Like most investors with a broadly bullish allocation, my account got spanked in December to put an exclamation point on a terrible year of investment choices for me. Actually, I only made three real mistakes and they cost me big. The culprits for me in 2018 were GS, FB, and AAPL. I took the losses on GS and FB where I had a realized loss of over $11,000 combined, but AAPL was the biggest single troublemaker for me. After selling an extra naked put by mistake and leaving it in place, I turned a small loss into more than a $10,000 loss. I haven’t taken the AAPL loss yet and expect AAPL to recover in 2019, but for now, it’s ugly.
I would’ve had a profit for the year without the GS, FB, and AAPL losses. That’s how it seems on paper, but without investments in those three, I would’ve had more in the indexes and since they fell, I probably would’ve lost more there too, just not nearly as much. For example, my IWM position is down roughly $3,200. It’s bad, but not as bad as the three individual stocks.
My account ended December with a Net Asset Value (NAV) of $83,609.34 according to Interactive Brokers (IB) after ending November with a NAV of $90,499.10. I had a loss of $6,889.76 (~7.61%) on paper for December (better than the Dow’s 8.66% drop and the S&P 500’s 9.18% drop in December) and had $289.62 in net realized gains from my single closing trade and four dividend payments. My closing trade was for an IWM covered call that expired worthless. The dividends were on FEZ, XLF, IWM, and ADI for a total dividend amount received of $136.29. For the year, I had a realized loss of $2,469.25.
I received $2.82 in interest ($23.27 less than last month). Quicken reported that I have an account value of $83,609.34, which is the same as what IB shows after I deducted $0.02 in Quicken from the rounding error that showed last month too. I have no interest accruals or dividend accruals that are rolling into 2019.
I’m 85.98% invested in this account, 4.66 percentage points above the end of November. I only have two options remaining that expire in January. Both are covered calls and have a combined time value of only around $75. I’ve hesitated to sell new covered calls too close to the money and also didn’t want to close out the AAPL and ADI covered calls until 2019 to delay paying taxes on those realized gains. I have $17,038.32 in uninvested cash and plan to get it to work soon if I think we’ve stabilized some.
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: 15.99%
– International: 3.97%
– Individual Stocks & Other Sector ETFs: 54.26% (most of this is large cap really with AAPL and ADI included here)
– Bonds: 0.0%
– Short ETFs: 0.0%
According to Morningstar, here’s how I compare to the major indexes (including dividends) through the last trading day, December 31, 2018:
– Dow Jones: 2018 change: -3.48%
– S&P 500: 2018 change: -4.38%
– NASDAQ Composite: 2018 change: -3.88%
– Russell 2000: 2018 change: -11.01%
– S&P Midcap 400: 2018 change: -11.08%
My return according to Quicken through the end of 2018:
– 1 Year Return: -16.39%
The VIX ended the month at 25.42 and the VXN ended at 31.44. The VIX finished December 7.35 points higher than the end of November. The VXN finished 7.42 points higher. The VIX peaked on December 24, when it hit an intraday high of 36.10. The VXN peaked the same day at 38.70. I was correct in my plan to wait last month before selling new puts, but I’m not as certain now.
Now that 2018 is in the history books, it’s time to focus on 2019 and beyond. For the past few years, I’ve either withdrawn any amount over $100,000 in my account or contributed extra to pull it up to $100,000. I have money in my TD Ameritrade account I could pull over, but I don’t want to sell what I have in that account and take losses yet. I could also take cash from my emergency fund to fill in the gap, but with a possible recession this year or next year and my income dependent on my clients’ account balances, I think it’s wise to keep the emergency fund fully stocked.
I might change my mind in a few weeks or months if I’m more confident that we’re hitting a longer-term low for stocks, but for now, I’m not going to continue my pattern of returning my account balance to $100,000. I don’t like the sound of that plan and am not firm in my decision, so maybe I’ll update it later.
I don’t have a major vacation planned for 2019 and don’t have a pending divorce or girlfriend breakup on the horizon. So, I’d like to think I can spend time focused on investing, my son, exercising and my garden (https://www.instagram.com/soilmatesga/ – is where my girlfriend and I share our garden ideas and learn from others) .
I recognize my issues with individual stocks and after I exit my AAPL and ADI positions sometime in 2019, I might stick to options on index funds again as the vast majority of my holdings. I’d like to get back to beating the indexes on a regular basis, like I used to, unlike the past couple of years. One way I see that as a higher probability plan is to sell out of the money covered calls on index funds and either roll them higher if they move in the money or let them be assigned and sell out of the money puts closer to the money than I have been doing. This strategy has worked well for some of my clients’ accounts who don’t like me to trade individual stocks as much for them for tax reasons, so I’ll plan to make it work for me too. The idea is to make 5-7% on the premiums annually and even more if assigned due to run up in the underlying asset’s price.