Q4 Analysis, Cont'd

I made only 19 trades in the entire fourth quarter of 2008. Seventeen trades were profitable, while 2 were not, and the 2 that were losers resulted in losses of 91% and 84% of the amount at risk. Both were trades of US Steel (X).

These 2 losses were also the result of a dollar-cost-averaging "strategy" that was my failed attempt to double-down on what I thought would turn out to be a profitable trade. Lesson 1, don't average losers.

Time frames aside...

My worst, profitable trade returned only .75% of the amount risked. This trade also happened to be on US Steel.

The best, profitable trade returned 17.23% of the amount risked. This trade was on SPY.

Time frames included...

My worst, profitable trade returned an average of .08% of the amount risked per day. This was a trade on FXP and was held for 15 days.

My best, profitable trade returned an average of 1.89% of the amount risked per day, and was surprisingly a position on US Steel (X). This one, however, was only held for 4 days and was very early in the quarter. I think the sense of the profitability of this trade lead me to be more confident in my trades and take on larger amounts of risk that clearly came back to haunt me (with the same stock). Lesson 2, be consistent in risk parameters, no matter past performance.

The average daily return was actually -.13% of the amount at risk, due to the two huge (percentage wise) losses on US Steel.

The average hold time was 9.7 days.

Looking back, what have I learned?
-Don't average losers.
-Be consistent in degrees of risk.
-Risk should be inversely related to position size.

Q4 08 Return

+7.95% total return on the portfolio.

1.94% average return on total amount risked.

Q1 09 returns (or losses) will be posted in early April.

This is sickening

A 40-Year Wish List

I am thinking more and more about moving to that proverbial gulch.

"Never let a serious crisis go to waste. What I mean by that is it's an opportunity to do things you couldn't do before." -White House Chief of Staff Rahm Emanuel

Human misery profiteering.

The End of Wall Street's Boom

Great article at Portfolio by Michael Lewis. Long, but worth the read.

"Now I asked Gutfreund about his biggest decision. “Yes,” he said. “They—the heads of the other Wall Street firms—all said what an awful thing it was to go public and how could you do such a thing. But when the temptation arose, they all gave in to it.” He agreed that the main effect of turning a partnership into a corporation was to transfer the financial risk to the shareholders. “When things go wrong, it’s their problem,” he said—and obviously not theirs alone. When a Wall Street investment bank screwed up badly enough, its risks became the problem of the U.S. government. “It’s laissez-faire until you get in deep shit,” he said, with a half chuckle. He was out of the game."

So, I lied

WRT my previous post, I decided to jump the gun and started trading again on Oct 6, '08. I've come back to the game w/ a new strategy and set of rules. So far, so good.

As of 5 minutes ago, completely in cash, waiting for next opportunity to present itself.

Return since Oct 6: 14.8%

The Long, Dark Road Ahead

Given last night's events, I'd like to make a few notes about an excerpt from Rand's Atlas Shrugged, collectively known as Francisco's "Money Speech". In light of the "redistribution of wealth" and the acceptance speech last night, I feel the need to draw some comparisons. [Please note - the following are ALL quoted from Atlas. I take no credit.]

"Money is the material shape of the principle that men who wish to deal with one another must deal by trade and give value for value. Money is not the tool of the moochers, who claim your product by tears, or of the looters, who take it from you by force. Money is made possible only by the men who produce."

"But you say that money is made by the strong at the expense of the weak? What strength do you mean? It is not the strength of guns or muscles. Wealth is the product of man's capacity to think. Then is money made by the man who invents a motor at the expense of those who did not invent it? Is money made by the intelligent at the expense of the fools? By the able at the expense of the incompetent? By the ambitious at the expense of the lazy? Money is made – before it can be looted or mooched – made by the effort of every honest man, each to the extent of his ability."

"Money rests on the axiom that every man is the owner of his mind and his effort."

"Money demands of you the recognition that men must work for their own benefit, not for their own injury, for their gain, not their loss – the recognition that they are not beasts of burden, born to carry the weight of your misery – that you must offer them values, not wounds – that the common bond among men is not the exchange of suffering, but the exchange of goods."

"The man who attempts to purchase the brains of his superiors to serve him, with his money replacing his judgment, ends up by becoming the victim of his inferiors. The men of intelligence desert him, but the cheats and the frauds come flocking to him, drawn by a law which he has not discovered: that no man may be smaller than his money."

"Let me give you a tip on a clue to men's characters: the man who damns money has obtained it dishonorably; the man who respects it has earned it."

"Then you will see the rise of the double standard – the men who live by force, yet count on those who live by trade to create the value of their looted money – the men who are the hitchhikers of virtue. In a moral society, these are the criminals, and the statutes are written to protect you against them. But when a society establishes criminals-by-right and looters-by-law – men who use force to seize the wealth of disarmed victims – then money becomes its creators' avenger. Such looters believe it safe to rob defenseless men, once they've passed a law to disarm them. But their loot becomes the magnet for other looters, who get it from them as they got it. Then the race goes, not to the ablest at production, but to those most ruthless at brutality. When force is the standard, the murderer wins over the pickpocket. And then that society vanishes, in a spread of ruins and slaughter.

Do you wish to know whether that day is coming? Watch money. Money is the barometer of a society's virtue. When you see that trading is done, not by consent, but by compulsion – when you see that in order to produce, you need to obtain permission from men who produce nothing – when you see that money is flowing to those who deal, not in goods, but in favors – when you see that men get richer by graft and by pull than by work, and your laws don't protect you against them, but protect them against you – when you see corruption being rewarded and honesty becoming a self-sacrifice – you may know that your society is doomed. Money is so noble a medium that it does not compete with guns and it does not make terms with brutality. It will not permit a country to survive as half-property, half-loot."

"When you have made evil the means of survival, do not expect men to remain good. Do not expect them to stay moral and lose their lives for the purpose of becoming the fodder of the immoral. Do not expect them to produce, when production is punished and looting rewarded. Do not ask, 'Who is destroying the world?' You are."

This excerpt is closed with the headline of this blog:

"Until and unless you discover that money is the root of all good, you ask for your own destruction. When money ceases to be the tool by which men deal with one another, then men become the tools of men. Blood, whips and guns – or dollars. Take your choice – there is no other – and your time is running out."

BlueGold, Clive Capital Gained During October Commodity Slump

Bloomberg Link

BlueGold Capital Management LLP, a hedge fund managing $970 million, advanced 28.7 percent in the first three weeks of this month after profiting from the slump in crude oil. Clive Capital LLP rose 17 percent.

1.618 Group Restructuring

Press release I received on Friday from a major played in the OTC energy market:

1.618 Group is going through a restructuring that will result in a significant change to its core trading business. The company has closed outstanding positions and its participation in energy markets going forward will be greatly reduced. 1.618 Group will remain in operation but will be refocusing its business and trading efforts. Renovatio will remain an active participant in energy markets.

Several employees will be leaving the firm to begin a new venture and are exploring strategic opportunities with RBC Capital Markets. The new company will be actively focused on trading energy markets. The separation is amicable and all parties involved are content with the restructuring and new business.

Great article in Portfolio

Hedge Fund Manager: Goodbye and F---- You

From the Scorched Earth Files:

Andrew Lahde, manager of a small California hedge fund, Lahde Capital, burst into the spotlight last year after his one-year-old fund returned 866 percent betting against the subprime collapse.

Last month, he did the unthinkable -- he shut things down, claiming dealing with his bank counterparties had become too risky. Today, Lahde passed along his "goodbye" letter, a rollicking missive on everything from greed to economic philosophy. Enjoy.

I did enjoy.