My Trader's Journal says:
2009 will go down as one of
the most interesting years for the markets in my opinion. We
started the year with panic as if the world would end and nobody would ever buy
any products or services ever again and then jumped into the rally
that acted like it never had seen a bear. I didn’t panic as much on the
way down (probably should have more), but also didn’t join in the party as much
as I should have on the way up even though on March 12, 2009 I posted a chart and said it was time to buy
the S&P 500. That left me with a good year when added
together. I wasn’t as aggressive in 2009 as I’ve been in previous
years due to a lot of changes going on in my personal life including
a precarious job which I left in August, starting a new job in late
August and getting registered as an Investment Advisor in Q4.
While those events took
time out of my day and kept my focus away from researching, trading and
blogging, the biggest difference was the change in my mindset and approach to
investing. Even though we have a good cushion of cash and CDs for
emergencies and my wife has a good, relatively safe job, we didn’t
want to risk having to dip into our savings during a recession. It also
made capital preservation more important for our household than growth for the
year. If only I had that mindset change a year earlier…
As I mentioned above, I had
a good year. I didn’t take big risks, but still finished the year with a
better return than the Dow Jones Industrial Average and just under the return
of the S&P 500. One more day like December 31st and I’d have
pulled ahead of the S&P 500 too. That’s how close I was. Of
course I’d rather have beaten both indices, but by staying under invested and
without taking much risk that’s hard to make happen. I’ll ease back
into bigger risk taking in 2010, but would prefer to see a 10-15% correction
first. If we get that, I’ll be ready to jump in bigger again. Until
then, I’ll have to be content with tracking the indices with less
overall risk. That means the days of leaving myself open to owning
equities on margin are over for the time being. It’s been a long time
since I’ve been in a position where I’d use all of my cash reserves
if every option I was short was assigned and I’m not sure when I’ll return to
that style of investing. Instead, I’m using more “double” ETFs and achieving
a somewhat similar outcome.
Even though I finished
the year with a percentage gain from where I started the year, I took a
realized loss on all of the positions that were losers from 2008. That
left me with a realized loss (for tax purposes) of $24,065.30 in
2009. This 2009 loss in addition to my large realized losses
from 2008 leaves me with at least two more years of tax free gains to make
while I carry over these losses and deduct them from my planned gains over the
next couple of years. Depending on my returns over the next few years it
could take me three to four years to make up for those losses. That’s
when it’ll get interesting – when I have to decide if I’m beating the indices
enough after taxes to continue trading my full account versus doing
more buying and holding. Basically, if I’m not beating the indices by 28%
or more I would do better by not selling and incurring the taxes on my capital
gains. In 2007
I destroyed the indices which made trading more than worthwhile. I don’t
think I’ll have that big of a victory again in the near term, but do believe I
can make this worth the tax consequences again. I still believe selling
puts is a safer approach to investing than just a simple buy and hold
model.
I finished 2009 with a
combined account balance of $85,007.52 ($73,920.27 with Interactive Brokers
and $11,087.25 with TD Ameritrade). I have a deposit on the way to IB for
$16,000 which will put me over the $100,000 mark finally, assuming I don’t take
a $1,000 loss in the next few days. I made it as high as $99,300 intraday
more than a year ago and have taken way too long to get back up to this level.
Here’s exactly how my
returns compare to the major indexes.
My 2009 return:
+25.49%
Annualized return since 4/8/07 (my blog’s beginning): -12.45%
Deposits for the month: None for December
Deposits for the year: $16,000.00 (February, April, May and June)
According to Morningstar, here’s
how the major indexes have did in 2009.
Dow Jones Return: +22.68%
S&P 500 Return: +26.46%
NASDAQ Composite Return: +43.89%
Russell 2000: +27.17%
S&P Midcap 400: +37.38%
The VIX ended the month
at 19.47 and the VXN ended at 20.52. These low numbers (when
compared to the past few years) make premiums lower and make it
tougher to pull in the big gains as an option seller. And this is an
improvement over what we saw less than a week ago when the VIX hit levels not
seen since late August 2008. Don’t let this slip past you. That’s
about a month before the markets started their nose dive. I mention this
to point out the reason for my current 70%+ cash position at the end of
2009. Selling options at these levels means getting smaller premiums
which are likely to increase soon as volatility increases and the complacency
turns to fear and more selling of equities.