2014 Performance Update

It has been a while since I have done a blog post but I figured I would provide an update on the year.  This year was the first year I have really been able to do some consistent trading.  In recent years, I may trade for a while then stop due to frustration or due to work and CFA studying so I never really got a true sense of results over an extended period of time.

Through the close of trading on 8/29/2014 I am +8.99% for the year AFTER commissions.  Before commissions I am actually +15.02%.  The fact that 40% of my profits have been eaten by commissions is fairly ridiculous so I may look into other broker options.  Believe it or not, I actually had Thinkorswim lower my commissions about 4 months into the year too!

The S&P 500 is up 9.89% over the same period YTD.  By comparison it makes my results look modest at best however, the real benchmark to use should be the Russell 2000.  The Russell 2000 has actually lagged the broader market and is up only 1.75% YTD.  The reason I use the Russell as my benchmark is due to the fact that a majority of my trading has centered around positions on the Russell 2000 index.  One thing I need to determine is a way to get my volatility of returns and compared it to the index volatility.  This will be useful because it will allow me to measure my risk-adjusted returns and see if I am truly providing better returns and low correlation.  I am fairly confident that I do not have 5x the vol while achieving 5x the return of the Russell but I would like to prove it empirically.

So far the year has not been without its obstacles and draw downs but I have remained disciplined and committed to my goal of examining my results after a complete year of trading.  As long as I have the ability, I plan to continue to manage my portfolio for the remainder of the year.  Obviously I would love to keep up my current pace of returns for remaining four months of the year but we will see.  If I can achieve 10% returns after commissions and significantly outperform the Russell 2000(both returns and volatility) I will be happy.

Stay tuned...

CFA Level 3: Pass

August 6th, 2013, a day which will live in infamy; I am finally done with CFA exams.  Surprisingly, the results email came in at 8:17 CST and I began to scan the preview line on Gmail waiting to see "I sincerely regret...", but surprisingly saw "Congratulations...".  I smirked as I opened the email since I could barely believe it.  Not because I didn't feel like I deserved to pass or that I didn't put in the time but because a journey that I started in June 2008 was now finally at an end.  I threw my hands up and yelled "Booyah!", and that was the extent of my celebration.

Passing level 3 on the first try also gives me a bit more satisfaction than if I could have done it on any of the other levels.  The reason being is I have always considered myself to have a "Portfolio Manager" type mind set based on my own trading/portfolio management and interest in markets.  This gave me a bit more feeling of "validation" in being able to pass on the first try.  I did have a couple other advantages in that some of the level 3 material was a bit more familiar since I work at an institutional investment consulting firm and my own interest in options made the options section a joke.  On test day though the options background was of little help unfortunately(damn you CFA Institute!).

I was fairly surprised that the the pass rate was only 49%, which is the second time in history it has been below the 50% level(last year was 53% pass rate).  I think time management is definitely an issue on the exam with the essay format so I tried to be as diligent as possible in sticking to the time guidelines.  I am not sure if this really helped me pass since I still had to write what they wanted to see but I will say that doing multiple practice exams of the essay format likely made me more comfortable on test day(note to any CFA takes who read this ;-)).

Part of me is left wondering what I will do now that I don't have to study for an exam approximately half the year.  Literally just the other day I was thinking about not eating 3 meals a day at my office while studying and part of me was a bit sad, for some odd reason haha.  I am sure I will have plenty of other things to fill my time.  I am currently working on designing and building my own mid-engined super car which I will discuss in another blog.  I am also planning to try and find some C++ or Java programming crash courses to learn how to code.  Another consideration are the CAIA exams.  They are much less material, only 2 levels and supposedly quite a bit easier compared to CFA exams so I will likely sign up for the first level in March.  We use quite a bit of that material at my current employer so it also makes sense to consider CAIA.  I am definitely not one to just get designations for the sake of getting them, but there is some incentive to do CAIA in addition to CFA. Even though CFA encompasses more of what I ultimately want to do, I don't really know how the future will unfold so I may as well keep my options open and learn more where I can.

As a trading update, I am roughly up 6% YTD after expenses.  Technically it is 8% gross but after crazy fees(I may need to find a new broker) it is only 6%.  That may seem poor compared to the move in the S&P, however my actual time in market is under a month so I am fairly happy with that return.  Many have been volatility plays around earnings, in between earnings I am planning to do more passive index vol strategies.  I am hoping I can pull off a 10% year(after expenses) with very low correlation.  I will likely update at the end of the year with an analysis of my performance and trades.

I'm glad CFA is finally done.  I can check one accomplishment off my list and move on to the next challenge!

CFA Level 2: Pass!!!

It's crazy to look at the last time I posted and realize it was nearly 2.5 years ago.  I basically had to stop blogging since it would just be complicated from a compliance perspective at my employer.  I am still very involved in following the markets and options strategies I just can't really discuss it that easily anymore.

Many things have happened in my life in those 2.5 years. It seems like even more things have happened in just the past 6 months, some very bad things, and some very good things.
Luckily, I received the best news in my life to date: I passed level 2 of the CFA exams.  I honestly can't begin to describe how big of a hurdle this was and how great it feels to pass it and be on to level 3.  I always said I never understood those people who completely thought they failed but ended up passing, but now I understand.  It's not that I didn't think I had a chance, because I did study a lot but I figured I would have had to get the best case scenario in regards to how I felt about certain sections.  I also lost probably 1.5 months of studying dealing with some of those bad things right in the middle of it.  I wanted to pass despite all of the obstacles and with a lot of work and a bit of luck I ended up clearing.

I will say though, even after clearing that level I am trying to keep things in perspective.  For anyone who is taking the exams that may read this, they are just tests.  That doesn't mean you shouldn't worry about them or try and do your best or not be disappointed if you don't pass, but there are just more things in life.

For example, yesterday was the actual day results were emailed, but I didn't get an email for some odd reason and no one could tell me why.  I had to wait until it was put on the site this morning to find out.  So I just went to go meet up with some other car guys at Lake Calhoun after work to try and put it out of my mind.  I live probably 1/3 of a mile from the lake and about a mile from the meeting spot so I decided to get some exercise and run over there.  As I'm running I run past a guy who is walking around the lake with some arm crutches that he needs due to what I'm guessing is a genetic disorder.  That right there helped put some things in perspective, especially because at that point I was assuming I failed the exam.  He was out going around the lake enjoying it and here I was jogging past completely taking the ability to jog for granted.  He probably has a lot more to worry about than some stupid financial exam.  Again, that's not to say it isn't a big deal to me but I was glad I had my health and the ability to run or even the ability to worry about passing or failing an exam.  Worst case scenario, I could always take the test again if I wanted.

The same thing happened today on the way to a happy hour as a little celebration.  As we are waiting at the crosswalk there was a lady with a walking stick who was blind.  She asked my co-worker a question on directions and then we went on our way.  We all remarked at how stupid we were to be complaining about some test and how difficult it would be to have to deal with something like that and here she was with likely a more positive attitude than we had.

So in closing, definitely study hard and try your best on the exams but remember, it's just a test.  I had basically just figured I failed and was ready to take the exam again, my view was that even though it sucks to have to wait a year, to try again, I likely picked up that much more material and was that much closer to passing on the next try.  Someone said that regardless of what happens, you are technically always only 2 years away from finishing at any given time(once on level 2).  This is true.  I'm going to put an extra hard effort in on level 3 so I have a good chance of passing the first try.

Good luck to anyone taking the exams!

Ben

Monthly Strategy Update

I plan on doing updates at the end of each month on how the strategy is performing and some thoughts about what is working and ways to improve it.

After a week of action the market finds itself essentially flat. I had a rough start initially but my strategy has done decently so far but obviously one week of testing is nothing sufficient to base a conclusion. Sell disciplines have essentially been the difference so far which will likely be true moving forward as well.

Market wise I am fairly surprised we have held up so far even though friday volume was very light. Economic data is getting progressively worse and the market has stayed bullish, reversing a fairly large drop on Thursday. Overall I think investors are in a "buy the dip" mode but I am predicting a more prolonged pullback over the next month or so as we get panic that positive ecnomic progress is slowing down. I of course could be wrong and I will watch the market to tell me the next move and attempt to position accordingly with the strategy.

Total Strategy Return Since Inception: 2.17%

Follow-Up to 2009

So overall 2009 was a decent year. I am disappointed in how it ended though. I ended up 117% overall however considering where I was that is not very good. The Amazon trade was a big loss that should not have happened and it was hard to recover the rest of the year. The good news though is that I learned a valuable and expensive lesson and will trade smarter because of it. There are some key take aways from 2009 I think:

In general, I think I managed risk fairly well considering I was essentially trying to short the market since July and still managed to make gains until AMZN. I over traded for the market environment we had but obviously in the moment it is harder to be objective and hindsight is 20/20. That said, I did fully support and participate in the rally from March-May and then started to become skeptical but a major pull back did not materialize.

For 2010, I'd like to see myself with more consistent performance with smaller draw downs and less trading. That is obviously part of the plan with my new strategy so we will see how it goes. I have to put full faith in my trading system to truly test its worth so I will need even more patience and discipline. I often wonder if making it completely mechanical would be ideal but at the same time I think I have become disciplined enough over the past 3 years to intervene at my discretion.

Key Metrics to track for 2010:
Theoretical vs. Actual Expectancy
Drawdown analysis
Standard Deviation of portfolio vs. Index
Absolute and Relative performance
Attribution Analysis
Average Capital at Risk

I am looking forward to this challenge and hopefully a good year, but even more so I will look to learn from things that don't work. Ultimately I want to have a sustainable long term strategy that can return consistent profits in different market environments. Stay tuned.

Strategy Launch

I have developed a potential strategy I feel could be fairly profitable that I will be officially launching tomorrow. I would like to track the strategy performance over a year and hopefully develop a successful track record. This is a more conservative and passive approach than my typical trading so it will be interesting to see the results. It has the potential for great success in terms of theoretical expectancy but of course the reality could be different which is the whole point for testing it.

I won't go into specifics at this time for obvious reasons but the main focus will be on risk management and the exploitation of market behavior. The strategy is fairly simple yet not necessarily obvious which I think could be a good recipe for success.

I will track its performance on here each month and update with some commentary and thoughts about what tweaks could be beneficial. I will look into ways to audit the performance so it can ultimately be verified if it is successful.

Total Strategy Return Since Inception: 0.0%

Breakdown

MARKET ANALYSIS

So we finally had the break down of the flag. It was somewhat suspect yesterday as we bounced off of old support at 1015 and rallied into the close making me wary of a continued move down. This was not helped by the initial move up today as well. It was fairly interesting because clearly people were just waiting for higher prices to sell into, because pretty much as soon as we hit 1025 we sold off the rest of the day finishing on the lows. Technically that is very bearish. The VIX spiked up today moving back above the 50 SMA and will likely test 30 in the short term.



The tough thing now is the breakdown and nearly the whole short term move came in a single day as what usually happens so if you weren't positioned for it initially now you need to wait. Ultimately I think we test 980 again, but I will look for a rally to short into again. In the short term though the MO is near its most extreme oversold levels meaning there is more risk to the upside than downside however that does not mean we can't sell off more.

Ideally I'd like to see a gap down tomorrow, and I'd buy the open. I want to see a re-test of 1015 before I get short again. In the longer term we may be forming a Head and Shoulders pattern on the S&P but that way too early to tell. The funny thing is that most of all the metrics today were positive yet the collective market decided to sell it off. It is like they are coming to the conclusion I came too a month ago all at once. That is the inefficiency of the market and if you can anticipate shifts in psychology well you would be very successful. Obviously I may be correct in the long run but the reality is that I missed a near 20% rally because I was too early in my prediction. I may keep getting proven wrong but I think metrics will start to turn downward again shortly.

I decided to lighten my shorts into this move like I had planned. I got out a bit too early in the day because obviously finishing on the lows would have benefited my positions, however it was still a decent day. I am now long biased and will look to get short again into a rally. I just bought corn futures again as it is near support. I likely should have gone long soybeans and short wheat as a hedge but we'll see what happens. I feel slightly too long at the moment but will have a tight stop on it.

Total Return for 2009: 144%