Wednesday, December 31, 2014

Year in Review: Nothing to brag about grade C+

I made money in 2014, but it is nothing to brag about. In round numbers, my trading account is up about 7%. For blog reported closed trades, I count 390 winners and 69 losers, which is about an 85% win percentage. Before anyone gets excited by the 85% win percentage, those are about the odds going in. 

Understand that the payouts scale to the odds. The person buying the 15% chance of profit option is hoping for a 7-to-1 payout when they win. Why else would someone buy an option with only a 15% chance of profit? I give myself a C+ grade for the year which to most people is a meh grade. With SPY up about 11% and VTI about the same. I trailed those big indexes. However, IWM (the Russell 2000) was up less than 4%, and gold, silver and emerging markets all went down for the year. On the other side, bonds, utilities, and REITs all had big up years.

Some of my most profitable trading tickers include:

Some of my worst include:

Biotech shows on both lists. APC was on the winners list until the spike down in oil prices flipped it over. SPY is up about 12% from the October lows, which is about the same as the gain for entire year. A few nimble traders rode the waves and made money on the down move and the rally. Some slower moving traders got caught in the turbulence, I lost money during the sharp moves. Only a few of those losses would I describe as stupid, but for an experienced trader, that is a few too many.

I loosely track a few ETFs, in round numbers, here are the best to worst for 2014:

TLT +24% (20 year treasury bonds)
SPY +11% (S&P 500)
IWM + 4% (Russell 2000)
GLD - 2% (Gold)
EEM - 6% (Emerging Markets)
SLV -20% (Silver)

Long term treasury bonds surprise as the best performing major asset class in 2014 with TLT up 24% for the year. Who predicted that? Especially as Fed bond buying ended right on schedule. Utilities and Real Estate Investment Trusts (REITs) were other big beneficiaries of the rally in bonds, with XLU and IYR up near the same amount.Silver craters down again, after a big down year in 2013 as well. Averaging down into a major bear market can be the road to the poor house.

I often write that predictions are mostly for entertainment. So just for fun, lets glance at that crystal ball. There are cross currents for the stock market. Seasonal factors such as the 10-year cycle, the 4-year presidential cycle point to a strong year, up 28% in year 5 of a decade is average. On the other side, valuation measures such as CAPE (aka as PE 10, the ten year price-earnings of the market), and market dividend yield, point to over valuation. I posted about the warning signs of a top before (link). I'll continue to remind myself of those, because a top is inevitable. However, ten tops tend to be predicted for every top that occurs. 
On the anecdotal side, there is a tiny bit more exuberance, as two young relatives opened accounts and bought a few shares. Neither is going "all in" or thinking about trading full time, but still it is a minor negative. I mentioned that one of the local CANSLIM meetup groups closed down. I see this as a minor positive. Stock market meetups would be booming, not closing down, if this was a popular market bubble ala 1999/2000. Instead, it remains a tough task to find intelligent casual conversation about the stock market. I still often hear people saying "the stock market is fixed. I don't trust the stock market." So this remains one of the most hated bull markets ever, up about 200% of the SPY 666 lows.

My plan is to listen to the market, instead of having a set in stone prediction. In May 2014, I wrote a post "Tea Leaves for a Market Top" (link) and continue to watch for those signs (transports lagging, inverted yield curve, magazine cover sentiment). Over my many years in the market, I observe that my predictions tend to be no better than coin flips. In other words, I don't make money on my predictions. I am bit better at risk management and that's where I see the profits coming form. Each trader has biases. Old timers have history. Hopefully, I can translate my vast experience into wisdom instead of bias.

Let me close with a toast: Here's to 2015 being the best year ever! Cheers!

No comments: