Trading Update: 7 March 2015

True Profits Earned in 2015 to date: US$8,419.19

All-time maximum profit earned since 2011: US$144,512.84 (new high water mark!)

Current drawdown from all-time maximum true profit earned: US$3,392.77

Change from last update: Down US$1,127.27

Directional stance: Portfolio is 59.65% bullish

We were humming along nicely this week and new highs were made again at the start of this week. Until the markets decided the daily grind up is a bit boring and the S&P 500 threw a curveball last night to fall 29 points to close at 2071, after spending the majority of the past two weeks nicely nestled in the 2100+ region. Hence we incur losses this week. Well you have to respect the markets and enjoy a little action if the markets are up to it. What this means is the markets want to see a little correction, and last night's action may already have been all of that correction, if not we will see some more early next week. But already the divergences are building up to indicate a decent move up is going to happen after this little jaunt is over. 

While I am still looking for a target of 2200+ which is about 100 points of upside left, it isn't too much to be honest and this bull market will be coming to an end by probably in the next 3 to 6 months. What this means is I have to be prepared to put away my bull horns and start looking in the storeroom for where I put my bear paws. I think I last wore them in 2009. The strategies that have served me well in the past 2-3 years which I've had to tweak for the bull environment will need to be adjusted for the bear market.

Hey Mom, do you remember where I put my bear suit?

As we enter into the topping process, we can expect to see the market heave and ho to eke out a few more points for a new high, then correct, then heave and ho again to make marginal new highs, then correct. Rinse and repeat until all the bulls in the market have already joined the tug-of-war against the bears. When there is no fresh meat to join the bull team, the balance turns and the bears slowly will grow in numbers as more bears from the sidelines join Team Bear, and eventually the bears will outnumber the bulls. And then you put on the bear paws.

Are you Team Bull or Team Bear?

Goodreads 2: The 3 Types of People in our Working World (Part 1)

The honour of being featured in the second instalment of the Goodreads series goes to Christopher Ng who frequently churns out thought provoking articles on his blog. His specific article I would like to talk about today is called Some Thoughts on Career Management for the New Year! 

The article explores the idea that there are 3 types of workers in our working world. First, the grinders. They are the ones who take orders and slug it own, like the peons in Warcraft. At their best, grinders are proficient in their work, solve problems and are excellent at taking orders. At their worst, grinders grumble all day and suck at their work. Some clever folks are happy to remain grinders in their career and choose to focus on other aspects of lives.

"More work for me, my lord?" - The Peon-y Grinder

Next, we have the minders. They are one level above the grinders. They mind the grinders, manage them, lead them. Most grinders have to demonstrate some level of proficiency at their work before they can get to become a minder. However, not all technically proficient grinders make good minders. Some grinders who suck at grinding actually have the potential to become great minders, but may never get there if they do not impress the powers-that-be whilst they are grinders. A good minder can inspire and lead his grinders to achieve great things. A poor minder is detested by his subordinates and cannot get things done. For every minder, there are many more grinders and sometimes, a minder has his own minder and is hence partly a grinder at the same time. 

Some minders can be very special.

Beyond the minders, we have a far rarer breed. The elusive finders. Who are the finders? Finders evolve from grinders to minders who make the step to become folks who bring in business. Finders are magnetic people who can draw people towards them. To some extent they still do some management work but their core business is people: the clients. Finders love their clients and get their clients to love them. Finders get the deals for the company and keep the clients happy. The grinders do the work and act as the core revenue generators. The minders manage the grinders. The finders manage the minders but spend their energies mainly on deal sourcing and networking. It is common for the technical proficiency of finders to lapse somewhat as they focus less on doing the day-to-day grunt work. Such is the trade-off in being a finder. 

Finders - a rare breed

So far the idea of transitioning from grinder to minder seems fairly straightforward. As Christopher also points out (interspersing his thoughts with my own):

• society generally does not value grinders. Perhaps this is because there are too many grinders to go around. Unless you have a special skill, e.g. surgeon, or if you are exceptional at what you do e.g. sportsman, actor, you will get crowded out by the sheer numbers. How many engineers do we have out there?

• some EQ and communication skills are required to become a minder. Minders were once grinders and have to undergo some form of competition and "natural selection" at the grinder level to make it as minders. 

• All things being equal, a minder would generally earn more than a grinder in the same industry and enjoy more prestige. Hence for most working people, they would usually consider becoming a minder in their industry as a sign that they have made it.

But of course, Christopher goes further to look at how a minder can take a further leap to become a finder. That's what it's all about isn't it, as the finders are the folks who make the really big bucks. This is where things get golden and we will look into this in Part 2.

Trading Capital Update for February 2015

The above charts sets out my trading capital since February 2009 to present. There was a slowdown in capital accumulation last year due to the acquisition of Mrs RetailTrader and our matrimonial home. Hopefully the bull market can resume and we can hit new highs on RetailTrader's Trading Capital Index™! 

There's not too much to say in terms of asset allocation. Apart from allocating $5k in a bank deposit that is 100% liquid for emergency purposes, all of my cash is allocated as trading capital and fully deployed all the time. I have not included CPF, property assets or any assets of any other individual in my computation of trading capital.

Trading Update: 28 February 2015

True Profits Earned in 2015 to date: US$9,546.46
All-time maximum profit earned since 2011: US$143,604.36 (new high water mark!)
Current drawdown from all-time maximum true profit earned: US$1,357.02
Change from last update: Down US$1,215.98
Directional stance: Portfolio is 58.84% bullish

You have been warned!

Not too much action at all this week. It looks like even the US markets are going through some CNY sluggishness. The largest movement this week in the 3x leveraged ETF that I am using to trade was a paltry 1.18%, indicating very little volatility this week. But that's what it is in the heart of a bull leg. You don't see crazy up days, but more of slow grinds up, and after a slow grind up the markets will stall and dip a little bit, ruffle a few feathers, rebuild momentum before resuming the move up. And that's where we seem to be for now, in the stalling part. We take a $1k+ drawdown this week despite hitting new highs earlier in the week, and can only wait patiently for the market to take its own sweet time decide when the bull (or goat?) is to continue. It is telling that I hardly looked at the markets over the course of this week because there was simply no action. So I have to look for action elsewhere ;)

RetailTrader Tries His Hand At Gambling

I just need one good hand.. to wipe the table clean!

During the Chinese New Year festivities, I was playing a card game "In Between" with my friends. For the more inquisitive folks, you can check out the rules here. Very simply, each person will take turns to be dealt with a pair of poker cards. And you decide how much money you want to bet that the next poker card you draw will be a number that is "in between" the first two cards. If you win the bet, the money is yours and if you lose, you have to cough up money into a pot. You lose double your bet if the third card you draw is the same number as any one of the first two cards.

I didn't actually know the game was also called Acey Deucey (what kind of name is that?).

As a retail trader I gamble with a plan in mind just like I approach trading. I do enjoy gambling sessions because some games can actually be good practice for trading. In the case of In Between, it teaches you how to size your positions accordingly with the probability of your hand of cards you receive. In other words, if you get a good pair of cards, you can calculate what your odds of winning money are, and then decide how much you want to bet accordingly. For a set of cards that gave the absolute best odds, I would decide what was the maximum loss I could stomach (in the event of a freak accident) and work backwards in determining what my wager was. The trading equivalent would simply be committing to a larger position for a higher probability trade, and sizing accordingly to your risk management rules.

I also enjoy In Between because I had never lost money playing the game before. Is it down to luck or my amazing system? ;)

Interestingly as the pot of money began to grow larger and larger, the stakes got higher and my friends began to get emotional. Even I began to adjust the maximum loss I was willing to take to take into account the "inflation" of the money pot. Bets began getting bigger and bigger. Even though we started with a minimum bet of just 50 cents, it was not long before the first 2 dollar note appeared in the pot, followed by 10 dollars, then 50 dollars. Some of my friends even started betting in hands that gave less than 50% probability, and even in such cases bet beyond the 50 cent minimum bet. Some of my friends bet based largely on feel and won money. I lost 28 dollars but I had a lot of fun in the process. You should have seen my face for one bet where I plonked 64 dollars for a very high probability hand, and ended up losing double (i.e. 128 dollars)! I will simply view this as a good bonding session and the equivalent of paying to watch a very entertaining movie that was at the same time educational!

What was the moral of the story? Sometimes you can go into a trade or game with best laid plans and execute them to perfection, but still lose money even though you have done your homework and calculated the probabilities, etc. This is because while we can create a system that gives us a positive expectancy (i.e. over a infinite number of games, you will expect to win), the problem with gambling is we don't end up actually playing an infinite of games, and it takes time for the positive expectancy to materialise. And in the meantime, a freak/accidental heavy loss can set you back by a lot. Sounds a bit like trading huh? You can have a best laid plan and execute it to perfection, but still lose money. No choice, you just have to suck it up, play good defence and ensure you are never wiped out in terms of capital, and play the next trade well again. Think like a casino. Casinos win money in some games, and lose money in some games. But they know that they will always win over an infinite number of games and don't lose sleep over losses. That's how it should be for trading (and gambling) as well.