End of the Year Summary – 2016

December was another strong month for me in a year that ended with a loss in my account. The way I traded TLT (without hedges) forced me to take losses when the market temporarily dipped even though my longer-term outlook was correct. The old Keynes adage fits in here (paraphrased) that the market can stay wrong longer than I can stay solvent. It’s moot that I was right in the end. What mattered is that I couldn’t stay long all my equities and short my bonds during the post-Brexit sell-off. By the end of 2016, a year that finished with double digit gains, I finished with a near $8,000 loss (see below). One of the silver linings is that I finished more than $20,000 off of my lows, so that’s something.

I ended December with a Net Liquidation Value (NLV) of $92,244.41 and a Net Asset Value (NAV) of $92,244.41 according to Interactive Brokers (IB) after finishing November with an NLV of $90,956.43. The difference in month end values gave me a gain of $1,287.98 (~1.42%) on paper for December and a realized gain of $3,972.49 on eight closing trades (two of which were covered call assignments). I received no dividends and paid $41.41 in short interest for my short TLT shares held during November. The net total was a realized gain of $3,931.08 in December. Quicken reported that I have an account value of $92,166.41 the same as IB’s reported NAV after accounting for dividend accruals of $78.00 that will be paid on January 11. Due to rounding, my Quicken balance was $0.02 more than the IB balance, so I removed $0.02 on December 30. The other rounding errors from 2016 balanced themselves out through the year, so this was the only adjustment that remained.

For the full year, I had a realized loss of $8,623.68. I only have 100 shares of DIS left in my account and maybe I should’ve taken that loss in 2016 too. As it worked in 2015, This sum doesn’t match my returns for the year for two reasons.  One, I came into the year with some options that gave me some losses in the first quarter.  Two, I have unrealized losses on my shares of DIS. It’s funny (sad?) when I looked back at my year end post from 2015, I saw that my best gains in 2015 came from TLT. What a difference a year makes. It’s a good lesson in not running a trade into the ground. If a stock or ETF is your biggest winner in the previous year, it’s probably due for a change. Don’t try the same trading strategy, or in my case, a more aggressive approach the following year.

If all my naked puts were assigned, I would be 11.38% invested in this account. I am invested 45.41% percentage points less than I was at the end of November since I liquidated almost everything. I’ll start rebuilding before long.

This is my asset allocation in my IB account as of the end of December:

  • Large-cap ETF: 0.0%
  • Mid-Cap ETFs: 0.0%
  • Small-Cap ETF: 0.0%
  • International: 0.0%
  • Individual Stocks & Other Sector ETFs: 11.3%
  • Bonds: 0.0%
  • Short ETFs: 0.0%

According to Morningstar, here’s how I compare to the major indexes (including dividends) through the month’s last trading day, December 30, 2016:

  • Dow Jones Return: YTD/1-year change +16.50%
  • S&P 500 Return: YTD/1-year change +11.96%
  • NASDAQ Composite Return: YTD/1-year change +7.50%
  • Russell 2000: YTD/1-year change +21.31%
  • S&P Midcap 400: YTD/1-year change +20.74%

These are my returns according to Quicken through December 30, 2016:

  • 2016 Return: Quicken says -4.25%, but I don’t see that it accounted for the interest and dividends paid, so by simply dividing my paper loss of $7,755.59 by my starting balance (after resetting on 1/6/16), I lost 7.76% in 2016.
  • Average Annual (not cumulative) Return since November 18, 2009 (when I opened my IB account): +8.13% (but I assume this is off for the same reason my 2016 returns are off in Quicken. (I’m not happy with Quicken right now.)

The VIX ended the month at 14.04 and the VXN ended at 16.68. The VIX is 0.71 points higher than at the end of November and the VXN is 1.55 points higher than at the end of November.  Both volatility measures finished December at their highs of the month as stocks lost their positive momentum in the final week. Still, neither is giving much foreshadowing as to the direction we should see in the near-term.

The CBOE SKEW Index finished December at 127.26, only 0.87 points higher than the end of November. The SKEW only moved as high as 131.95 on December 16 and as low as 119.08 on December 8 before settling somewhat in the middle by month’s end, once again not predicting any big hits to the market in the coming weeks.

How My Trader’s Journal will work in 2017 and beyond.

I’m closing in on writing this blog for 10 years as of this coming April. That’s insane to me. I didn’t even realize it had been that long until I started writing this paragraph. I’ve kept the same basic format for most of my run, but changed to start each year with $100,000 a few years ago. I felt it was easier for readers to follow without seeing my monthly deposits come into my account and skewing my progress. 2016 was the first year since starting this $100,000 practice that I lost money. I knew it’d happen eventually and didn’t know how I’d handle it. I don’t actually have to make that decision yet, because of the changes I need to make for my divorce. Since this account that I blog about is in both of our names, I need to liquidate everything and move cash into my own account. We haven’t agreed on how that account split is going to work, so I’ll have to come up with a temporary plan that could change when the dust settles. I’m not going away, but might be quiet while I make changes to where my money resides and how much I have to work with.

The other change I’m considering, thanks in part to my soon-to-be 13-year old son, is adding in a YouTube channel so I could vlog (video blog) my trades instead of writing them. I need a screen capture tool and will have a learning curve, so let me know if you have any tips. This sounds like fun to me and could be a better way to share my trading experiences. Send me an email or comment below if you like or don’t like the idea.

 

 



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