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Showing posts with label US stock portfolio. Show all posts
Showing posts with label US stock portfolio. Show all posts
Saturday, 11 October 2008
Sailing very close to the wind
Despite pouring $10,000 cash into my margin lending account with Leveraged Equities over the past two days, the market plunge this week saw my margin utilisation hit an all-time high of over 97% as at close of business on Friday. There is an extra 5% "buffer" allowed after hitting 100% margin utilisation before a margin call will be issued, but another substantial decline in the Australian market early next week would force me to start selling off some of my Australian stocks. The "at market" sale of Berkshire Hathaway "B" shares from my US portfolio went through on Friday at $3,000 per share. That was a pretty tragic result, as the stock was massively down at the open, but recovered to close at $3,780! With 20:20 hindsight I should have placed the order with a fixed price rather than "at market". As usual greed and fear brought me unstuck. I sold the stock because I wanted to free up some extra cash to avoid selling Australian stocks due to a margin call, and yet I was too greedy to place a limit order at a reasonable discount to Thursday's closing price. Trying to get a slightly better price by going "at market" ended up costing my about US$10,000! At the moment it seems that everything that could go wrong, is going wrong.
Friday, 27 June 2008
Revamped US stock portfolio
I sold off most of my US stock portfolio last month, just retaining my Microsoft shares and the one 'B' share of Berkshire I'd recently bought. Today I placed an order to buy another 9 BRK.B shares at market price, which should be filled overnight. That should leave around USD$18,000 in my Comsec-Pershing brokerage account, which I'll transfer back to my Australian bank account on Monday. I'll keep the cash sitting in my credit union high interest account, so that it's available to pay the monthly interest on the margin loan accounts that aren't prepaid this financial year. It will also be handy to have some ready cash available in case there's a severe stock market crash one day soon, and I need to avoid a margin call.
My US stock portfolio will now just consist of 10 Berkshire 'B' shares and a few Microsoft. Since the brokerage fees charged by Comsec-Pershing are so high, this will be a "buy and hold" portfolio from now on. Hopefully Warren Buffet is able to pick up some bargains amongst the sub-prime casualties, and Berkshire will continue to perform well over the next 10-15 years. We'll see.
My US stock portfolio will now just consist of 10 Berkshire 'B' shares and a few Microsoft. Since the brokerage fees charged by Comsec-Pershing are so high, this will be a "buy and hold" portfolio from now on. Hopefully Warren Buffet is able to pick up some bargains amongst the sub-prime casualties, and Berkshire will continue to perform well over the next 10-15 years. We'll see.
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Wednesday, 28 May 2008
Revamping my US Stock Portfolio
After almost two years my portfolio of US shares is undergoing a face lift. I initially planned on buying a parcel of one US stock each month for the first year, picking my selections from a short list provided from the "Little Book that beats the market" website. I was then going to sell each position after 18 months and reinvest the proceeds in a new selection from the current listing. However, the stock market slump and movement in the AUDUSD exchange rate has produced woeful returns. I also managed to lose money on my AUDUSD forex trading! Rather than be tempted into day trading forex, I should have just gone long the AUD with a CFD for a similar amount as my USD portfolio. That would have hedged my currency risk (although costing a bit in CFD interest). By trying to profit from the currency trading I actually made a bad investment worse!
So, I've now decided to sell off my current US stock holdings, only retaining my 1 "B" share in Berkshire Hathaway, and a small parcel of Microsoft stock. Looking at the stocks I'm selling three have done extremely well, but five did very badly. Overall these shares are down over 10% in USD terms, and much more in AUD value:
This table doesn't have the AUD values of the stock sales yet, as the official ATO exchange rate for 27 May won't be published until June. I expect to make an overall capital loss of around $10,000 in AUD terms, so I might sell off some Australian stocks that have made capital gains and be able to offset the losses against the capital gains in this year's tax return. I can either use the proceeds of the Australia stock sales to reduce my margin loan balances (which with interest rates up around 10% aren't such a good idea) or else reinvest the proceeds on the next market dip.
I think I'll reinvest the proceeds in BRK.B stock - increasing my holding to 15 shares of Berkshire. My new theory is that Warren is probably better at picking individual stocks than I am, and he may be picking up some bargains in the current bear market (I think he was sitting on a fairly large cash position last year). I don't believe BRK.B pays any dividend, so the small Microsoft holding is needed to provide some income, and therefore make the interest on the investment loan I used to fund this account tax deductible. Investing in Berkshire seems a bit strange - I'm moving away from picking individual stocks myself these days, and investing in low-cost index funds instead (for example in my retirement account). With Buffet's incredible investment track record and advancing years it also smacks of chasing last years winner, which is a well-known *bad idea* ;)
Anyhow, I'll probably let this investment sit for the next ten years or so. Hopefully BRK.B outperforms the market, the AUD drops back against the USD over that period, and the interest rate on my investment loan drops back during the next few years so it's less than the ROI! At least by only having two stocks in this account (and only one paying a dividend) the paperwork for my tax returns will be slightly simplified. This account represents about 7% of my NW, and around 3.5% of my investment portfolio (including borrowed funds), so by itself it won't have a massive impact on my results over the next ten years.
So, I've now decided to sell off my current US stock holdings, only retaining my 1 "B" share in Berkshire Hathaway, and a small parcel of Microsoft stock. Looking at the stocks I'm selling three have done extremely well, but five did very badly. Overall these shares are down over 10% in USD terms, and much more in AUD value:
This table doesn't have the AUD values of the stock sales yet, as the official ATO exchange rate for 27 May won't be published until June. I expect to make an overall capital loss of around $10,000 in AUD terms, so I might sell off some Australian stocks that have made capital gains and be able to offset the losses against the capital gains in this year's tax return. I can either use the proceeds of the Australia stock sales to reduce my margin loan balances (which with interest rates up around 10% aren't such a good idea) or else reinvest the proceeds on the next market dip.
I think I'll reinvest the proceeds in BRK.B stock - increasing my holding to 15 shares of Berkshire. My new theory is that Warren is probably better at picking individual stocks than I am, and he may be picking up some bargains in the current bear market (I think he was sitting on a fairly large cash position last year). I don't believe BRK.B pays any dividend, so the small Microsoft holding is needed to provide some income, and therefore make the interest on the investment loan I used to fund this account tax deductible. Investing in Berkshire seems a bit strange - I'm moving away from picking individual stocks myself these days, and investing in low-cost index funds instead (for example in my retirement account). With Buffet's incredible investment track record and advancing years it also smacks of chasing last years winner, which is a well-known *bad idea* ;)
Anyhow, I'll probably let this investment sit for the next ten years or so. Hopefully BRK.B outperforms the market, the AUD drops back against the USD over that period, and the interest rate on my investment loan drops back during the next few years so it's less than the ROI! At least by only having two stocks in this account (and only one paying a dividend) the paperwork for my tax returns will be slightly simplified. This account represents about 7% of my NW, and around 3.5% of my investment portfolio (including borrowed funds), so by itself it won't have a massive impact on my results over the next ten years.
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Tuesday, 27 November 2007
Tracking Stock Trades with Covestor
Some of you may have noticed the new Covestor widget in my sidebar - it's tracking the performance of my "Little Book That Beats The Market" portfolio of US stocks vs. the S&P500 index. I came across this widget when I was reading Timothy Sykes' blog. He is using it to provide an independently verified record of his stock trades while he attempts to replicate his original claim to fame - building up $12,415 of Bar Mitzvah Gift money into $1.65 million from 1999 to 2002 through small stock trading (mainly short selling).
I'm not an active trader - even my US stock portfolio is based on buying a stock and holding it for at least 12 months before selling it and buying a replacement from the current short-list of prospects. So tracking my trades through Covestor is a bit of overkill. However, it does provide interesting information about trading performance, risk adjusted return and so on.
I may also track my Australian stock portfolios using Covestor as they seem to be setup to handle data from various stock brokers around the world. I setup my account to track the US stocks I trade via Comsec-Pershing. You can choose to enter your initial portfolio and track future trades either automatically (by providing your account login details) or 'manually' by sending a file of your latest brokerage statment and then sending in updates for future trading activity. Since Pershing didn't seem to be included on the list of brokers I'm updating this account manually. When I setup another account to track one of my Australian brokerage accounts I may try the automated method and see how well it works.
Unfortunately you have to setup a new account (using a different email address for verification) for each individual brokerage account - it would be a lot easier if you were able to setup "sub accounts" instead. Covestor also provides ranking tables showing how well the Covestor members are performing, and you can track your favourite traders, get updates of when they make new trades, and read what comments that have made about each trade. In the longer term Covestor hopes to charge membership fees for people to be able to track successdul investors, and will pass on a percentage of these fees to the members being tracked. I doubt anyone would pay to see details of my investing activities, but active traders like Timothy may attract a day-trading fan club over time.
Copyright Enough Wealth 2007
I'm not an active trader - even my US stock portfolio is based on buying a stock and holding it for at least 12 months before selling it and buying a replacement from the current short-list of prospects. So tracking my trades through Covestor is a bit of overkill. However, it does provide interesting information about trading performance, risk adjusted return and so on.
I may also track my Australian stock portfolios using Covestor as they seem to be setup to handle data from various stock brokers around the world. I setup my account to track the US stocks I trade via Comsec-Pershing. You can choose to enter your initial portfolio and track future trades either automatically (by providing your account login details) or 'manually' by sending a file of your latest brokerage statment and then sending in updates for future trading activity. Since Pershing didn't seem to be included on the list of brokers I'm updating this account manually. When I setup another account to track one of my Australian brokerage accounts I may try the automated method and see how well it works.
Unfortunately you have to setup a new account (using a different email address for verification) for each individual brokerage account - it would be a lot easier if you were able to setup "sub accounts" instead. Covestor also provides ranking tables showing how well the Covestor members are performing, and you can track your favourite traders, get updates of when they make new trades, and read what comments that have made about each trade. In the longer term Covestor hopes to charge membership fees for people to be able to track successdul investors, and will pass on a percentage of these fees to the members being tracked. I doubt anyone would pay to see details of my investing activities, but active traders like Timothy may attract a day-trading fan club over time.
Copyright Enough Wealth 2007
Monday, 1 October 2007
Financial Armageddon (Again)
I didn't read Ravi Batra's book "The Great Depression of 1990" (Simon and Schuster, New York, 1985) back in the "greed is good" 1980's and I probably won't get around to reading "Financial Armageddon: Protecting Your Future from Four Impending Catastrophes" by Michael J. Panzner. Ever since I read the Club of Rome's "Limits to Growth" as a naive teenager I've slowly come to be more sanguine about "doom and gloom" scenarios that occasionally come out with much fanfare. It's not that the premise in such tomes is necessarily incorrect, it's just that events tend to unfold more slowly than predicted, and people and systems tend to muddle through in most cases.
So I left a sceptical comment on a recent post on the Financial Armageddon blog:
I suppose if you keep predicting a market crash long enough, eventually you'll get it right. There's a saying that the market has predicted 20 of the past half dozen recessions. Looks like you'll end up having predicted 20 or the past half dozen market corrections!
The reply by the author was interesting:
You've got that wrong. I am not predicting a "correction," but a devastating bear market that slices at least 30% (and probably much more) off the value of the equity market. Of course, it's possible we'll see a crash, but I'm not so sure about that. It might just be one of these long, grinding affairs that keeps the permabulls hanging on until they've lost most or all of what they've got. At that point, it will be no wealth, rather than "Enough Wealth."
We'll have to wait and see if Michael turns out to be correct, but just a simple plot of how a 30% drop in the S&P500 would appear on the long term (55 year) chart (red line below) suggests that such a drop from current levels is unlikely, though not impossible.
While we may experience a similar period of poor market returns as happened in the 70's, I think the market performance since the unwinding of the tech wreck bubble looks relatively sustainable. Like I say, only time will tell if my black question mark or Michael's red one ends up closer to reality in the next few years.
Copyright Enough Wealth 2007
So I left a sceptical comment on a recent post on the Financial Armageddon blog:
I suppose if you keep predicting a market crash long enough, eventually you'll get it right. There's a saying that the market has predicted 20 of the past half dozen recessions. Looks like you'll end up having predicted 20 or the past half dozen market corrections!
The reply by the author was interesting:
You've got that wrong. I am not predicting a "correction," but a devastating bear market that slices at least 30% (and probably much more) off the value of the equity market. Of course, it's possible we'll see a crash, but I'm not so sure about that. It might just be one of these long, grinding affairs that keeps the permabulls hanging on until they've lost most or all of what they've got. At that point, it will be no wealth, rather than "Enough Wealth."
We'll have to wait and see if Michael turns out to be correct, but just a simple plot of how a 30% drop in the S&P500 would appear on the long term (55 year) chart (red line below) suggests that such a drop from current levels is unlikely, though not impossible.
While we may experience a similar period of poor market returns as happened in the 70's, I think the market performance since the unwinding of the tech wreck bubble looks relatively sustainable. Like I say, only time will tell if my black question mark or Michael's red one ends up closer to reality in the next few years.
Copyright Enough Wealth 2007
Wednesday, 11 July 2007
US Stock Trade and Portfolio Update - July 2007
This month I selected Aspreva Pharmaceuticals (ASPV) from the current MagicFormula listing to add to my "Little Book That Beats The Market" Portfolio of US Shares (100% geared). I placed an order to buy 200 ASPV @ market (around $18.70). My US Stock Portfolio current situation is listed in the sidebar. I won't have to transfer any funds into my account to settle this month's stock purchase as one of my previous stock picks was taken over, so I have over $5,000 USD cash sitting in my account at the moment.
My portfolio has been hovering around an annualised ROI (XIRR) of 20% in recent months, although my current net gain is only 8.35% as I'm still slowly building up my portfolio (towards a total of 18 stocks accumulated at the rate of one new stock purchase each month). My success criteria is to achieve a return greater than the cost of funds invested (borrowed as part of a "Portfolio loan" from St George bank, so the interest rate is the standard variable home loan rate, around 7.25%), and my long-term target is to achieve a ROI of 10-20% pa.
After I'm fully invested with a portfolio of 18 stocks this December (approx. US$90K) I'll start to sell off the oldest holding each month and replace it with a new pick from the current MagicFormula list. Rather than rolling over the exact amount realised from each sale into a new stock, I'll invest 1/18th of the current portfolio value, adding in some extra cash when needed. That way I'll be investing roughly equal dollar amounts each month.
Copyright Enough Wealth 2007
My portfolio has been hovering around an annualised ROI (XIRR) of 20% in recent months, although my current net gain is only 8.35% as I'm still slowly building up my portfolio (towards a total of 18 stocks accumulated at the rate of one new stock purchase each month). My success criteria is to achieve a return greater than the cost of funds invested (borrowed as part of a "Portfolio loan" from St George bank, so the interest rate is the standard variable home loan rate, around 7.25%), and my long-term target is to achieve a ROI of 10-20% pa.
After I'm fully invested with a portfolio of 18 stocks this December (approx. US$90K) I'll start to sell off the oldest holding each month and replace it with a new pick from the current MagicFormula list. Rather than rolling over the exact amount realised from each sale into a new stock, I'll invest 1/18th of the current portfolio value, adding in some extra cash when needed. That way I'll be investing roughly equal dollar amounts each month.
Copyright Enough Wealth 2007
Tuesday, 12 June 2007
US Stock Portfolio Update
After reaching a high of over 20% annulualised return on investment (XIRR) my "Little Book" portfolio of US stocks suddenly plunged to have an XIRR of around just 7% last Friday. Although the stock market had been in decline for a few days, the magnitude of this plunge seemed too large compared to the wider market and NASDAQ index, so I looked at each stock in my portfolio this morning. It turns out that one of my sotcks, EPIQ, had done a 3:2 stock split last week, which my google spreadsheet doesn't take into account. I'll have to have a look at my formulae and work out how best to adjust for stock splits without causing problems. I may have to create an new column to hold the original number of stocks purchased as well as the current holding. Anyhow, in the meantime just take the performance figures quoted in the side bar with a grain of salt ;)
The other concern was why the price of my newest purchase, AVCI, had suddenly dropped the day after I bought it ("just my luck" I thought) - it turns out that there was a special $2.00 dividend, and the stock went ex-dividend the day after I'd bought my holding! This will be a pain as I'll have to pay income tax on this unexpectedly large dividend, but it's much better than a loss.
Enough Wealth
The other concern was why the price of my newest purchase, AVCI, had suddenly dropped the day after I bought it ("just my luck" I thought) - it turns out that there was a special $2.00 dividend, and the stock went ex-dividend the day after I'd bought my holding! This will be a pain as I'll have to pay income tax on this unexpectedly large dividend, but it's much better than a loss.
Enough Wealth
Wednesday, 6 June 2007
US Stock Trade and Portfolio Update - June 2007
This month I selected AVICI Systems (AVCI) from the current MagicFormula listing to add to my "Little Book That Beats The Market" Portfolio of US Shares (100% geared). I bought 520 AVCI @ market (around $9.52). My US Stock Portfolio current situation is listed in the sidebar.
My portfolio had recently reached an annualised ROI of over 24%, but in the last few days it has dropped back slightly to currently have an XIRR=22.84%. My success criteria is to achieve a return greater than the cost of funds invested (borrowed as part of a "Portfolio loan" from St George bank, so the interest rate is the standard variable home loan rate, around 7.25%), and my long-term target is to achieve a ROI of 10-20% pa.
After I'm fully invested with a portfolio of 18 stocks this December (approx. US$90K) I'll start to sell off the oldest holding each month and replace it with a new pick from the current MagicFormula list. Rather than rolling over the exact amount realised from each sale into a new stock, I'll invest 1/18th of the current portfolio value, adding in some extra cash when needed. That way I'll be investing roughly equal dollar amounts each month.
Enough Wealth
My portfolio had recently reached an annualised ROI of over 24%, but in the last few days it has dropped back slightly to currently have an XIRR=22.84%. My success criteria is to achieve a return greater than the cost of funds invested (borrowed as part of a "Portfolio loan" from St George bank, so the interest rate is the standard variable home loan rate, around 7.25%), and my long-term target is to achieve a ROI of 10-20% pa.
After I'm fully invested with a portfolio of 18 stocks this December (approx. US$90K) I'll start to sell off the oldest holding each month and replace it with a new pick from the current MagicFormula list. Rather than rolling over the exact amount realised from each sale into a new stock, I'll invest 1/18th of the current portfolio value, adding in some extra cash when needed. That way I'll be investing roughly equal dollar amounts each month.
Enough Wealth
Friday, 11 May 2007
US Stock Trade and "Little Book" Portfolio Update - MAY 2007
This month I selected Jakks Pacific (JAKK) from the MagicFormula listing to add to my "Little Book That Beats The Market" Portfolio of US Shares (100% geared). I bought 200 JAKK @ $24.96. My US Stock Portfolio current situation is listed in the sidebar.
My portfolio had recently reached an annualised ROI of 20%, but in the last few days it has dropped back considerably. I won't be doing a serious review of performance and comparison to a benchmark (such as the Russell 2000) until I have a track record of at least five years to evaluate. My success criteria is to achieve a return greater than the cost of funds invested (borrowed as part of a "Portfolio loan" from St George bank, so the interest rate is the standard variable home loan rate), and my target is to achieve a ROI of 10-20% pa over the long term.
When I'm fully invested this December (approx. US$90K) I'll have a portfolio of 18 individual stocks (I'm buying one US$5000 lot of stock each month), and I will then start to sell off the oldest holding each month and replace it with a new pick from the current MagicFormula list. Rather than rollover the exact amount realised from each sale into a new stock, I'll invest 1/18th of the current portfolio value, adding in some extra cash when needed. That way I'll be investing roughly equal dollar amounts each month.
Enough Wealth
My portfolio had recently reached an annualised ROI of 20%, but in the last few days it has dropped back considerably. I won't be doing a serious review of performance and comparison to a benchmark (such as the Russell 2000) until I have a track record of at least five years to evaluate. My success criteria is to achieve a return greater than the cost of funds invested (borrowed as part of a "Portfolio loan" from St George bank, so the interest rate is the standard variable home loan rate), and my target is to achieve a ROI of 10-20% pa over the long term.
When I'm fully invested this December (approx. US$90K) I'll have a portfolio of 18 individual stocks (I'm buying one US$5000 lot of stock each month), and I will then start to sell off the oldest holding each month and replace it with a new pick from the current MagicFormula list. Rather than rollover the exact amount realised from each sale into a new stock, I'll invest 1/18th of the current portfolio value, adding in some extra cash when needed. That way I'll be investing roughly equal dollar amounts each month.
Enough Wealth
Friday, 20 April 2007
Live Portfolio Updates in Sidebar
I updated my US stock portfolio spreadsheet using Google spreadsheet, and used the "publish" feature to create html code to display the current portfolio (with current prices linked into the google spreadsheet from google finance data) and performance in live tables in the blog sidebar. These tables will be automatically updated to show current prices, overall gain, and the calculated annualised return (using the XIRR function). It's quite a cool little tool, but I wish google finance provided data on the Australian market - currently they only supply data on the US, Japan and European markets.
US Stock Portfolio:
Performance:
Enough Wealth
US Stock Portfolio:
Performance:
Enough Wealth
Tuesday, 10 April 2007
US Stock Trade and "Little Book" Portfolio Update - APR 2007
This month I selected Optimal Group (OPMR) from the MagicFormula listing to add to my "Little Book That Beats The Market" Portfolio of US Shares (100% geared). I bought 600 OPMR @ $8.48. My US Stock Portfolio currently stands as:
The commision amounts include an allowance of another $65 for selling costs. There is no allowance for dividends received (around $300) or interest paid on the Portfolio Loan (currently around $400 a month).
At the moment the performance of this portfolio is largely governed by what individual stocks I have selected (semi-randomly) from the Lists generated on the www.magicformulainvesting.com website. For example, in the first trade I was tossing up whether the buy H&R Block or Hasbro toys - in the end I chose to purchase HRB (which has dropped nearly 15%). HAS in the same period has gained in price. Over a period of several years, once I am fully invested (with a portfolio of 18 stocks), the performance of my particular portfolio should be more in line with what can reasonably be expected from application of the "Little Book" methodology.
I'm quite happy with how the portfolio is performing, especially as the above figures are in AUD and the portfolio is held in USD. With the AUD hitting a 16-year high today, my foreign exchange losses have impacted the ROI to date quite significantly.
I was going to "mirror" my US stock purchases with CFD purchases of equivalent value via CMC Markets, but none of the US stocks I was considering adding to the portfolio today are actually traded by CMC Markets. I may either use the CFD trading the hedge my currency exposure, or perhaps use it to by a core index holding of QQQQ or Russel2000.
Enough Wealth
Symbol P/E Last Shrs Trade Date Paid Comm Value Gain
HRB 28.89 21.03 200 28-Jun-06 24.16 130 $5,103.75 -$889.62 -14.84%
MOT 12.07 17.65 265 24-Jul-06 18.98 130 $5,675.59 -$557.68 -8.95%
MSFT 24.42 28.57 200 21-Aug-06 24.64 130 $6,933.62 $823.79 +13.48%
ASEI 22.88 52.60 100 18-Sep-06 49.51 130 $6,382.72 $244.97 +3.99%
PWEI 6.55 32.86 150 13-Oct-06 33.29 130 $5,981.07 -$208.27 -3.36%
OVTI 14.61 12.49 300 13-Nov-06 16.47 130 $4,546.78 -$1,578.82 -25.77%
EPIQ 14.05 22.15 320 11-Dec-06 15.65 130 $8,600.90 $2,393.97 +38.57%
CRYP 14.02 25.34 200 10-Jan-07 23.92 130 $6,149.74 $214.62 +3.62%
VRGY 48.43 25.23 270 14-Feb-07 18.29 130 $8,266.11 $2,143.75 +35.02%
KG 16.77 19.96 260 7-Mar-07 18.49 130 $6,297.29 $333.78 +5.60%
OPMR 16.89 8.48 600 10-Apr-07 8.48 130 $6,174.01 -$130.00 -2.06%
11 symbols Total(AUD): $70,111.57 $2,790.49 +4.15%
The commision amounts include an allowance of another $65 for selling costs. There is no allowance for dividends received (around $300) or interest paid on the Portfolio Loan (currently around $400 a month).
At the moment the performance of this portfolio is largely governed by what individual stocks I have selected (semi-randomly) from the Lists generated on the www.magicformulainvesting.com website. For example, in the first trade I was tossing up whether the buy H&R Block or Hasbro toys - in the end I chose to purchase HRB (which has dropped nearly 15%). HAS in the same period has gained in price. Over a period of several years, once I am fully invested (with a portfolio of 18 stocks), the performance of my particular portfolio should be more in line with what can reasonably be expected from application of the "Little Book" methodology.
I'm quite happy with how the portfolio is performing, especially as the above figures are in AUD and the portfolio is held in USD. With the AUD hitting a 16-year high today, my foreign exchange losses have impacted the ROI to date quite significantly.
I was going to "mirror" my US stock purchases with CFD purchases of equivalent value via CMC Markets, but none of the US stocks I was considering adding to the portfolio today are actually traded by CMC Markets. I may either use the CFD trading the hedge my currency exposure, or perhaps use it to by a core index holding of QQQQ or Russel2000.
Enough Wealth
Tuesday, 3 April 2007
Yippee, my form 1042S arrived!
There's nothing wrong with giving each form a unique ID number, after all the names of some forms like the "Foreign Person's U.S. Source Income Subject to Withholding" form don't exactly roll of the tongue. What amazes me is that even common forms (equivalent to our Australian annual "tax summary" statement) seem to get referred to by their "code name" eg/ "W2" or whatever.
Anyhow, back to the topic of this post - my 1042S arrived in the post today. It's really just of academic interest to me. As a non-resident I don't have to do a US tax return (as far as I know). The information provided is also of no practical use in filling in my Australian tax return (due after June 30). Even though there's a tax agreement between the US and Australia so I can claim a tax credit on my Australian return for any US tax already paid on my US dividends, the Australian system requires me to report all transactions in the Australian tax year (1 July - 30 June), so a Calendar year statement from the US isn't really much help. Also, the Australian return must list each individual transaction converted to the equivalent AUD value applicable at the time of the transaction. Theoretically this would mean looking up the exchange rate for the date each dividend was paid into my US broker account. But I'll probably just use the exchange rate that was applied to the funds I transferred each month to make my stock purchase - the variation in exchange rate will not have a material impact on the calculated amounts, as the totals for Jun-Dec 06 are only USD$60.25 in dividends and USD$9.04 US Federal tax withheld. As the Australian tax return often only requires whole dollar amounts for many items, the rounding error is likely to be much larger than any difference in exchange rate that occurred during a month.
I haven't quite worked out what my US broker is doing with my US dividend amounts - the first dividend sat in the cash account, and then was deducted from the amount due for the next stock purchase I made. However, subsequent dividends have simply accumulated in the cash balance of my US stock account for several months, and weren't credited against the amount due for subsequent monthly stock purchases. The amount is trivial, but it's still annoying to have a cash balance sitting in my US account unused and not earning any interest, when I then have to borrow that amount in Australia to pay for my next stock purchase in full! Hopefully when I start selling my first US "Little Book Portfolio" stock purchases at the end of the year (once they've been held 18 months) the amounts will be added to the current cash balance and be used to fund subsequent monthly stock purchases.
Enough Wealth
Anyhow, back to the topic of this post - my 1042S arrived in the post today. It's really just of academic interest to me. As a non-resident I don't have to do a US tax return (as far as I know). The information provided is also of no practical use in filling in my Australian tax return (due after June 30). Even though there's a tax agreement between the US and Australia so I can claim a tax credit on my Australian return for any US tax already paid on my US dividends, the Australian system requires me to report all transactions in the Australian tax year (1 July - 30 June), so a Calendar year statement from the US isn't really much help. Also, the Australian return must list each individual transaction converted to the equivalent AUD value applicable at the time of the transaction. Theoretically this would mean looking up the exchange rate for the date each dividend was paid into my US broker account. But I'll probably just use the exchange rate that was applied to the funds I transferred each month to make my stock purchase - the variation in exchange rate will not have a material impact on the calculated amounts, as the totals for Jun-Dec 06 are only USD$60.25 in dividends and USD$9.04 US Federal tax withheld. As the Australian tax return often only requires whole dollar amounts for many items, the rounding error is likely to be much larger than any difference in exchange rate that occurred during a month.
I haven't quite worked out what my US broker is doing with my US dividend amounts - the first dividend sat in the cash account, and then was deducted from the amount due for the next stock purchase I made. However, subsequent dividends have simply accumulated in the cash balance of my US stock account for several months, and weren't credited against the amount due for subsequent monthly stock purchases. The amount is trivial, but it's still annoying to have a cash balance sitting in my US account unused and not earning any interest, when I then have to borrow that amount in Australia to pay for my next stock purchase in full! Hopefully when I start selling my first US "Little Book Portfolio" stock purchases at the end of the year (once they've been held 18 months) the amounts will be added to the current cash balance and be used to fund subsequent monthly stock purchases.
Enough Wealth
Tuesday, 20 March 2007
All Systems GO!
The login details finally arrived by email from CMC Markets today. After sending in another email to setup the initial password I was ready to install the MarketMaker software. The installation went well, with no hick-ups installing it under Windows XP. It took about 5 minutes to download and install. One annoying feature (which also happened when I installed Comsecs ProfessionalTrader software) is that the first time you run the installed application it checks for any updates - and finds heaps. Installing all the "updates" to the installed application took longer than the initial installation. It seems as though once a version is rolled out, it gets used as the installation version for ages. All subsequent updates are just cobbled together as they arise over time, so if you install the application a fair while after its been released there's a huge amount of outdated code to be replaced. A more customer friendly approach would be to keep the "installation" version always updated with the latest updates, so that new users wouldn't have to go through a lengthy update of their newly installed application.
Once it was finally ready to go, I started to have a play around. I doesn't have an intuitively obvious interface, but that's probably due to it providing heaps of functionality and trying to keep the default layout clean and simple. I had a quick read through the online manual, and I'll have to read it all the way through before starting to use the application to its full potential. CMC Markets has a "free 1 day course" available to new clients. I'm sure it will mainly be a lot of "how to easily make huge returns with absolutely safety" bumpf, but it might provide enough training on how to use the software efficiently to make it worthwhile taking a day off work to attend.
My first daily account update arrived by email from CMC Markets today. Nice to see the $1,000.00 balance with no fees taken out. There is an online account funding option available within the trading application, but you can only make payment by credit card and they charge a $1.50 fee per transfer. I'll do any funds transfers by BPay instead and save the cost. I still have to fill in and mail by bank account details to CMC Markets so I can get funds paid back out again.
Hopefully I'll have worked out everything by the start of next month when I'm scheduled to make my next monthly US stock purchase to add to my "Little Book" portfolio. I'll do a normal $5000 stock purchase through Comsec-Pershing, and at the same time duplicate the transaction trading a long CFD in the same stock via CMC Markets. As the US CFDs trade on a 5% margin, the extra cost will only be around $500, but it will, of course, be doubling my exposure to any rises and falls in the stocks I purchase. I'll do the dual trades for 18 months and compare the costs of both trading systems.
Enough Wealth
Once it was finally ready to go, I started to have a play around. I doesn't have an intuitively obvious interface, but that's probably due to it providing heaps of functionality and trying to keep the default layout clean and simple. I had a quick read through the online manual, and I'll have to read it all the way through before starting to use the application to its full potential. CMC Markets has a "free 1 day course" available to new clients. I'm sure it will mainly be a lot of "how to easily make huge returns with absolutely safety" bumpf, but it might provide enough training on how to use the software efficiently to make it worthwhile taking a day off work to attend.
My first daily account update arrived by email from CMC Markets today. Nice to see the $1,000.00 balance with no fees taken out. There is an online account funding option available within the trading application, but you can only make payment by credit card and they charge a $1.50 fee per transfer. I'll do any funds transfers by BPay instead and save the cost. I still have to fill in and mail by bank account details to CMC Markets so I can get funds paid back out again.
Hopefully I'll have worked out everything by the start of next month when I'm scheduled to make my next monthly US stock purchase to add to my "Little Book" portfolio. I'll do a normal $5000 stock purchase through Comsec-Pershing, and at the same time duplicate the transaction trading a long CFD in the same stock via CMC Markets. As the US CFDs trade on a 5% margin, the extra cost will only be around $500, but it will, of course, be doubling my exposure to any rises and falls in the stocks I purchase. I'll do the dual trades for 18 months and compare the costs of both trading systems.
Enough Wealth
Saturday, 17 March 2007
Opened my CFD trading account with CMC Markets
After faxing in a copy of my driver's licence and a rates notice confirming my residential address setup of my new CFD trading account was completed on Friday. They require a minimum initial balance of $1000 to start trading, which I sent electronically from my bank account using BPay on Friday. Once the funds hit their system on Monday morning I should automatically be emailed my account number and initial password and could start trading that evening (trading US stocks will be available from 1:30 am - 8am AEST). I thought it was a bit strange that the account details aren't sent as soon as the account is opened, rather than waiting until receipt of a funds transfer, but it doesn't really make much difference in the end. I found a pdf file listing the 500 or so US stocks that can be traded using CMC Markets CFDs, and most of the ones I've bought so far for my little book portfolio were listed. The few ones that were missing are the smaller, more speculative stocks such as OVTI and CRYP. This will mean an additional filter when picking new stocks to purchase for my US Stock portfolio over the next 18 months.
I plan on buying a CFD for the same value of stocks that I actually purchase each month using my Comsec-Pershing broker account. After 18 months when the stock holding and corresponding CFD are sold I'll be able to compare the costs and realised gain or loss made using each system and decide whether I'll continue purchasing US stocks or just trade CFDs for US stocks in the long term. With CFD trading there's the extra risk of losing the money I've paid for the CFDs if CMC Markets went out of business, but as there is only a 5% margin required to trade US stocks this risk should not outweigh the benefit of significant savings in brokerage in the long term.
Enough Wealth
I plan on buying a CFD for the same value of stocks that I actually purchase each month using my Comsec-Pershing broker account. After 18 months when the stock holding and corresponding CFD are sold I'll be able to compare the costs and realised gain or loss made using each system and decide whether I'll continue purchasing US stocks or just trade CFDs for US stocks in the long term. With CFD trading there's the extra risk of losing the money I've paid for the CFDs if CMC Markets went out of business, but as there is only a 5% margin required to trade US stocks this risk should not outweigh the benefit of significant savings in brokerage in the long term.
Enough Wealth
Tuesday, 13 March 2007
Using Contracts for Difference (CDFs) to trade US stocks
I've been building up a portfolio of US stocks (my "Little Book" portfolio) since the middle of last year. One of the problems of trading US stocks from Australia has been the relatively high brokerage costs - using Comsec-Pershing it costs AUD$65.00 per trade. E*Trade Australia charges even more, and I haven't been able to find any Australian brokers that will trade US stocks more cheaply. Some readers have recommended US-based brokers which are cheaper, but before I take that route (with the associated hassles around transferring funds in USD to a US brokerage before making trades) I've decided to experiment with using Contracts for Difference (CFDs). These are quite a popular tool for day traders, as you can gain market exposure with low costs per trade (as little as $1) and trading CFDs has a built-in gearing effect (usually the trades are based on a margin of between 5% and 20% of the stock value being traded). I don't intend to try day trading (I think it's a zero sum game, which generally just transfers wealth from the casual day trader to commercial traders), but it looks like it may offer a cheaper method to implement by US stock portfolio strategy.
I applied online for an account with CMC Markets on Friday, and today their representative phoned to request a fax of some identification (drivers licence and a rates notice) to finalise opening my account. As soon as this is processed I'll be sent a login and can transfer the initial $1000 required to begin trading. Although there is a normally a monthly fee of around $40 to use their trading software with live stock price data from the ASX, as I only intend to trade US stocks this data isn't needed and I won't have to pay any monthly fee.
Trades of US stocks are generally on a margin of 5%, so I should be able to buy a CFD to gain equivalent exposure to a US stock as my Comsec-Pershing $5000 trade for only $250. The minimum fee of $10 is high as a percentage of the trade value (4%), but is very reasonable compared to the underlying stock exposure (0.2% of $5000). I'm not sure that all the US stocks I've picked for my "Little Book" portfolio would be available as CFDs - only 541 "constituents" of the US market are available from CMC markets.
There's also a fundamental difference between buying stocks and trading CFDs - in the case of CFDs you are basically buying a promise from the issuing company, in this case CMC Markets. The CFDs issued by CMC Markets are not tradeable by any other CFD company, and if CMC Markets went out of business my investment in their CFDs would be worthless.
Anyhow, to replicate my actual US stock trades with Comsec-Pershing over the next 12 months (US$60K worth) will only cost me around US$3K to buy the equivalent CFDs, so it's not going to be a hugely expensive experiment whatever happens. If it works out I could save US$600 a year in trading costs, which would add directly to the ROI of my "Little Book" portfolio.
Enough Wealth
I applied online for an account with CMC Markets on Friday, and today their representative phoned to request a fax of some identification (drivers licence and a rates notice) to finalise opening my account. As soon as this is processed I'll be sent a login and can transfer the initial $1000 required to begin trading. Although there is a normally a monthly fee of around $40 to use their trading software with live stock price data from the ASX, as I only intend to trade US stocks this data isn't needed and I won't have to pay any monthly fee.
Trades of US stocks are generally on a margin of 5%, so I should be able to buy a CFD to gain equivalent exposure to a US stock as my Comsec-Pershing $5000 trade for only $250. The minimum fee of $10 is high as a percentage of the trade value (4%), but is very reasonable compared to the underlying stock exposure (0.2% of $5000). I'm not sure that all the US stocks I've picked for my "Little Book" portfolio would be available as CFDs - only 541 "constituents" of the US market are available from CMC markets.
There's also a fundamental difference between buying stocks and trading CFDs - in the case of CFDs you are basically buying a promise from the issuing company, in this case CMC Markets. The CFDs issued by CMC Markets are not tradeable by any other CFD company, and if CMC Markets went out of business my investment in their CFDs would be worthless.
Anyhow, to replicate my actual US stock trades with Comsec-Pershing over the next 12 months (US$60K worth) will only cost me around US$3K to buy the equivalent CFDs, so it's not going to be a hugely expensive experiment whatever happens. If it works out I could save US$600 a year in trading costs, which would add directly to the ROI of my "Little Book" portfolio.
Enough Wealth
Thursday, 8 March 2007
US Stock Trade and "Little Book" Portfolio Update
This month I selected King Pharmaceuticals (KG) from the MagicFormula listing to add to my "Little Book That Beats The Market" Portfolio of US Shares (100% geared). I bought 260 KG @ $18.49. My US Stock Portfolio currently stands as:
The commision amounts include an allowance of another $65 for selling costs. There is no allowance for dividends received (around $300) or interest paid on the Portfolio Loan (currently around $400 a month).
At the moment the performance of this portfolio is largely governed by what individual stocks I have selected (semi-randomly) from the Lists genereated on the www.magicformulainvesting.com website. For example, in the first trade I was tossing up whether the buy H&R Block or Hasbro toys - in the end I chose to purchase HRB (which has dropped nearly 13%). HAS in the same period has gained in price. Over a period of several years, once I am fully invested (with a portfolio of 18 stocks), the performance of my particular portfolio should be more in line with what can reasonably be expected from application of the "Little Book" methodology.
My US Stock Portfolio now has the following composition:
Enough Wealth
Symbol P/E Last Shrs Trade Date Paid Comm Value Gain
HRB 27.74 21.48 200 28-Jun-06 24.16 130 $5,534.66 -$ 820.54 -12.91%
MOT 12.89 19.01 265 24-Jul-06 18.98 130 $6,490.15 -$ 119.76 - 1.81%
MSFT 23.79 27.61 200 21-Aug-06 24.64 130 $7,114.15 $ 635.29 + 9.81%
ASEI 22.64 51.78 100 18-Sep-06 49.51 130 $6,667.52 $ 162.31 + 2.50%
PWEI 6.65 33.32 150 13-Oct-06 33.29 130 $6,435.75 -$ 124.21 - 1.89%
OVTI 13.68 11.82 300 13-Nov-06 16.47 130 $4,566.06 -$1,926.25 -29.67%
EPIQ 11.60 18.24 320 11-Dec-06 15.65 130 $7,515.84 $ 937.22 +14.25%
CRYP 12.42 22.84 200 10-Jan-07 23.92 130 $5,882.05 -$ 408.14 - 6.49%
VRGY 47.26 25.00 270 14-Feb-07 18.29 130 $8,692.85 $2,203.16 +33.95%
KG 15.56 18.35 260 07-Mar-07 18.49 130 $6,144.24 -$ 176.88 - 2.80%
10 symbols Total(AUD): $65,039.86 $ 362.09 + 0.56%
The commision amounts include an allowance of another $65 for selling costs. There is no allowance for dividends received (around $300) or interest paid on the Portfolio Loan (currently around $400 a month).
At the moment the performance of this portfolio is largely governed by what individual stocks I have selected (semi-randomly) from the Lists genereated on the www.magicformulainvesting.com website. For example, in the first trade I was tossing up whether the buy H&R Block or Hasbro toys - in the end I chose to purchase HRB (which has dropped nearly 13%). HAS in the same period has gained in price. Over a period of several years, once I am fully invested (with a portfolio of 18 stocks), the performance of my particular portfolio should be more in line with what can reasonably be expected from application of the "Little Book" methodology.
My US Stock Portfolio now has the following composition:
Enough Wealth
Friday, 16 February 2007
US Stock Trade and Portfolio Update
This month I selected VRGY from the MagicFormula listing to add to my "Little Book That Beats The Market" Portfolio of US Shares (100% geared). I bought 270 VRGY @ $18.29. My US Stock Portfolio currently stands as:
As I intend to build up a portfolio of 18 stocks, and then start selling the oldest holding each month and replacing it with a new pick, I'm not doing much investigation of the individual stocks I pick each month. Basically I just run the MagicFormula filter and select half a dozen stocks that have the best looking stats. I exclude any stocks that I feel may have their performance temporarily boosted by the resources boom - ie. any railroad, oil or mining stocks. I then have a look at the 1-yr chart for each of the stocks on my short list, and exclude those that appear to be in a downtrend or starting to drop. With a total holding of 18 stocks I think I'll have enough diversification to basically just pick a random selection of the stocks thrown up by the MagicFormula search tool. After all, it's only supposed to list stocks that have met its "Value" criteria.
My US Stock Portfolio now has the following composition:
Industries:
Stocks:
Symbol P/E Last Shrs Trade Date Paid Comm Value Gain
HRB 25.28 23.83 200 28-Jun-06 24.16 130 $6,074.43 -$ 214.12 - 3.40%
MOT 13.14 19.24 265 24-Jul-06 18.98 130 $6,498.34 -$ 42.18 - 0.64%
MSFT 25.13 29.46 200 21-Aug-06 24.64 130 $7,509.56 $1,098.65 +17.14%
ASEI 24.67 55.95 100 18-Sep-06 49.51 130 $7,131.02 $ 690.80 +10.73%
PWEI 4.11 33.10 150 13-Oct-06 33.29 130 $6,328.07 -$ 166.32 - 2.56%
OVTI 9.72 12.59 300 13-Nov-06 16.47 130 $4,813.92 -$1,613.56 -25.10%
EPIQ N/A 17.98 320 11-Dec-06 15.65 130 $7,333.16 $ 820.29 +12.59%
CRYP 12.23 24.91 200 10-Jan-07 23.92 130 $6,349.73 $ 122.36 + 1.96%
VRGY N/A 18.66 270 14-Feb-07 18.29 130 $6,421.36 -$ 2.67 - 0.04%
9 symbols Total(AUD): $58,459.61 $ 693.24 + 1.20%
As I intend to build up a portfolio of 18 stocks, and then start selling the oldest holding each month and replacing it with a new pick, I'm not doing much investigation of the individual stocks I pick each month. Basically I just run the MagicFormula filter and select half a dozen stocks that have the best looking stats. I exclude any stocks that I feel may have their performance temporarily boosted by the resources boom - ie. any railroad, oil or mining stocks. I then have a look at the 1-yr chart for each of the stocks on my short list, and exclude those that appear to be in a downtrend or starting to drop. With a total holding of 18 stocks I think I'll have enough diversification to basically just pick a random selection of the stocks thrown up by the MagicFormula search tool. After all, it's only supposed to list stocks that have met its "Value" criteria.
My US Stock Portfolio now has the following composition:
Industries:
Stocks:
Sunday, 14 January 2007
US Shares - "Little Book" Portfolio Update: Jan 07
I continued to build up my "Little Book" portfolio of US stocks with my regular US$5,000 stock purchase of one of the stocks listed by the magic formula investing website. This month I chose Crytologic (CRYP) . Some of my previous picks have dropped considerably, especially OVTI, so my overall portfolio now has around 0% return after deducting buy/sell costs. Taking into account the interest on the money I've borrowed to make the stock purchases, I'm under water at this point. Not that it really means anything - I plan to stick to my investing plan for at least ten years before looking at the average return and volatility to decide if the risk-adjusted return is as expected.
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