Old Year's day - down 1.5% for 2008

Some call December 31st, "old year's day." For traders and investors it is a good time to look back and hopefully learn some lessons from the year gone by.

For the trades reported on this blog I am down approximately 1.5% for the year. Many years -1.5 would be rather poor, however, when the overall U. S. stock market is down 35% to 40%, and many foreign markets are down even more, down 1.5% doesn't look bad at all. To put it in perspective, after a 40% loss, a trader must go get a 66% gain to break even. (Start with $100, lose 40% and you are at $60. A 60% gain from $60 only gets you back to $96).

In my profile, I write about survival. For traders this is vital. Money management is at least as important as making good market calls. So even though my main tactic is to sell naked puts, and a bear market is where that can lead to huge monster losses, my loss for the year was modest.

Ruthless cutting of losers and small position size might be considered the secret sauces for 2008. While, it is true that almost all of the losers I reported would have closed at a profit if held until expiration, there was no way to know that at the time the loss was taken. Just one terrible loss would need a dozen or more of the small winners I tend to shoot for to make up for it. Best to take the medicine and feel some discomfort than hope and possibly wake up with a game changing loss, or worse be out of the game all together.

All the best. Cheers.

All "dogs" go to heck

A few years back there was a movie, "All dogs go to heaven." As the year winds down, I was thinking about the popular "dogs of the Dow" strategy. The basics are to buy the highest yielding Dow 30 stocks.

Over the years this has proven to be a good strategy. However, like almost all strategies, there are losing years. 2008 was one of them. Barrons reports that buying the 10 "dogs" of the Dow would have resulted in a 42% loss. The article says beginning of 2007, but traditionally the strategy is done year-to-year, so there is a chance that it may be a typo and they mean beginning of 2008.

(link)

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At the beginning of 2007, the elite kennel included Citigroup , Pfizer , Altria , General Motors , Verizon Communications , DuPont , AT&T , Home Depot , JPMorgan Chase and General Electric , with yields ranging from 3.10% to 7.34%. Collectively, those dogs were sure barking up the tree and, as of last week, were off nearly 42%.
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0 for December and the Cash "bubble"

I've been away from my desk, so to speak, and didn't do any trading for the December option expiration cycle.

Barrons reports on the "cash bubble" link

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"Cash is the elephant in the room," says a strategist at a top investment bank who spends his days dealing with portfolio managers. "Everyone has lots of it, and I don't know when they are going to start taking risk, but I want to be in right before it happens."

The recent clamor to buy four-week Treasury bills with a zero-percent yield perfectly expresses the market's mania for absolute safety
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With phrases such as: cash bubble, mania for safety, and bills at zero yield, zip nada nothing, it makes for an interesting time.

Barrons on selling options

There is an article in Barrons about the pros and cons of buying vs. selling calls (link).

Readers know that my preferred strategy is to sell out of the money puts. Readers also know that when something gets discussed in the papers, it is often a good idea to look at taking the opposite side of the recommended trade.

Blogging and trading remain on the back burner for me.

No current positions.

Light blogging

I haven't had much time for the stock market lately. I am still here, and blogging will continue, but will be very light for a while.

The market seems tricky as ever. Even if I had time, I would not be willing to take on big positions. I don't have a strong leaning as to which way the wind will blow tomorrow, or next week.