No New Trades This Week

By: ispeculatornew
Date posted: 05.21.2012 (5:00 am) | Write a Comment  (0 Comments)

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After amazing returns last year and a great start to 2012, things have gotten a lot more difficult since. Sure, my stock picking competition picks are doing very well (still in 2nd position) and my tech stock power rankings have been very solid. Add to that a decent performance by the Ultimate Sustainable Dividend Portfolio and you’ll get a thrilled investor/blogger right? Not exactly.

In the past few weeks, I’ve had more trouble finding great trading opportunities for my long & short tech stocks. I’m not sure if the excitement of the Facebook $FB IPO is clouding my judgment but it certainly feels like I’ve been off of my game. Sometimes, you still manage to do well but clearly that has not been the case as I’ve closed several bad trades in the past 2-3 weeks and now stand at an average return of -1% or so. Not terrible but far from great too.

A Break…

Because of that, I’ve decided to take a break from entering new trades in the hopes of gaining a bit more perspective but also hopefully seeing more potential trade opportunities. No, I will not repeat my TripAdvisor mistake by trading Facebook right away although I might get into the action as a longer term, speculative pick.

Questions

Today, I wanted to address some of the questions that I get when I send out my Tech Stock Newsletter. If you have not joined yet, I invite you to do so, to get my thoughts on the stocks that I follow. I often get feedback which I try to answer as much as possible. Today, I thought I’d answer a few concerns or questions:

Slippage: As you might know, I calculate the returns on my trades based off of the opening price. Clearly, that is not ideal. On many instances, the opening price can be a few % off of the price that the stock trades at a few minutes later. It’s perhaps the most volatile time of the day and I’d argue that while not always the case, in general the closing price is much more reliable. A reader had suggested using the VWAP.

My main issue though is to have a point that is easy to compare and verify. A VWAP isn’t and there’s also the fact that as soon as the market opens, news comes out that could have a significant impact and make it much more difficult for me to trade based on the new price.

Another point is that while getting the opening price for the average trader can cause some slippage, many retail investors do not use VWAP strategies and do not have access to them either so this would not make it easier for most investors to enter the trades.

Closing Points: A few readers have expressed their view that I am closing off my positions too quickly. That seems like a fair argument, one that I had been considering last year when making changes to my trading method. I do think this could also make it possible for me to use a VWAP price when entering although since the trades would have more of a long term nature. As time goes by, it is becoming more likely that this will be a change for my 2013 trading.

Am I taking my profits too soon? Very smart readers have told me that I have.. the closing points would probably need to reflect this as well.

Unshortable Stocks: Clearly, some of the stocks that I like to short are difficult and even impossible to short at some brokers because of the high demand. This is something I’ve been discussing quite a bit in the newsletter recently. I will try to pay more attention to this. It’s clearly a challenge because every single broker has different lists of stocks that can be shorted along with fees involved but I would agree that some stocks require paying insane borrow rates which is not something that I (or anyone really) should go for.

Capital Required: I’ve been asked about the issues with allocating capital for 7 open trades at once which I rarely if ever have. That is fair but I would argue that these trades require having margin available in a margin account. I personally use a bucket system for my investing and long/short tech stocks are just one part of that. Having a high quality dividend portfolio for example creates more than enough space for me to do my tech stock trades without requiring me to have unused capital. Clearly if someone had an account for these trades alone, it would create an issue.

Do You Further Questions?

I would love to hear them here! Thanks to everyone who has provided feedback, it is truly appreciated!

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