I want to start writing on here again. I am still keeping up with the markets, trading actively and reading a lot. I really have a lot of stuff that I should be posting on here, but my laziness is getting bad. I graduate in about 20 days, which is crazy! I have the summer off and will start writing again (hopefully).

This last year was an amazing one for me. The last quarter of 2008, is when I realized I was more of a trader than an investor. What’s the difference? Investors are people who invest with the hope of making a profit in the long run, and don’t always have a strategy of dealing with losses. On the other hand, traders have a fixed plan to earn a profit and usually have a pretty good idea of when to get in and out of their investments in an effort to yield a maximum profit.

The majority of my college education has revolved around math, logic and programming. I have learnt how to approach problems logically and am now using these same analytical and quantative skills in my trading practices. There is a huge learning curve involved, which includes understanding market controllers and enforcing discipline to overcome greed and accept losses. It is now my goal to learn these skills and to understand the markets better. I also want to constantly come up with innovative trading strategies and learn to trade other instruments. This is my goal for the year 2009.

I went ahead to summarize my active trading in 2008, and have summartized it below for my readers:

In my post on 9/22/2008, I revealed that my account was valued at $3609.66, while the Dow Jones Industrial Average was at 11,388.4

At this point, I had not started trading actively, and had been sitting on stocks I had owned for over a year, with an occasional short-term trade here and there. Before I knew it, the market collapsed uncontrollably and on 10/10/2008 my portfolio was valued at $2719.72, while the Dow Jones was at 8451.9. At this point, is when I decided to take charge of my portfolio, and began to invest actively. Now, on 12/31/2008, my portfolio was valued at $3430.26, and the Dow Jones was at 8776.39. Here are some stats:

From 9/22/2008 to 10/10/2008, the DJIA was down 26% and I was down 25%

From 10/10/2008 to 12/31/2008, the DJIA was up 3% and I was up 26%

From 9/22/2008 to 12/31, the DJIA was down 23% and I am down 5%

From now on, for the rest of this post, a trade refers to a combination of a buy and sell orders for a position.

Since 10/10/2008:

Total Trades = 15

Profitable Trades = 12

Loss Trades = 3

Average Time/Trade = 8 days

Lowest Time/Trade = 0 days

Highest Time/Trade = 48 days

Median Time/Trade = 4 days

Worst Loss/Trade = -$74

Most Profit/Trade = $191.70

Average Profit/Trade = $31.5

Median Profit/Trade = $30

Goal for 2009?

I think my primary goal is to learn more about the markets and trading strategies, and that’s what I will be working on. In terms of a more concrete goal, I would want my portfolio to be valued at $5000 by 12/31/2009. This comes out to a profit of $1569.74, which is equal to a 45.75% profit in the year. I understand that this is very high, but I think this is doable, specially with the expected volatility in the markets this year. I will keep putting up updates on here about my progress towards my goal.

I was recently talking to a person who is a trader by profession. He asked my how many bad trades I had in my short trading career, and when I told him the number was small, he reiterated the importance of losing some money in the early stages of one’s trading career and the significance of learning from all your mistakes. Keeping that in mind, I have made it a point to analyze thoroughly every trade in which I lost money, and to try and make a lesson out of it for myself. I will try to share these lessons with my readers as well.

Since my method of trading involves frequent buying and selling, it is important for me to stay on top of the market and monitor my positions continuously. On my recent vacation, I saw what seemed to be a good price to buy while I was browsing the current day’s market activity on my cell phone at the Detroit airport. With the slow Internet on my phone, without doing too much research, I decided to buy. I trade that stock frequently and felt comfortable buying it without doing a lot of research. I had set up a limit order on selling the stock for a pretty hefty profit, but the order did not go through since my price was 1 cent above the highest market price. Since I was on my cruise and had no access to the internet, I had no control over this and could not sell the stock at the opportune time. After this, the stock fell a little bit over the next few days, and still with no access to a computer (now in Florida), I read up a few forums really quickly on my phone. All these forums seemed to indicate the price of the stock was going to be going down and made me decide to sell for a loss. The very next day, despite all the predictions on those forums, the stock climbed up dramatically. I was not happy.

I read online forums frequently, but never use them to make my trading decisions. I do not doubt the intelligence of people posting on there, but I wouldn’t be surprised if what they post on there is not exactly how they feel or think. I personally don’t like to share my exact trading strategies and the stocks that I am trading, and don’t see why other investors would either. If I want to buy a stock, I would love to make people believe for a short time that it is headed down, and buy the stock at a lower price myself.

To evaluate the postings on forums and what kind of traffic they get, I decided to take a closer look. The first thing I wanted to evaluate was the popularity of these forums. To do this, I posted a little message advertising www.EasyStockAnalyzer.com on about 30 message boards for the stocks in the Dow Jones. The results were stellar, in less than 2 days, I was able to get over 600 hits from these forums from all around the globe. This proved to me that these forums are widely read.

I then decided to evaluate the performance of stocks as compared to the predictions of people posting on these forums, as well as predictions made my leading Wall Street analysts. I have not done enough research on this to be able to generalize or make recommendations, but I don’t like what I uncovered. I have been keeping up with stocks of the big three, since they are so close to home for me and effect several friends of family of mine.

The chart below shows the performance of GM over the last 5 trading days:

So as we see, there was a big drop (about 20%) on those Dec 23 and 24, and then the price shot up again. I researched the reason for the drop - a downgrade to under perform by Credit Suisse and a price target of $1. The article on this can be seen here. After this downgrade, the forums were filled with negative chatter about GM and encouraged everyone to unload and get out of it while they still can. This resulted in the rapid tanking of the stock price, upon which I am sure these people who encouraged the sell-offs and suggested the low price targets went ahead and bought a lot of these under-priced stocks. After this, a couple of days later, the price rose again and I am sure the same people sold again for a big profit. I don’t have anything against these people for posting on the forums and trying to make people think in a certain way, it is just them practicing free speech. I just know for myself that I will back my tradings decisions based on my own research and instinct, rather than from what I read on these forums. My decision to trade while travelling was a bad one as well. I should have held in my urge to buy while I had no access to a computer. I have now realized that it is better to miss on a potentially good money making opportunity than risking to incurr a loss while having no control over it.

As weird as it might sound, I am glad I am making these mistakes with my trading. I do not have too much money vested in the market right now, and can afford to take losses like these. Writing about my experience and research on this blog will enable me to remember my mistakes and keep me from making them again.

I know I have tried to come back a few times before but never kept the promise of starting to write again. This time I am serious, and will post a lot more frequently. While I was gone, I actually did a whole bunch of stuff. I finished my second to last semester in college and did better than I ever have in college. I also went on an amazing vacation which included a cruise to the Bahamas, and a few relaxing days in Miami and Key West.

Over the course of the semester, I also created - www.EasyStockAnalyzer.com. This is a tool for stock analysis and predicting their performance in the future. The algorithms are very crude right now, but what is satisfying for me is I have a framework ready which I can now easily modify to put in better algorithms as I learn more about investing techniques and strategies.

Also, if you remember, I had talked about a trading strategy I came up with which involved trading very frequently on my Zecco account, while looking for very small percentage gains on short term investments. For more information on this, take a look at that entry again - here. This strategy is working out really well for me and I have been able to increase my trading account’s value by about 20% in the last two and a half months. I will talk more about my recent trading activity in a more detailed post.

One thing I want to reiterate on though however is that over the last few months, with each passing day, my interest in trading and the financial markets has continued to grow immensely. I am literally hooked to the markets and am always thinking of more innovative investing techniques and ways of expanding my horizons and learning more.

I really hope that my ever increasing enthusiasm will help me keep going with this blog. I am going to be working hard on the quality of my writings to develop a strong reader base. I want this blog to provide value to its readers by providing them with easy to understand information about the recent happenings in the financial world, and also to share with them my progress as an investor and a student of the markets. I wish that over time my readers will become critiques and evaluators of my thinking process and ideas, while helping me along in my path towards understanding the markets better.  

Thanks for reading, and I promise many more informative posts in the near future.

I did it again. After posting consistently for a while I went MIA again. I am back again and will try to do a better job this time. Not blogging definitely did not mean I wasn’t trading or following the markets. I learnt a lot over the last month or so and have a lot of stuff I want to post about.

Here’s what some of my upcoming posts are going to be about:

1. The crazy month of October + my performance

2. The fate of the BIG 3

3. President Elect Barack Obama’s economic policies

4. Investing in real estate?

While I was gone, I was busy practicing for a dance in the largest student run production in the USA. The show turned out to be pretty amazing and I will post a video once I get my hands on it.

After following the market for a while I have realized that there are certain factors that heavily control the market. These factors range from reports such as the unemployment report and the consumer spending report to other factors such as the exchange rate of the dollar and gold prices. I want to get a better understand of these controllers, and based on a friend’s recommendation, I will write out in a notebook the reasons behind how the market performs each days. Over time, I hope to get a grasp of these factors and be able to effectively predict market performance. I will be sharing any significant findings that I uncover.

I had purchased ExxonMobil recently at $76/share and my goal was to sell it for $77.52 or higher within a month. I sold my Exxon stocks in 15 days at $80.79/share, for a profit of 6.3% in just 15 days. I hope to use this trading strategy repeatedly to continue to get gains similar to this.

From now on, I will share the progress of my Zecco account and compare its performance with that of the market. This is the account I will use to trade actively. I will not share all the positions I hold in this account, but will keep updating it’s worth and also discuss some of the more exciting transactions that I make.

As of now, this is how the numbers look (as of 9/22/2008, 3:43 AM):

Total value of my Zecco account: $3609.66

DOW: 11,3884

Nasdaq: 2,273.90

S&P 500: 1,255.08

After a really bad week, the DOW Jones Industrial Average (.DJI) recovered on Thursday and Friday closing down only 50 or so points for the week. This is rather odd for a week like last week when Lehman Brothers filed for bankruptcy protection, Merrill Lynch was acquired by Bank of America and AIG was bailed out by the government. Last week did not end miserably low because investors gained confidence in the market as the government announced new plans of rescuing banks from their current financial debt.

There were talks about bringing in a system similar to the Resolution Trust Corp (RTC) in 1989. I was only 2 when that happened and needed to look it up to get a better idea of it. From how it looks like now the government will put in about half a trillion dollars into a system through which private wealth managers would purchase bad-debt instruments for the government. The government would hold onto these instruments for a few years, until the economy recovers and then sell these for a profit. This kind of a resolution will help banks from avoiding writing off bad debt, by instead selling it to the government at a discount. The question for you and me is, who is going to pay for this? The government cannot just print money and will get all this money from the tax payers. Even though this sounds crappy for us tax payers, I believe this is good for us in the long-run. These deals that the government is making are great deals. The government is acquiring assets at a good price and should make a good profit off of these in the long run. The money will hopefully come back to us once the economy is doing a little better.

Another step the SEC took last week was to ban short selling on several financial stocks. This move was adapted by several countries globally as well. This is to keep investors from manipulating prices and driving down stock prices.

This brings me to wonder about where the market is headed? For short-term, I think the market will do fairly well for a few days, however the overall situation is still really bad. I think the correction in housing prices isn’t complete yet, and the values will still go down more. We might even be hit with other unexpected pitfalls such as widespread credit card defaults. I will be looking to unload my stocks in the next few days (if the market does well), and then wait for the market to drop again, when I will buy again.

I just want to end by saying that these are scary times, but I am glad to be around to understand and learn from these. I am going to be following the happenings around me very closely and will continue to write about what I see and learn.

It’s not much of a risk with the price LEH is trading at. I decided to pick up a 160 shares of LEH (Lehman Brothers) in the hope that the price might jump back up with Barclay’s acquiring a portion of it. I don’t mind losing $40 if it comes down to that, but if I do gain, I could gain a lot.

That’s the error I am getting when I try to log into Zecco this morning. This is really bad, specially for a day when the DOW is up about 250 points. For short term investors this is the time to unload and such poor service from Zecco is definitely not helping. I really hope that this is a rare occurrence, or I will be really unhappy about my switch over from Scottrade.