) once I get a full-time job/live on my own. I’m doing this now because I don’t even do my own laundry….yet.
I also figured out the non-mandatory expenses to cut back on, specifically on “ex”-food items I used to buy on a pulse. Small purchases (gum, candy, etc), for example, can add up over time. Those purchases are paid in cash. Well, I don’t carry a lot of cash. I carry reasonable amount. How you define ‘reasonable’ is up to you.
Why I don’t carry a lot of cash:
No track of cash flow. Credit card allows that
Risk of theft
Worried about losing the wallet
To avoid small purchases
Savings and Investing on Auto-Pilot
In January and February, I decided to open multiple accounts to keep my cash, rainy day savings, investments and deposited more money into my Robinhood brokage account.
Why multiple accounts? Because I don’t trust FDIC, which “protects” or “insurances” depositors to at least $250,000 per bank. I’m paranoid someday FDIC won’t be able to protect every depositor, after a major hack or something. Who knows, it might even take a long time to get depositors’ money back.
What if I lose my debit card? I wouldn’t want all/most of my cash in that account. At most, I keep 30% of my cash in the checking account. Now, my cash and short-term securities (stocks, etc) are diversified among multiple accounts.
Besides the savings account (almost 1% interest), I opened two more investments accounts. These accounts are different than Ameritrade/Robinhood.
Financial Literacy Is Very Important
The first account is Acorns, an investment app that rounds up user purchases and invests the change in a robo-advisor managed portfolio. For me, there’s no fee since I’m a student and under 24. I don’t trust robo-advisers, but this case is different. There are only 6 ETFs which I have looked into and decided they were good for the long-term in a diversified portfolio. 75% of its users are millennials.
79% of millennials are not invested in the stock market. I find that as a real concern.
The second account is Stash, an investment app that allows users to pick stocks in themed based investments around wants (Clean & Green, Defending America, Uncle Sam, etc). This app is also targeted toward millennials. Unlike Acorns, Stash charges you even if you are a student. But, the first three months are free. Like Acorns, Stash has a subscription fee of $1 per month for accounts under $5,000 and 0.25% a year for balances over $5,000.
Studies show 48% of Americans cite a lack of sufficient funds as their main barrier to investing. Luckily, technology is transforming the way people invest. Start small. Before you know it, it is big.
Both of the micro-investing apps are like savings/IRA accounts for me since I can grow my portfolio through dividends. I have checked out the ETFs Acorns invests in, they are good. I have checked out the ETFs Stash offers. Most of them are good. I have invested in the stable ones with low expense ratio relatively to its dividends.
Unlike ROTH IRA, I will need to pay taxes on realized capital gains, dividends and income interest.
Whopping 69% of Americans have less than $1,000 in a savings account and 50% of them have $0 in that account. All these people playing Candy Crush should be thinking about their future. Be a Robo-Saver and Be a Robo-Investor.
Note: All of my $$$ comes from off-book jobs, scholarships, prizes, and living under mommy and daddy’s roof (Can’t wait to move out). This post doesn’t mean I will stop trading. I will continue to trade forex, stocks, and commodities.
