Saturday, December 31, 2011

Portfolio performance 2011

First things first. I get emails everyday asking me if I day trade? If I am only a short seller? If I manage a hedge fund? I suggest you to read this introduction and all the links in that blog post first. I also have a chance to explain now. I am not a day trader, but should the position insist me to open and close a trade in less than 1 day, I have no problem doing it. I am both a long and short player, so I don't have any bias there. I see opportunities, I trade them. I trade stocks, ETFs, stock, ETF & index options. I do not trade commodities, currencies, futures and options related to them. However, I take advantage of the commodity and currency fluctuations directly by playing ETFs or indirectly by applying them to the general market. If you want to take advantage of my trading methods, I believe you need to ask more questions. The more you interact, the more you will understand my methodology better. We all benefit in the end.

My previous performance letter was posted here . Till Q3, my portfolio was up by 39%. For the year ending 2011, my portfolio's gain was 48%. The market in major indices were mostly unchanged for the year. SPX was down by 0.0003% for the year, $DJI was up by 1.5%. Given the flexibility in my trading and the methodology I use, it should not be surprising that my portfolio was up. Account performance in the last quarter is shown in this picture from my brokerage:

Some highlights for the year:

  • The year was not short of drama even though my portfolio was up. Trading was in no way easy. In terms of trading being hard, this year would rank in the Top 3. In terms of YoY gains, this is not my best year but one of the best for sure. Y  2007 was my best trading year. Conditions were similar to this year but I was able to catch some good swings during that year which made it my best year in terms of returns.
  • I didn't expect the year for the stock market to be flat. In the beginning of 2011, we had QE2 going on. With such a massive liquidity push, stock market was all happy. I expected that the market would end short of 1500, based on the liquidity push at that time. It was only my expectation but you know I seldom trade for that long time for a year. 
  • My longest trade time was 28 days, shortest was for 5 minutes, average trade time 2.4 sessions. The shortest trade made my whole account go up by 1% :) , I had no options but to take the profits and ring the register ka-ching.
  • Going back, I had several trades which netted my account less than 0.2%. I regard them as waste trades, which made money for my broker but not worth my time. 2011 being a volatile year, I had several such trades. I am sure the brokerages made a boat load of money from every other trader as well.
  • 2011 was not a year for the lazy, couch hugging hedge fund managers. Hence, many hedge funds including the famous John Paulson's fund was down big for the year as well. The top performing hedge funds for the year 2011: here . By sector : here . Flexible, and many hardworking hedge funds did close in positive. I wouldn't classify John Paulson in the lazy group though. There are times when you are unlucky, I would bet that Paulson will return with a vengeance next year.
  • I did not expect the top for the year in May 2011. I continued to be long, hence I faced slight draw down.
  • My worst performances came in early August and middle of the October. In August, the down move was extended, and stretched beyond a 3 sigma move. I had gone long on August 5th after the market was down more than 10% in 8 days, then came the US debt downgrade by S&P. The market was down by 9% the next day. I did not keep my trade open, I had to close at 5% loss that day. Market was up by 8% next day, it would have been beneficial if I was still in the trade but sometimes market can be down 25% on a single day like in 1987, or 15% like in flash crash 2010. I couldn't risk a draw down more than 5% for the whole account in a single day. 
  • In October, I was a dumber. Though my market signals indicated me to go long, I traded short with a bearish bias in my head. I was rewarded with a 3% loss. But, that's not what hurt me during that time. What hurt me was not being in the biggest long trade of the year from 1077 to 1290. It was my lesson not to trade against the signals. If you trade against the signals, not only will you lose that trade but you also miss the trend.
  • I could not take much advantage of the gold rush in the 1st half of the year or the plunge in the 2nd half. I had stayed away from the Gold trade. I traded Silver though early on in the year. Gains from Silver (via SLV, AGQ) account for the largest profits I made in the year. Silver always will remain my favorite play as I had several profitable trades over the years.
  • Any 2011 year review without Steve Jobs tribute would be empty. Steve Jobs succumbed to Pancreatic cancer after a 8 year fight. We miss you Steve Jobs! 
I wish you all a Happy New Year 2012, have a very good and prosperous trading year!

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