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Tuesday, May 26, 2015

A Stock Simulator vs. Real Life

Before I want to get into the topic as described in my title above, I just want to put out another portfolio update.

Things have been going pretty good. My main actual portfolio, which is focused solely on fundamentals, has been doing pretty solid. I have no worries about it. It's filled with stocks of which are relatively undervalued when compared to the broader markets.

Since this portfolio is a 100/0 long/short, I didn't want to overexpose myself with straight up buy-side exposure to relatively risky stocks.

Now, that doesn't mean I'll hesitate to jump on smaller cap stocks of which I believe are undervalued and or lucrative growth opportunities, but these days, I want to err on the side of caution. There's always going to be time for investment opportunities, and I don't want to blow out.

Anyway, for the time period I am planning on holding these positions (a long time), I know I'll be fine. Real losses suck. Losing money sucks. Actual realized losses feel terrible.

Real losses.

What about fake losses?

So I joined a stock simulator with some people I know from school. It's pretty nice. I enjoy doing my own independent research and learning quite a lot more when I can actually talk to people I know about a subject I truly do enjoy talking about as well. For a pretty long time, I would just learn on my own. But synthesizing my ideas and teaching concepts to people who are pretty interested, at least for now, about trading is definitely beneficial to both parties. It definitely brings in some excitement to what has been more of a "steady" process of learning about trading.

Anyway, new point. This is a stock simulator.

It lasts for 70 more days, and the goal is to make as much money (or lose as little money) as possible within that time period.

The rules have changed drastically.

I'm quite happy with them, too. I get to be able to test and screw around with speculative ideas that I have that would never be implemented in a personal portfolio which primary goal now is to not lose capital; college is coming up in two years. Now, in the game, given the amount of other participants, the only feasible way to win is to make as much money as possible. The risk tolerance is much greater, because obviously, I'm using fake money.

Some people that are involved with it are pretty competitive about it, too. It's great. However, to me, I honestly don't really care how I end up placing, or whatever. It's pretty fun; taking on riskier trades with higher betas and volatility. But a stock simulator takes out some important concepts and experiences that can only be experienced with real money.

  1. The losses are not real. This is the biggest one by far. We have $100,000 to work with and margin trading is allowed, so there's no T-3 settlement we have to deal with. We can constantly deal in and out with no day trading taxes as well. If we were to lose money, no big deal! It's all fake, anyway. Our actual wallets aren't going to be hurt. But what if this is money you actually saved up for years to acquire. What if this is a portfolio that you have been managing for the past 5 years? Also, there's really no way to describe the feeling of actually blowing out on a stock in real life with real money. It just has to be experienced. The feeling sucks.
  2. The time constraint. In real portfolios and situations, there generally is no time constraint. If there is, the time period is much more plausible, at least above seven to eight years. Racing to make the most money in two months is simply not realistic. In this situation, doing the conservative, less risky option, will simply not work. Trading in volatile stocks is the only way to win. There are eight other people in my game. If I do what I'm doing right now in my real portfolio, I will take on less risk, which is boring, and lose or make a smaller amount of money. However, there is no doubt in my mind that at least one of the other eight people can easily beat it, even if they don't do "the right thing", either by pure luck or if one of their picks happens to be a winner, if that makes sense. 
  3. On that note, fundamentals are deemed much less important to overall performance in a two-month time constraint. Technical analysis, only looking at the chart for short term swing or position trades, is simply a better decision. Finding undervalued stocks with fundamentals, and buying into them with TA will not work. As to why, to put it simply, it usually takes much longer for the market's perception on how a stock should be priced to align with an investor's valuation through fundamental analysis than two months. That time gets cut even shorter if one were to wait for a solid buying opportunity with TA as well.
  4. Finally, Taxes. This concept has actually a pretty significant impact on actual trading decision making. In real life, people get taxed on their capital gains and volume of trades. If they trade a lot, they get taxed quite a lot. People think twice before trading shares every other day.
With that in mind, I already set up and outlook and philosophy for taking on this game. I guess it's sort of comical, how unrealistic this is is, but it's pretty fun. I haven't done risky and far-fetched stuff in a while and it feels good to be able to do so while remaining engaged. Like I said before, there is no actual repercussion for losing. I don't get burned in real life. It's pretty great. I only wish I could use leveraged options to make it even more risky.
  1. I'm going to do a 70/30 long/short portfolio. This is because I think the market still has some room to run for the next two months, but I can't be sure as it is only two months, so if it goes through a correction, I will still have my shorts to hopefully still bring me up. I also want to be able to short a decent 30 percent of my portfolio to hedge my aggressive longs as well.
  2. Invest all the cash. No margin on my longs, however, simply because I think using margin always is always a dumb idea. In this situation, the saying holds true, "go big or go home". I didn't sign up to manage an entirely new portfolio to stay on the sidelines holding a large portion of cash. In real life, sure, that's not always a bad idea. There could be times when one does not see investment opportunities that he or she wants to jump on. But having only two months to work with really changes the game.
  3. Speculate. In advance, I am not planning on just throwing my money around. I am still going to due my due diligence and research. But like all seasoned traders know, all the research and diligence in the world still may go wrong, and it's just so much harder to consistently be right with risky trades. I won't really get to do this for quite a while with my own actual portfolio and money, so I'm going to really let go here. During my tenure in the game, I will probably trade in leveraged ETFs, some small and maybe even micro caps, maybe even bet on earnings and rumors. We'll see. Again, I wish I could use options. I could really go crazy there, but whatever. It's not hard to find ways to be risky in the financial markets.
Anyway, that's about it. This took quite a while to write. I should probably be studying.

I think I'll maybe update my fake sim portfolio along with my actual one for the next seventy days. I'll be able to see differing approaches to the markets, and it will be fun to see how they compare against each other, at least for the next two months. 

But there's the 90/90/90 rule, that 90 percent of new "traders" lose 90 percent of their money within 90 days. and I'm only doing this for 70 days. The comparison may still not be too realistic.

I'll still probably update on the sim portfolio.

In other news. Finals are coming up. I think I'll be fine. If it goes well, I'll have a really good semester. Probably my best so far. 

I also have an interview for a paid internship tomorrow. I need it to go well. I am super interested in the topic, can do everything they ask of an intern, and the location will be awesome and convenient for me. It would be kind of cool, too, in that I could help with my family's expenses and seriously save for college. It's definitely coming up soon, and the pressure of college is definitely building.

Sorry in advance. Couldn't add any pictures to make this post more interesting. Tried. 

Sunday, May 3, 2015

Update on Portfolio

Things are going okay.

So far, to make a long story short, the four positions that I have opened have averaged out to put me in the red right now.

However, that doesn't really matter. These are all positions that I was planning on holding onto for a decent amount of time. I'm not trying to ride on market momentum with a high flying growth stock; I'm mainly trying to take advantage of large-caps that have hit the dividend net.

I think I might try to change it up, though. I might want to catch the bottom of some stocks while hitting the momentum of others.

Due to the fact that I am in the primetime workload phase of my school year, I didn't want to try and swing trade any riskier trades. None of the positions I am in are speculative in nature.

I think I'll change my position from KORS to UN.

But KORS is so undervalued when you look at its fundamentals!

So let's focus on the broader markets.


On the straight up technical aspect, it does not look to be in dangerous territory. It's in a trending triangle channel up; it seems to be balancing near that area pretty well. RSI at 53.72. In terms of overall technical strength based on past performance, I'd say it looks pretty moderate.

But then again, I would be lying if I said that I knew what the market was going to do in the short term. I have no idea. 

But my conservative positioning should rectify any short term mistake, as it is mid-long term oriented.

There really isn't much to say. Just a quick little update. I personally feel that although my portfolio's performance the past month could be a bit better, this is sort of like the premature phase before my positions get into an upward swing.

Wednesday, March 18, 2015

Addition of a New Position

Another update.

I added another position into my portfolio.

Las Vegas Sands, or LVS. This is a chart of its performance for the past year.




I'm really hoping it will bounce back after it hit multiple bottoms at around the 52.5 level. However, even if it still manages to slump a bit deeper I am pretty sure that the "dividend net" will end up catching the falling knife at one point or another. I mean, it is already at above 4% as I'm speaking already. (The dividend net is when the price of the security gets so low that the dividend yield percentage gets "raised" to the point where the yield is too desirable for the price to go down any further.)

Also, in terms of just making a contrarian trade, I am also liking it in terms of that aspect as well. I think that the price has been pretty significantly battered for the past year, and I am hoping that the dividend net as well as the multiple bottom technical setup will cause the share price to get back to positive results.

However, one of the underlying reasons behind its price decrease is pretty poor gaming revenue performance in Asian markets and subsidiaries. But I think the strong management and the fact that it is one of the best of breed stocks will keep it afloat.

But to make sure that this trade does not go completely haywire for me, I put down a trailing stop sell order at 48 just in case it breaks through the 50 support level. That would be a pretty bad loss, but in all honesty my supposed win/loss ratio is looking pretty fine. I'm expecting this to be a pretty long term holding period, maybe 6 months for it to get back to solid levels.

So that's what I did. I'm also thinking about getting some BABA stock as well, if it holds above the 80 level. I think it is a really strong company representing a huge market. Pretty good looking growth stock.

Kevin

Tuesday, March 10, 2015

Lessons Learned from Frustrating Outcomes

I think I have somewhat put off the vital act of looking at my past trades, decisions and mistakes and looking at how they have panned out for me. Being able to do this well gives anyone detailed insight into their approach and strategy, and I have not really done it well.

So I did. I looked at my past decisions, and the trades that I made that were especially accompanied by research and contemplation. 

I found one stock in particular, WETF. I entered a pretty substantial position in this security six to seven months back. 

My reasons for entering the position were in my post on September 6th. I said that "Wisdomtree is showing a beautiful chart pattern right now, and the fundamentals of the company are quite nice, with an exceptional return on equity and other general statistics."

But at the time I also remember looking at their financials, and their fundamental ratios.

And they were, and still are, pretty solid. They have pretty impressive revenue growth, substantial increase in their net income, huge increases in their total stockholder equity, and solid growth prospects in the funds that they were and still are consistently churning out.

So what happened since then? The stock has risen up to 20.61. I purchased the stock for around the 12.00 range, give or take .5.

That is around a 70% return.





















Everything is looking good for it in terms of its fundamentals as well. Above 30% ROI, ROA, ROE, a healthy, strong valuation with good projected EPS growth, and a 1.55% dividend as of today. It also pretty much looked that way before, minus the dividend.

So you're, or more likely, I, am reading this right now questioning the title of this article. It says, "Frustrating Outcomes". How could this be frustrating? This is definitely positive, considering that this all happened within a six to seven month period.

Well, I sold it back then. I thought that it was fluctuating too long in the 10-12 range. I then purchased shares of Potbelly and Noodles and Co. (PBPB and NDLS, respectively).

They weren't necessarily bad trades in themselves, either. I got a thirty to forty percent return on those in 4 months. That is, however, until NDLS missed on its earnings reports and got slashed by 30%. But that's a different story. I covered that already.

So let's focus on WETF. I could have very easily kept a position in it, instead of completely closing it off to purchase shares of  NDLS and PBPB.

I sold it all off way too early, if you have not figured it out already. I spent so much time researching and making the decision to plunge in this stock, and I got out of it for pretty much no reason, just that it wasn't really doing anything.

I ended up missing out on a solid return on the investment. I took a 4% loss, instead.

Pretty stupid. Anyway, I should have probably had more conviction to hold on to it. But how? How does one get the conviction to hold through the investment to get the return that he or she should have gotten? I've come up with a few possibilities and reasons.

  1. Establish price targets for buying and selling the stock. This way, the stock would be held until it dips below a certain price level, so that the position can be secured and hopefully, the price movement will be as planned.
  2. Invest for a much longer period of time than the typical swing trade that I am looking to make. With a longer holding period, maybe even indefinitely, I can not worry about these fluctuations in the price movement and focus on the big picture.
  3. Establish a catalyst, or an event that must happen that can propel the stock up or down, depending on what I want to happen.
  4. Hold out until the possibility of positive momentum in price movements seems to be at a point where the probability of it happening becomes unlikely to the point that holding it does not seem viable.
Well, I think I can and should do all of these, except maybe the price targets. I think doing that would require an amount of technical analysis and probability calculation that I would not be able to sustain. However, there are definitely still some core elements of it that I can take away, such as establishing gain/loss probability and ratios before I even invest in the stock itself. This way, I would be able to look beforehand at the trade's supposed chances of succeeding before it even happens.

For number two, I definitely have not been holding my stocks at the time period that they should be held for the trade to mature. I need to establish longer holding periods, which is what I am trying to do with HPQ and FAF, both strong, somewhat undervalued stocks with a solid bottom-line and a decent dividend. They both have over 2% yearly dividend payouts as of right now.

For number three, I could have thought up a decent amount of catalysts that could happen with WETF that would have made it surge. For starters, earnings beats and good results, maybe news of a certain ETF that it is selling that is doing particularly well, but I also could have thought about other macroeconomic factors that would have positively affected its stock price, such as Japan's recent uptrend in economic health and continuation of a solid amount of lending towards its financial institutions? Those were all factors that I could have thought about. I really need to work on this.

And number 4! It's not like an upsurge in price movements was completely implausible during the time at which I sold it. It was just moving from the 10-12 range; no negative downtrend had been established just quite yet. I did my research and already thought about it, however I still ended up selling it during a point at which it was a pathetic little loss.

I'm still pretty salty about this. I made this mistake before with KKD; I completely underestimated its global growth potential before I sold it off around 2 years ago, I believe. Stupid mistakes.

I'll get better. I better get better at this. It's super annoying seeing the possible gains I could have had with my trades if only I had not been so quick to exit the position.

Till next time.

Kevin 



Friday, February 27, 2015

Change in Plans

I've amassed a reputation to my peers as someone who absolutely hates being wrong, on just about anything. A test, a choice, a game, you name it, I hate being making mistakes with them. I hate everything about it. I hate admitting it, I hate realizing it, the entire experience just sucks. And it's not like being wrong is the worst part of it; the fact that I could have been right, by doing one other simple little thing differently, makes the experience that much worse.

I've been pretty pissed with the situation that I had to deal with when Noodles and Company came up short on its earnings report. The share price plummeted. It wiped out all my gains leading up to that day.


So obviously, I was pretty stunned and frustrated with what happened. However, I believed (and still do) that the long term prospects of the company were going to be positive. At some point or another, this company would catch fire and rally higher. It has a solid backbone and an incredibly lucrative product offering. In a time where the average consumer is becoming more health aware, albeit still looking for a fast food offering, this company will be positioned strong into the future.

With its earnings growth projections and financial situation, I would not be surprised if this stock grows considerably in value in the future.

My problem with owning this stock is, however, that right now in the short term, absolutely nothing is going its way. It is struggling to gain a positive ground in price action, and the drop off in price looms over the possible gains that may come up in the short term.

In terms of the stock's health, the drop off in price caused moving averages exhibit a bearish pattern in which the 50 day moving average crossed down below the 200 day moving average, the lack of buying support to raise the stock back is significant, and it does not help at all with how the recent consumer confidence reports for this month are declining.

And if I hold on because I were to consider this stock being over-emotionally undervalued due to general market fluctuation, I can't really justify this being a value play, because the stock is still trading at around a 49x PE and a 28x Forward PE. It's still being priced as a growth stock. It's not like investors are undervaluing it that much.

Balls. If only I sold off at least a sizable chunk or my position before earnings came out to maybe lessen the oncoming blow, but with how the stock was acting before those earnings showed up, I, and hopefully the rest of the market, was expecting seriously positive results! Feels bad man.

So long story short, I did sell this thing off. Again, in the future it will most likely recover from this meltdown and appreciate considerably in value, but there is no telling how long it will take for that to happen. I also don't know how much farther this stock has to fall. And I don't have that much time to wait for this thing to catch upwards momentum.

I spent some time looking at my past trades, and really looking at trades that gave me a lot of success, and seeing which techniques I used for them.

For my next portfolio allocation, I'm looking to get out of those small-cap market-hated stocks, and do both a value and growth play.

So I bought shares of First American Financial,



I saw that it broke out into a serious uptrend and was reaching it's channel support levels, but its fundamentals were also pretty likable.

Its trading at a 16.37 PE and a 13.43 Forward PE. Pretty good EPS growth stats and a 2.85% dividend. Decent financial stats. 3.7% ROA, 10.2% ROE, and a 9.2% ROI. That all sounds pretty good to me.



Also bought shares of HPQ. It's trading at a 13.3x PE, and an 8.42x Forward PE. It's been recently battered down, and reaching oversold values, but because this is such a large and solid company overall I just took that as a buying opportunity. It differs from NDLS because I honestly am not so sure about that company's short term price movements, while I can be pretty sure that this company will stabilize better in the near future.

All not as fun as NDLS and PBPB, but a hell of a lot safer. With the extra support of the a solid dividend yield for both stocks, I can now focus more on the movement of the broader market and factor that more into my investment decisions, rather than look at small-cap negative-outlook, and as of right now, dogs, such as NDLS.

I was wrong. I was honestly thinking about deleting my last post to save some face, but whatever. We shall see in time if my decision was the right one or not. Should be right.

Better be.

-Kevin

Sunday, February 22, 2015

Noodles and Co. What happened?

Well, what happened during the past Friday was definitely eye-opening to say the least.

One of my holdings, Noodles and Company, released its earnings last Thursday.

The main points of the earnings report that was released during the fourth quarter, according to Jayson Derrick at Benzinga, are that “the company earned $0.13 in the quarter, a penny short of what analysts expected. Revenue of $108.5 million also fell short of the $110.07 million analysts expected. Looking forward to 2015, the company projected an earnings per share growth of around 20 percent, well short of the 34 percent growth analysts projected. In a report published Thursday evening, Wedbush analyst Nick Setyan commented that the company's reported earnings per share was below expectations due to "continued lackluster" same-store sales growth of 1.3 percent. Setyan noted that the company's 2015 earnings per share guidance was cut to 20 percent from a prior guidance of 20 to 25 percent, but continues to be predicted on a 2.5-40 percent same-store sales growth, 19 to 19.5 percent unit-level margins and 12-14 percent unit growth. The analyst added that the comp guidance relies on a 1-1.5 percent lift from catering, a 2 percent contribution from pricing and a "meaningful acceleration" in second half 2015 trends, despite tougher comparisons.”

Basically, the company is growing, albeit definitely not at the rate that investors were hoping for. With a price to earnings ratio at the extremely high levels that they were at before the stock got cut by 30% on Friday, the company was valued at a ratio where it was simply unacceptable for them to make any mistakes whatsoever.

I also heard that same store sales growth was also lackluster compared to other similar competing stores.

All this is all the more surprising with how the stock rallied hard on Thursday. I for one thought that their earnings report was going to be on par, maybe even better than expected.

Anyway, I’m not going to lie, I’m really pissed off with what happened. However, it was definitely still a risk I took and lost. It’s not like it was unfair. Potbelly, my other holding, had an earnings beat and rallied. I guess I couldn't get them both.

I think that there’s going to be a bounce back from the huge sell off which happened. I plan on holding. I don’t really think that this drastic of a sell off was completely deserved.

I still have time to keep letting this investment roll out, and there’s no way I’m going to sell it.
Honestly, if it drops down even more, I may even purchase a larger stake. Time heals all wounds, and I still think that this restaurant has a ways to grow.

Sometimes the best thing to do is to do nothing. The earnings report was not that bad. Still holding. We’ll see if it becomes a mistake.

-Kevin




Sunday, February 8, 2015

The Right Actions to Take

There is a huge opportunity cost associated with doing literally anything that I may want to do. I think it's both a blessing and a curse that there are just so many options for what I feel like doing. The problem is, what I could be spending doing one thing is time literally wasted that I could be doing for another.

So one of the things, if not the most worrying thing I have on my mind is college. Specifically, the college admissions process. That stuff is absolutely scary to me. With what I want to do, and the career path that I have sketched out for myself, I need to get into at least a target school that investment banks recruit from.

I feel like I'm doing most of my stuff right, but it's really times and days like these where I am at my wit's end deciding what to do. Because this is the weekend, there are so many choices for what I want to do to for the advancement of myself.

There are just so many factors that go into a college admission, but the varying importance that colleges may put on each factor, as well as the varying enjoyment I get out of doing certain tasks creates a huge discrepancy.

For example, today is Saturday. It's pretty late now, 1:57 AM. I had to decide between doing the following things. But there are also reasons to not doing those things either, which will also be listed above.


  1. Read "The Intelligent Investor". I'd say this is pretty enjoyable, but it is very dense and the information is really not exactly needed in the short term. 
  2. Get super good with Excel. I heard corporations love you if you know how to Excel but again, there is little chance to implement this knowledge and who wants to be stuck on a Saturday night learning Excel?
  3. Study my AP Gov textbook. This is short term knowledge that would be pretty useful because I have a really important test on Monday, but the first two topics are much more useful for what I want to do later on in my life.
  4. Procrastinate, sleep, and relax. I average about 4-5 hours of sleep on the weekdays and this would be duly welcomed. However I wouldn't be learning anything. I would just be sleeping.
And you know what stinks even more? The fact that I have to decide between these four things makes me super uncomfortable. I can't even get one of them done. Maybe the fourth, but not to the extent that I was hoping for.

So here I am, late Saturday night, with the culmination of that problem being writing this.

There is no moral to the story. Sorry.

-Kevin 
 

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