Tag Archives: portfolio review

I finished this year near the highs of this year with a 23 percent return for my individual account and a 27 percent return for my Roth IRA versus zero percent for the S&P 500. In the third quarter of this year, I decided to change my focus from an absolute return perspective to maximizing my sharpe ratio (i.e. minimizing my volatility for a given level of return). I still have quite a large cash position which I am unwilling to commit due to the high volatility of my portfolio. In this case, I am willing to accept lower levels of return if my volatility is lowered. By focusing on minimizing my volatility, I may be comfortable in committing more capital in my trades. The overall effect of this would be to increase my absolute returns on a dollar basis even if my return on a percentage basis decreases.

My efforts to reduce my portfolio can be partially seen in my Roth IRA — the orange line in the chart located above. I initiated a small position in TZA, a 3x levered short ETF that tracks the Russell 2000, and increased my use of covered calls. I think I will continue to use this strategy to reduce my volatility going forward.

New positions initiated this quarter include a small position in Bank of America which I believe is at an attractive valuation now. I have also conducted research into Research in Motion and Netflix but have not yet initiated any positions.

I don’t anticipate 2012 to be a good year for me because many of my positions are reaching full valuation. My focus for the first half of next year will be to initiate various defensive option positions (ex: covered calls, vertical call spreads) since I don’t anticipate large gains in the short term.

For the next year, I hope to supplement my strategy of fundamental analysis with a more systematic and algorithmic approach to trading. Progress has been slow on this front, but I hope to show readers some preliminary models soon.

I thank the small collection of readers who frequent this pathetic blog, and I encourage readers to continue to comment on reach out to me through e-mail.

In July, I reviewed my portfolio performance for 2011 Q2  here with the intent of doing a review every quarter. We are already a month into the third quarter, so here is a very late review of my year-to-date performance.

Coke’s Account’s return (also referred to as my individual account) is +17.46% and my Roth IRA ‘s return is 27.02%. The S&P 500′s return is 0.49%.

I consider myself a fundamentalist. This means that I source investment ideas the old fashioned way — reading the filings with the SEC, analyzing the company’s financial statements, reading the conference call transcripts, and observing the world. I enjoy reading and consuming content. I believe only by consuming large amounts of unrelated content and thinking about the implications of the content can individuals identify large shifts in the way the world works. This often leads to excellent investment opportunities.

I have a tendency to invest in high growth, high PE stocks in what would generally be considered momentum investing. I think this terminology is a bit misleading, however, as I am more comfortable with mean reverting strategies. It may be helpful for readers to think of my style as the opposite of value investing.

I consider myself well versed in technical analysis, however I rarely use any technical analysis indicators in my trading.

One area of active personal research is algorithmic trading. I have spent a good amount of time brushing up on R, a programming environment for statistical analysis that is popular among the quantitative finance community. I hope to write posts under this subject area as I develop simple models.

I also wish to switch my mindset regarding my portfolio performance away from comparing my performance to a benchmark (in this case, the S&P 500) and more towards an absolute return mindset. In particular, I hope to structure my trades and investments to maximize my sharpe ratio. The sharpe ratio is a measure of a portfolio’s return relative to the portfolio return’s standard deviation. It is generally desirable to minimize the volatility of your portfolio’s returns given a level of return. The volatility in August, September, and October were emotionally draining and potentially very damaging to my portfolio.

I have experienced excellent returns in the past three years, mainly due to the performance of Chipotle, which has increased by approximately 600% during this time period. Chipotle remains my largest holding at approximately 40% of my portfolio. Long-term I am still highly optimistic, however, I feel that Chipotle is appropriately valued at the moment. I anticipate my performance in 2012 to reflect this fact. I plan to write covered calls on my position to supplement my returns.

I would like to reiterate that I  encourage readers to discuss trading ideas with me or to suggest content that you would like to see on this blog. Part of the reason why I started this blog was to aid me in my study of financial markets, and one way to do that is to find a group of like-minded individuals to collaborate. I welcome any comments, submissions, or questions.

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Why I Am Reviewing My Portfolio Performance

A few readers have suggested that I present more original commentary and material, so I have decided to publicly review my portfolio on this blog. The reason why I have decided to do this is to keep me accountable for the performance of my portfolio — what gets measured, gets improved. It is far too common to lose interest in investing and stocks when one’s portfolio is performing badly. It starts to become too painful to pay attention to. I certainly felt this way during the recent financial crisis, and it is my hope that regular review of my portfolio will help me remain disciplined and prevent me from ignoring my portfolio when things go badly. I also feel that this may remind readers that there is an actual person behind these entries and hope that this will bring a small amount of credibility to this pathetic blog.

2011 Q2 Portfolio Review

Fortunately, my portfolio has achieved excellent performance so far in 2011 with my Individual Account up 18% and my Roth IRA up 23% versus the S&P 500 of 4.65%.

My major holdings include Chipotle Mexican Grill (CMG), Exxon Mobil (XOM), Google (GOOG), the NASDAQ 100 Index ETF (QQQ), Activision Blizzard (ATVI), the S&P 500 Index ETF (SPY), and the First Value Line Trust (FVL). At some point during the quarter, I held some long USD/JPY positions and various small option positions.

New Investments and Trades

My trading style is constantly evolving. I think it is important to experiment with multiple strategies and multiple instruments to find a style that you are comfortable with. Learning new markets and instruments also expands your skills as an investor or trader which allows you to choose the best instruments for carrying out your trading thesis.

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