What A Differece A System Makes!

What happens when you create a plan and actually stick to it through the good and the bad? What happens when you have a system with, what we call, an "edge"? You take some heavy losses at times, but because of the mathematics of probability and historic testing you can trust the system enough to follow it right into positive territory. This is exactly what trend following has given me (also known as "Turtle Trading").

It brings up the discussion of whether good traders are born or they are made. I say, made. Good investors can be born. Think Warren Buffett. They just have an inate ability to look at something and determine hidden value. Look at Buffett's early childhood. He bought a pinball machine with a friend at the ripe age of 12 and with the profits from that machine, he bought 3 more and placed them in barber shops around his hometown. I sure wish I had that built in ability to see value where others see, in this example, a game. However, I can learn the discipline involved in being a trader with a system. Some people have that ability to follow discipline rigidly. I do not, but I am learning and becoming a better, more disciplined person. When dealing with money, those who are born with discipline are tested in following a system that could spell financial ruin. Therefore, even these traders have to be "made".

With all this said, I'll tell you a little about my current portfolio. In the 3 weeks it has been active, I have come up with a ~5% gain. I've held ~60 total stocks of which I still hold around 50 of them. For this exercise, 50 is my limit. I'm currently working on a program that will calculate mean, median and other stastics of my current portfolio (and perhaps all trades). After another month of trading, I'll start posting some picks and create my own stock picker site. Hopefully, people will start reading then :-)

It's Been A While...

It's been a while since I last updated this blog. As one could guess, it's easy to get frustrated in the market. Though this is true in my case as well, I've been playing very quietly the last few months. Most of my experimentation has been using simulations with the occasional KingTrade, trade. Very few of which were successful. It's true that you really can't just come in and be king of trading no matter how innate your ability might be. Good traders aren't born, they are made. Some people have certain character traits that are better suited to equity trading than others. Right now the two that come to mind the most is the discipline to stick to a plan and accepting a loss as part of the plan and moving on.

My next big project in the market is trending (Turtle Trading) some will call it. I've got a book and a little PDF via one of the "Original Turtle's" website so I'm going to give it a gander and see what we can see. Wish me luck!

Randall

Friday Updates Perhaps

I'm going to try and write one really good story on Friday that sums up my investments over the course of the last week. Over the course of the week I'll try smaller updates as to mini-trades and why I did them. So I'll start out with a list of holdings, number of shares, average price paid and a brief blurb:

AAPL : 200 : $90.1050 - Now that the speculative money has gotten in and out, the outlook of the stock is much better. iPhones, increased sales, music-a-plenty. Apple is still as cool as ever and has a lot of great products in the pipeline that will increase sales.

ADBE : 500 : $38.3020 - The stock has recently hit some lower resistance and is building up in lieu of the next version of Creative Studio's release. I see this stock as MS was towards the middle-end of last year.

AMGN : 200 : $66.5600 - They have been beat up over some drugs being taken of FDA treatment lists and Medicare reimbursement lists, but the drugs are still out there being used. They have an "award winning" drug pipeline. They are the class leader in drug development (Read: Best of Breed). It's a longer term hold, but a solid one.

DELL : 500 : $23.8520 - With Michael Dell's return I think we have some news to edge the stock higher in the weeks and months to come. Vista means some people will have yet another reason to buy more hardware. This stock is a trade though.

FXY : 150 : $83.1300 - The Yen has hit a resistance point recently. The Bank of Japan has finally increased rates (though I'm sure it'll take a while for them to do it again). I believe this will contribute to a stronger Yen. This is another trade.

HAL : 100 : $30.9700 - It's super cheap. They are making loads of cash. Oil is going to be harder to drill for and find. I've laid out a dozen reasons for this position in earlier posts.

HOG : 100 : $69.6200 - Technically, the stock has hit a support point. Untechnically, Americans (and Europeans) love Harleys. This is my choice for a consumer cyclical stock.

HPQ : 300 : $41.4300 - Another Vista play. DELL and HPQ should play well off each other too.

MSFT : 300 : $29.3500 - After the initial stock plunge in recent weeks, I believe the stock is going to slowly trend upwards as Vista numbers come in. I hate Windows (for technical reasons) I hate the company (for their lack of vision). I believe Steve Balmer and Bill Gates are idiots (for their lack of vision and utter failure at trying to be cool and appeal to young Americans), but they are idiots with a lot of money. Never underestimate people with a lot of money and those who follow them.

NFLX : 400 : $23.3700 - People love to rent movies. They love the convenience of this. Blockbuster lets you return the movies to the store, but that's the point of NTFX, you are too lazy to do that. The mailbox works well for you. The stock has hit a support point recently too.

NYX : 100 : $93.8000 - More people are trading than ever. NYX is best of breed. Euronext is going to make them spectacular. Recent technical weakness.

SBUX : 400 : $32.8175 - For the next 20-30 years all the kids who are buying coffee from them are going to be adults buying coffee from them. Also, people complain about cigarette addiction, but have they seen the fanaticism of the Starbuck's caffeine crowd? They are only going to get bigger (China, India, Europe). Recent technial support point. Though, this stock could be held for "a long time" and I'm sure the returns will be spectacular. Compare with MCD and extrapolate.

Next week I'll do short updates with trades and reasoning. I'm also staring a below $10 trading portfolio. I may update on that some time in the future. Have a great weekend!

Thoughts On The Yen

Recently I've been reading up on the Yen and the Yen carry trade. This is where you borrow money from the Bank of Japan at the incredibly low rate of .25% and invest that money in bonds of the US (4.5%) or New Zealand (7%). After time passes and your bond matures, you end up with +4.25% gain in the case of the US and +6.75% in the case of New Zealand. Not bad for what amounts to "a sure thing". However, let's say the Japanese currency's price increases by 5%. This means you are going to have to pay back 5% more than you did when you borrowed the money. This means when converting from NZD and USD you're gains are 2% and -.25% (!) respectively. It's a large gamble, but the Bank of Japan has stood steadfast in keep its rates very low for quite a while. Eventually, cycles will take over and the BoJ will have to raise rates. When they do this the currency valuation will begin to rise due to increasingly good returns of government issued bonds. Japanese companies will benefit to a certain degree of their money being worth more. I think right now is a good time to invest in the Yen. It's at a 4 year low and currently at a technical resistance point. Below is a graph of the Yen valuation over the last 3 years with weekly candlesticks:



My knowledge of currency markets is still limited, so if you see a problem, please comment or email me!

Ditto.

About one hour after I posted my MSFT is on it's way out the door I came across a great blog about the same product. This post is much longer and much more in depth. However, we come to the same conclusion. MSFT is doing nothing to grow and develop in the modern ways AAPL is. They are doing things exactly the same way they did things 10 years ago. Technology has changed, but they haven't. They aren't using new thinking to solve the problems Windows created 15 years ago and until they do, they'll keep plodding around playing second fiddle to AAPL. Here's a link to the story:

http://www.informationarbitrage.com/2007/02/microsoft_revis.html

In Like A Lamb, Out Like A Lamb

What's going on with MSFT? I thought that the release of Vista and some great earnings was supposed to drive the stock up even more than it's spectacular run since last June. I'll tell you what happened: AAPL. There is nothing MSFT can do lately that AAPL can't top. Zune was trumped by the iPod from it's very inception. Leopard and the recent iPhone buzz have thwarted any long term thoughts about Vista. The X-Box 360 is still a great part of the home theater for your kids, but with the inception of AppleTV (and honestly, the Mac Mini, a great HTPC), Apple now has the coolest set top box to along with your brand new HDTV (which Apple may be making in a few years time). I believe this is all akind to a growing trend away from all things MSFT in the home. MSFT has shown that given 3 years and billions of dollars, they can only come up with something marginally as good as AAPL made 2 years ago. MSFT is Titanic (in so many ways) and Windows is the brass everyone is polishing while the whole ship is going down. Technically speaking, it's a over complicated, below quality OS when compared to OS X or even Linux. We are now to the point where you can do ANYTHING on a Mac you can do on a PC (something that honestly wasn't the case in 2000 or else I would have made the switch then) and you can do it in a more friendly, more stable and more secure environment. MSFT should have ditched Windows after XP and gone towards a new OS from the ground up. I'm hearing a lot about Vista breaking things and offering very little new since XP. Sure, it looks nicer and has some new gadgets that are pretty sweet, but these gadgets have been on the Mac for a few years now.

Eventually you'll see MSFT as an application developer (Office) and a corporate-type software and support company (like Oracle). Vista has given MSFT a stay of execution. Unless the next MSFT OS is something really special and able to catch up with what AAPL has done since it ditched OS 9 (Classic), I expect the migration to OS X to increase.

Black Gold vs. Si

I'm starting to waver in my belief in technology stocks. Technically speaking, the graphs of my positions (MSFT and CSCO) are looking a little on the over-bought side. However, my thesis about oil still seems to be on the up and up. The oil and natural gas indexes seem to be on the way up still (with a slight hiccup last week). With my prediction of weather a few weeks ago, my ideas are just falling right into my lap. Unfortunately, I'm not in any energy stocks save CHK. I'm going to see what I can sell off and rebalance to a more energy heavy portfolio. As many have said too, oil is becoming harder and harder to find and extract. We have a large supply still. However, we'll start to see RIG, SLB and HAL moving up still for quite a while. Let's see if we can actually take advantage of this.