2006/5/9 was the first day of the record of my own net worth. My scaled down net worth number had $555629.93, which I knew was not sustainable. It was right around the time that precious metals made an almost parabolic new high, and my company stock was at a very high point. 31% of my net worth was in my company stock (options) at that time. I chose not to sell, knowing fully well that the stock market high should come in early 2007 (my guess at that time). Unfortunately, my bets were wrong. Even though my company is more like a leading company and more like a mid to big cap stock, it didn’t track the general stock market at all. This part of my 30% net worth dwindled by 84% twice. Even today, the total loss is 63% since May of 2006. I had a chance to sell my company stocks in 2007, but I was too busy with my daily job, and before I could gather my thoughts, it went down big time again. I failed to be always mentally prepared. The window of opportunity is always fleeting.

Going forward in the later part of 2006, my net worth suffered mainly from the big loss of 84% in my company stocks, and a small hit from the precious metal temporary setback. During the period from 2006 to 2008, my net worth fluctuated mostly between positive 20% to negative 20% at $500000 (scaled down number), depending heavily on how my company stock behaves, and/or precious metal prices.

Early (Feb/March) in 2008 however, just when I was reducing my stakes in precious metals, my relatives sent some big amount of money under my custody. Because I always managed the entire portfolio in terms of a bigger extended family, even though those cash was not mine, I felt compelled to hold on to my existing positions in precious metals. Frankly, I did not know whether $US/gold will continue to go down or up. The increase in my total family cash was so big that it was more than my own entire cash position. The timing practically couldn’t be worse. The $US cash increase was at about the highest point of gold. For the benefits of the entire family, I decided to hold on to my precious metal positions. In fact, I tried to seek permission to invest part of the cash from my relatives.

Well, what happened later in 2008 was a total crash in everything, with $US staged a dramatic comeback. From 2008/5/16 at $558131.75, my net worth crashed to $240512.41 on 2008/11/20, a 57% loss in about six months. What’s worse was that the cash that I’ve prepared on the sideline for about $350000 (scaled down) plus more in the banks was not really usable. I was told that about one third of my relatives’ cash needs to pay for tax in the following year, and that they are going to remove the cash too next year.

Since last November, I have almost doubled my net worth to $479758.93, without putting those big pile of supposedly prepared, but “phantom” cash much into use. In fact, I have also accounted a 33% drop in my home value since the rise. I’ve learned extremely hard lesson through this. I can never rely on anyone else for my own financial success. If other people lose their money, it is truly their own choice and their own business. I should always simply mind my own business, even when “other people” are my close relatives. I can give them advice, but whether they take my advice or not, it is their business. I should never make ANY financial decisions, including the effects of other people’s money. If other people get rich, they won’t give it to me. If I get much poorer because my decisions taking others’ money into consideration, they couldn’t care less because of my own wrong decisions. The bottom line is that unless I am given very explicit instructions with very explicit timeframe for the management of money, I should never invest with the combined portfolio in mind, even when the combined portfolio is my extended bigger family. Money is always the most sensitive issue among people. I should always mind my own business.

I could have come out of 2008 market crash with a big gain easily, if my investment plan was not meddled up by a big phantom cash infusion at the peak of the (precious metal) market (Feb/Mar 2008), and all withdrawn at the bottom of the market (Nov 2008). But I’m content with just about breaking even finally. I can’t possibly describe how terribly I felt when my care for my relatives totally backfired on me.

Another big mistake that I made was that I simply did not hedge my positions in my company stock in 2007, even though I knew that a big fall was coming. Such hedge was very hard to implement due to the raw size of my leveraged positions through company stock options. To cross-hedging of this position using market double-short ETFs also has a lot of complication because my company doesn’t track the general market that well at all.

Today markets are again at a high point, and I expect my net worth to go down in the coming months. However, hopefully this time around, I can correct my previous errors. Not all of my current cash position belongs to me right now, but I think I’ve raised sufficient amount of my own cash. The second half of 2009 will be again full of volatility. I think a high cash component in portfolio is good for safety.

I’ve obviously out-performed S&P500 in the last 3 years, but an almost flat performance is nothing to brag about. I could have done much better, if I mind my own business and follow through with actions on my own thoughts.

Did I go under my 1st Million in 2008? Hell, a resounding yes! Am I back above now? Well, you can take a guess.

I don’t know whether I will be wrong again last Thursday. Precious metal markets didn’t meet my expectation of exceeding $1000 gold, and I also sold another 10% of my precious metal holdings.

The markets are gyrating in a big time. It’s quite likely that I will be wrong again. But the more important thing is willing to admit that you are wrong right away. I realized that in the past, a lot of my trading mistakes are because I hang onto my mistakes only about 1 day too long. And that has been just too costly.

Only nimble traders can survive in this market environment. I think if you want to trade based upon my posts which are always at least 1 day old (because I pre-write my posts usually 1 or more days earlier), you may be easily in the rough water. I will be flipping my bullish/bearish stand in a minute, and before you know I will be selling or buying big time. Certainly, I won’t have any time to post my real-time move during my trading activities.

My current view of the markets is that the general stock markets are about to begin a big move down. If not, then there may be a short rally of 2 weeks, and then down. Either way, January lows won’t hold. On precious metals, energy, and commodity markets, they are probably very over-bought. My current guess is that they will be turning down, and join the entire markets in a swan dive. Long term wise, both precious metals and energy are still very bullish. If you don’t care the short-term swings of 20+% in these markets, I believe they are good investments for the long term.

Best luck.

Frugal at My 1st Million At 33 .com

1. I recommended silver on May 4th, 2006, and Aug 22nd, 2006 if you just have $100 to invest. These are long-term recommendations. 2008 year-to-date is 14.25%, but silver only returned 28.5% since May 4th, 2006. I bought my first silver coins for $10 in 2006 January. Now it’s $18 roughly, a 80% total return (less if annualized).

2. I recommended Bershire Hathaway’s shares if you only have about $1000 to $10K to invest on Aug 29th, 2006. This is a long term recommendation. The return since Aug 29th, 2006 would be 4648/3200 -1 = 45%, roughly.

3. I recommended Conoco-Phillips COP on Aug 28th, 2006. That is a return of 80.61/66-1 = 22%. I did issue a potential sell (which I actually sold for $83 on Jan 14th) . The stock dropped to $67.46 this January and came right back up to $80.61. So you could have pocketed almost the same return, if you were able to buy the exact low.

4. I recommended ADM on Jan 31st 2007. The title of my post was “The coming headline in 2008″. I was prescient of the market by almost 1 full year. What do we have now? ALL agricultural products have risen like crazy. Wheat is almost doubled now. Didn’t I tell you that a year ago? If you had invested in ADM, you should have returned about 41.5% since Jan 31, 2007.

5. I recommended UNG on Jul 24th, 2007, and natural gas sectors in general. UNG should have returned 20+%, but due to the inefficient tracking to the spot market price, its return is barely positive. Of course, natural gas sectors have been going gang-buster in the last 30 days. Many names were up by some 20% in a very short time, even better than oil sectors.

6. I recommended purchase of mining stocks on Jun 13rd, 2005. I hit the jackpot and that was the day of the lowest point. I’m a long term investor, and have been holding most of those shares since. My last check with the latest prices, those purchases had a total return of about 77%. The two still losing bets were GFI and KRY among those. But I’m satisfied with a 77% combined (total non-annualized) return.

7. My last recommendation (unsure about the price level however) was JOYG. You would have returned about 12+% if you had bought. The price right now is $68.

I hope you have profited from reading my blog. Probably 95% of the blog or websites that you read, you don’t get to see their performance at all. I always have doubts about them. They can talk big, but nobody knows the actual trading performance. But I’m posting my daily performance/net worth faithfully on my blog. I simply can’t stand un-truth, especially if it’s coming from me.

I do wish that I can recommend more. But this treacherous market is extremely dangerous right now. I recommend cash and possibly gold. The bear market has just shown its force. Investing going forward is a very tough business.

So what has happened to my net worth (from Feb 14 closing to Dec 31st 2007 closing prices)? Bad news first.

First, let me say that my home value has gone down significantly (10% to 20%). That has not been reflected in my net worth page. When I get some time, I will start to mark it to market, and smooth out the losses in several chunks.

Now the really bad news, even worse than my home value going down is that my company options have pretty much gone into nothing. I’ve suffered close to 90+% in this category. Year-to-date (since Jan 1st) the value of my company holdings have gone down by 59.4%.

My net worth has gone down by 7.43% (without counting the dropping home value) mainly because of the huge loss in my company stock.

My own investment however has fared much better. My total stock portfolio has gone down by 3.44% (about 30% of which is contributed by my money manager), while including cash, my cash+stock portfolio has gone down by 1.86%. This compared to a gain of 3.6% in HUI index, 10.9% loss in OIH, 8.4% loss in XLE, 7.6% loss in SPY, 14.2% loss in QQQQ. I guess a loss of 3.44% is probably satisfactory, given that I have incurred some small trading losses, plus some hefty losses in junior mining stocks. Certainly, my cash+stock portfolio compared to the overall market is doing pretty okay, since my loss is less than 2%.

Unfortunately, I simply have not taken enough hedges against my company and real estate holdings. Those positions are so out-sized that I’m usually afraid of taking a big bet. My inaction has certainly caused my overall net worth to suffer tremendously.

In any case, what’s gone is gone. I’m pretty sure that given enough time, I can make those money back. It’s just going to cost me 10 to 15 extra years of my working life, yak!

I was going to do a year-end review for 2007, but it’s probably too late to be meaningful. I know my portfolio was up about 16%, but my net worth was pretty much flat, due to a huge loss of 50+% in my company stock options. I’ve made up quite a bit of those losses through investment gain and savings for the entire year. However, if I count from the peak, I’ve only made up some 40% of the losses in company stock options.

Actually, come to think of it, I probably should start account for the capital gain taxes that I need to pay on my investment gain. I haven’t counted those, but the amount of capital gain tax that will be due is getting so big that it’s actually going to affect my net worth. I would never imagine that this is going to be an issue when I started logging my net worth on this blog (only 2 years ago). For now, I’m just going to leave it at that. I just have too much that I need to take care and I don’t have time yet to account for everything in the last details.

I also sold a few deep-in-the-money naked call, since I’m expecting a fall in stock market in the first quarter.

Maybe I’m too scared. Or maybe I’m not scared enough. We shall see.

Holding onto almost all of my precious metal companies however.

I’ve also exchanged my AUD cash back to $US temporarily.

This year will be a roller-coaster ride.

I do intend to eventually increase my energy holdings back into about 50% of my portfolio value.

On the other hand, I’m totally disgusted by the fall of $US now. Against my two favorite currencies, Australian and Canadian dollars, $US has fallen more than 20% year-to-date. It’s simply unbelievable that $US is declining 1% every four days against Canadian dollar just in the last 60 days, for a total of 14.7%.

I have been preparing to load up more PM shares and bullion. But this seems to be a runaway PM bull. My cash level is so high such that I can double my stake in PM if I choose to. Too bad that I got scared on Aug 16 and didn’t put my cash to use. My portfolio was truly bleeding at that time, with most of my stocks falling 7% to 22% in that single day.

I have been selling a few of my stocks. Certainly, for all those shares that I’ve sold I cannot buy them back mostly. And my short positions are again hurting me somewhat. Without all the shorts that I’ve done, I would have done even slightly better.

Now that I have bragged about my performance, I hope it’s time for PM to fall. Otherwise, I simply don’t know where to put my cash. I’m starting to consider going back to my dividend stocks in this volatile time.

I will do a review of my net worth & portfolio in the first week of December. This month has been too crazy. I don’t want to put up a post showing those terrific but may be transitory numbers.

Let’s see if after this month, stock markets get back to a more normal state. Of course, I probably don’t know what’s normal anymore.

Many of the above losses results from my venture into mining juniors, and some are just bad timing.

And then I used a gain of 17% as a threshold, and I came up with the following list of gains (not annualized):
17.25%
17.63%
17.95%
18.81%
19.08%
19.19%
19.93%
20.72%
21.90%
22.62%
23.25%
24.00%
26.21%
27.41%
33.55%
33.91%
34.45%
37.91%
38.40%
38.91%
39.40%
40.37%
44.42%
44.57%
46.91%
48.63%
48.76%
50.13%
50.57%
51.21%
55.61%
62.57%
62.91%
68.54%
71.28%
74.44%
87.13%
88.79%
91.60%
95.25%
108.18%
109.24%
114.58%
120.60%
125.07%
133.35%
134.96%
136.51%
147.63%
156.52%
160.05%
229.54%
234.86%

Both lists are not annualized, and not adjusted by paid dividends. However, most of my gains come from the fact that I tend to hold them for an extended period, and a little bit due to a good buying entry point. Of course, investing in precious metals and energy stocks have helped a lot. Most of my stocks, maybe 70+% of them are from the HUI, XAU, OIH, XLE components or related mutual funds. You can simply google them up, and pull up the charts. Most of them had outstanding performance for the past 3 years. However, past performance is no future guarantee. Invest at your own risk.

Not sure if stock markets will reverse at this moment. If it does, the performance numbers may go down quite fast.

1. Net worth is up by 10.66%.
2. Value of my company holdings is up by 19.28%.
3. Everything else excluding my home and cash is up by 16.40%
4. If including cash in #3, it’s up by 11.43%.

This month obviously everything seemed to be working extremely well, almost too good to be too scary. Precious metals & markets have gone up a lot. It almost appears that the past troubles are all gone.

I’ve recently finished refinancing. My cash position has increased without a change in my net worth. I’ve also spent about $26K for a new mini-van. All of these items have changed and will continue to change my cash positions going forward. Eventually both my net worth and cash will truly reflect the correct impacts of these items. Of course, if I cannot find any good opportunity to put some of these cash into good use, I will pay back my debts. Too bad that I couldn’t get some of these cash before $US embarked the seemingly endless fall.

Although it certainly appears that PM is rocketing to the moon without any pullback, such thing rarely happens in a straight line, especially for an index. Who knows? Maybe it will. Either way, I’m going to sit really tight and see how markets unfold going forward.

For the month of July from 7/1/07 to 8/1/07,

1. Net worth is up by 6.18%.
2. Value of my company holdings is up by 35.00%.
3. Everything else excluding my home and cash is up by 0.44%.
4. If including cash in #3, it’s up by 0.22%.

For the month of August from 8/1/07 to 9/1/07,

1. Net worth is down by 1.33%.
2. Value of my company holdings is up by 11.77%.
3. Everything else excluding my home and cash is down by 10.61%.
4. If including cash in #3, it’s down by 7.43%.

My company holdings trailed the market by a lot earlier this year, but finally made a huge comeback the last two months, compensating my big loss in my own portfolio. So overall I’m still doing okay.

Last Friday, I hesitated to sell near the 50 days MA. I thought market seemed to be showing strength, especially with the technical charts from OIH and XLE still healthy. Certainly they have been the market leaders, and you want to see them continue to lead. I have been wanting to comment on Shanghai market, but still haven’t found the time to do it yet. I think it may go to 6100 before a bigger correction. Regardless, the intermediate picture for USA market I believe is still going to trend down. I still plan to lighten up later.

Again, the best way to check on my stock market moves is still thru my networth page. I almost always update my portfolio everyday at the end of market close. There were only few days so far that I didn’t update within the same day where the change took place.

In any case, market timing is always not easy. The past two months prove again that asset allocation is often more important. And therefore, when I try to time the market, I will only do that with a portion of my portfolio instead of everything.

The other bogeyman today was quant funds that are liquidating positions after an awful July, such as the Global Alpha fund from Goldman Sachs. Apparently the blackbox models were not stress-tested with the volatility we’re seeing now. Details are not that important, suffice it to say that we are in the middle of a pretty serious dislocation in the credit market. I have been approaching this by separating the credit event from what’s happening in the real economy. I believe the market will solve the liquidity issue, although rates on risky loans will certainly rise. For now I’m more concerned with the underlying economy. Buried in today’s headlines were some lackluster retail sales figures for July, which cements the view that a recession in the US is likely by Q1 08.

All said the S&P finished the day sitting perilously above its 200 day moving average which for many people defines the long term trend in the market. It has dipped below the 200 DMA in Apr-May 05, Oct 05 and May-Jul 06, and recovered all three times. I’m currently using it as a secondary indicator. When the S&P dips below the 200 DMA (which occured last Friday), I hedge or close 25% of my domestic equity exposure. Likewise, when and if the S&P moves above the 200 DMA, I’ll remove the hedge/re-establish longs. I don’t do it on the day of the crossover, rather I tend to ease into/out of positions in the week after. The other 75% is controlled by a primary indicator which has not issued a “sell” signal yet.

I’m by no means recommending this approach, but I think it’s important to have a plan so you protect your assets and not scared out of your positions at the worst time.

1. Net worth is down by 3.83%.
2. Value of my company holdings is down by -12.05%. My asset allocation strategy using the assumption that my company would positively and strongly correlate to the general stock market is obviously breaking down. The losses from two consecutive month in this category are now at almost 25%.
3. Everything else excluding my home and cash is also down by 3.63%, with the PM market taking a heavy toll at the end of the month.
4. If including cash in #3, it’s down by 2.54%.

Well, but this review is already 9 days late (unintentionally). And PM markets had the biggest July rally for quite a long time, returning ~8% in just 9 calendar days. My company stock went up too, and both probably made up most of the losses if not more.

Looking forward, I am preparing my shopping list for more energy (uranium and natural gas) and precious metal stocks (mid to junior, and possibly indexing ETF), in the hope that the correction will materialize. I have sold out all holdings that correlates to the general market this month. Of course, the correction is still nowhere to be seen. If the bull market continues, I will be simply time-averaging back into the market with selected picks. I have been itching to buy several names. Unfortunately, they are running away in price, and I often barely have enough time to watch their prices once a day.

Special note: returns were calculated by subtracting 3.00% APR return of my cash position.

Here is what I’ve collected from various pundits:
1. Puplava believes the market can go as far as late in the year or even into 2008. Regardless, Puplava is raising LOTS of cash in the managed accounts. In fact, this is the first time I see so much cash in my managed account. But the percentage level of cash I believe is entirely prudent given my own bearish stand.
2. Bill Cara is still pretty bullish on gold & goldminers. Although I can follow Bill’s reasoning, and am hopeful that he is right, I doubt that this stock market can last that long. I think Bill believes the high should be before October. That almost requires a rallying of PM right now or within 3 to 4 weeks. Again, I am not sure. But I won’t be selling out my substantial positions in PM either.
3. Boy Hoye is still conservatively bullish on PM miners. He has been bullish for a while without not much happening. His previous bullish call in Jan was knocked out of place within a week. Regardless, I believe his intermediate and long term bullish forecast for PM is correct.
4. Frank Barbera is bearish. Many ways of falling, but a big fall for sure in his opinion.

I will be raising my cash further, and possibly buying puts in the coming weeks.

Here is my own thoughts on various sectors taking a longer term view:
1. Precious metals: my own belief is that PM/gold sectors may have skipped a heartbeat this time around due to all the central bank selling. It looks to me that it’s more likely that PM will NOT go up too much BEFORE stock market takes a BIG tumble. I believe that PM may have another retest of low along with the stock market falling down hard. But PM would break new high after stock market correction is over and starts to rise again.

2. General stock market: I believe that once the stock market correction is over, one should be long aggressively on foreign stock markets (India, Brazil, China, etc), and aggressively long on energy sectors. The general stock market will rise too but probably will be a less stellar performer. I have stated previously that the secular bear market started in 2000 is over. By that, I mean US stock market will NOT break 2002 low in all likelihood. The Elliot Wave styled depression will not come before year 2032/33 (the peaking height of 51.6 or 309.6 economic cycle, which is a date within the calculated date of singular point from super-exponetial human and economic growth) if at all. It will continue to break new highs going forward with big/small corrections along the way.

3. Energy sector: this should be the best and safest sector to bet on going forward. Whether you believe in a new era of global economic growth or whether you are a peak oil believer, this is the sector to put your bets in. I will be AGGRESSIVELY long in energy sector once the stock market correction has taken place. I positioned myself with about 50+% in precious metals, and 35% in energy coming into 2007. I thought that US housing market will cause a big fall in the general stock market and therefore I want to under-invest in energy since it is more sensitive to the global economic growth. Whether global economic growth will slow due to US housing market implosion is very debatable. But I believed that whether it slows or not, the stock market will be scared into a big fall. That has not happened yet. Instead, markets have broken new highs all over the place. I will probably raise my combined energy/foreign sector holdings to 50% or more.

Basically, I will have 50% in energy and 50% in precious metals, and adjust the two holdings based on my relative bullishness in the two sectors.

I will probably be selling out of energy sector in year 2009/2010 to prepare myself for the next half-PI date in 2011. Those dates correspond to a big wave in negative ARM resettings started in 2004/2005 (by adding 5). The current wave of subprime mortgage is due to 2005/2006 (plus 1 or 2). But that timeframe of 2011 is too far out right now.

By the way, the failure of PI date for predicting the lastest stock market height was not unexpected. Taking the example from last height, it didn’t happen until one year and eight months later. But the bottom date was correct. I believe that will be the pattern given increasingly available fiat money which can boost the long side.

And don’t buy bonds and stay in cash for the long term. It is far better to take a calculated chance in (selected) stocks than a guaranteed loss in bonds (unless you are old enough, and can afford the short-term loss in buying power).

1. Net worth is up by 0.93%.
2. Value of my company holdings is down by -11.78%. That doesn’t feel too good especially when the stock market is breaking new highs every week if not everyday.
3. Everything else excluding my home and cash is up by 3.86%.
4. If including cash in #3, it’s up by 2.93%.

I’m raising more cash as you can see from “My NetWorth” page. This month is not a good month for precious metals & goldminer stocks at all, except the last 2 to 3 days when XAU/HUI had a significant rally.

With stock market breaking new highs, my large cash position seems to be over-conservative. As I have commented last month about doing a cash-out refinance from my home equity in preparation for a potential coming low, I stopped short of going through the refinance deal. Everytime (for the third time in the last two years) when I am so close of doing an actual refinance, I am right at the low point in bond yield/mortgage rate. I wonder whether I would make a better bond trader than a stock trader.

My asset allocation plan is also not working very well this month (or I should say this year). My company stock really really sucks. It is probably lagging the general market by some 25%. My total net worth would be breaking record high if my company simply tracks the market performance. So far, I’m still about 3.4% below the all time high of my net worth on 2007-04-26.

In any case, I’m not ready yet to ditch my bearish stand on the general stock market. Is that the reason for this stock market not falling yet because this “last bear” has not turned bullish yet? Maybe. We shall see.

By the way, I have put back the daily update of my portfolio composition in “My Networth” page if you’re interested.

Special note: returns were calculated by subtracting 3.00% APR return of my cash position.

We shall see whether IBKR will open trading today on Friday. The shares that I got are quite minimal. They won’t matter to my overall portfolio whether it’s up or down (even by a lot).

In any case, my cost was just $20 for domestic wire transfer because that was the only way that I could make to the IPO on time.

For those who bought into the IPO of IBKR, best luck to you (and me too).

1. Net worth is up by 1.03%.
2. Value of my company holdings is down by -2.68%.
3. Everything else excluding my home and cash is up by 3.51%.
4. If including cash in #3, it’s up by 2.70%.

I’m staying put mostly in most of my positions, except nibbling on the short side here and there.

Last month I commented:

I’m not sure whether a higher high will come first before a lower low than the Feb/March low. Although my belief is that a lower low will materialize later this year, my conviction is wavered by the market strength. My current plan is still going short against financial/housing/general market and possibly adding some tiny long positions in energy or gold. But I will take my loss if the bull market runs away to the upside again.

A higher (marginal) high has materialized in the stock market. I am still watching intently over the markets for a potential low that I believe would come. I’m contemplating on whether to take cash out from my 401K or refinance my mortgage to get cash out ready for the next wave. That would more than double my existing large cash position, and I am not sure whether it would be wise to do that. Furthermore, it could really push my comfort limit in my emotional ability to handle the daily up-and-down for an even bigger portfolio. In contemplating to take cash out, my most serious concern is with the state of $USD which is pretty much at the edge of cliff. I think a gradual depreciation is the most likely outcome, and maybe with a last dead cat bounce above the 81 level. Even though a zero-point zero-fee (nothing out of my pocket) loan is like a no-brainer deal, I really have to put the money to work in order to take the cash out (for 30 years is at 6.125%, and for 15 years is at 5.875%, zero-cost).

By the way, in the last 5 to 6 calendar days, my net worth decreased by 4.51%, and my portfolio decreased by 2.35%. Otherwise, it would have been a terrific April month. Gold (stock) is going downhill and my portfolio has taken quite a big toll since the recent peak.

This month my saving is slightly negative due to thousands of extra taxes that I needed to pay to make up my capital gain from last year.

Special note: returns were calculated by subtracting 3.00% APR return of my cash position.

1. Net worth is up by 3.28%.
2. Value of my company holdings (stock options, ESPP, etc.) is down by 5.35% partially due to my liquidation.
3. Everything else excluding my home and cash is up by 4.54%.
4. If including cash in #3, it’s up by 3.46%.

My portfolio has not changed much since the end of February. I have liquidated majority of my holdings that correlate to the general stock market. Right now I only hold 0.2% of my net worth in such stocks/funds. I also still hold some short positions in QQQQ and housing stocks which only hedges against less than 7% of my own portfolio. I’ve closed out about half of my hedges, and some unsuccessful shorts.

Here is the current composition of my portfolio:
1. 55% in metals.
2. 35% in energy.
3. 10% in consumer staples, water, and agricultural stocks.

Here is the current composition of my net worth:
1. 62.6% in my portfolio+cash+misc.
2. 20% in my company holdings.
3. 17.4% in home equity.

Last month I commented:

I believe the secular bear market in stocks may have resumed. The unfolding of such secular bear market however does not necessarily mean a fall in the absolute price of the stock market this time around. Rather, the stock market will fall on an inflation-adjusted basis, and also against gold. There is also a chance that Fed stops the downward spiral in time, and create a bigger bubble in everything going forward. The most likely timeframe is in 2008/2009 for next (potentially higher) peak. In fact, the stock market can put in a higher high in 2009, but not necessarily beating the accumulated inflation since 2000. I do expect the stock market to go lower than the low on 3/5/07 this year. I also expect the general stock market to put in less than 3% gain for the entire 2007 year.

After much seesawing in March, this stock market really has some inexplicable strength, except in a few isolated mortgage stocks and financial sectors. Fundamentally speaking, the problems in subprime and Alt-A mortgages will create a huge problem for the market going forward. Yet technically, the market doesn’t seem to go down much at all. How much longer this market can hold up? I’m still waiting for a safer entry to short more. In the meantime, NEW century mortgage has filed bankrupt, and several other mortgage companies keep falling.

I’m not sure whether a higher high will come first before a lower low than the Feb/March low. Although my belief is that a lower low will materialize later this year, my conviction is wavered by the market strength. My current plan is still going short against financial/housing/general market and possibly adding some tiny long positions in energy or gold. But I will take my loss if the bull market runs away to the upside again.

Best luck navigating in the dangerous water.

Special note: returns were calculated by subtracting 3.00% APR return of my cash position.

1. You said you liquidated 100% of your stock market holdings, yet you will gain more from long than short positions. Are you referring to your company stock, or are you still holding other stock?
2. What do you mean you were caught unhedged? You mean you don’t have puts or short positions? Because your heavy allocation to PM seems to be a hedge.
3. You have high net worth already, why not go with a more conservative asset allocation rather than shooting for high outperformance with concentrated (risky?) positions?

First of all, from my net worth page (where you can see the daily history since last May) and 3/20/07 post, I have

17.5% in home equity
21% in my company holdings (stock options, shares, etc.)
61% in my owned stocks+cash+etc.

Within that 61% of stocks+cash, I have
26% in cash (which can be calculated from 87832.96 / 333851.28, taken from 07-03-20 date on my net worth page).

Within 61% * (1-26%)=45% for the rest, I have (from 3/20/07 post)
57.5% in metals
34.6% in energy
7.9% in water, agriculture, consumer staples, etc.

Here are some detailed answers to the above question, so that readers know exactly where I stand (in terms of my investment):

1. By “general stock market” holdings, I meant things like SPY, QQQQ, DIA, or any large to small cap mutual funds. I bought some in last summer. I’ve pretty much liquidated 100% of any holdings related to general stock market.

I don’t consider most of my metals+energy stocks as “general stocks” since they usually have less correlation to the general stock market.

But the synchronization theme is still with us since last May. Currently, the correlation of all international markets, energy, and metals is still pretty high. Therefore, I said I would still benefit from my long positions in energy+metals.

I am not considering any effects from my company holdings in the above statement (although I should definitely benefit more).

2. All of my metals & energy positions were unhedged. They went down along with the stock market (and actually by twice the percentile amount). Synchronization still. I didn’t have significant shorts/puts against general stock market nor my positions in metals & energy.

3. My investment would appear to be risky to anyone. But I balance them out through large holding of cash (26% * 61% = 16% of my current net worth) plus my home equity (17.5% of my net worth). All of those are cash or bonds (”paying interests” to myself) which is already some 33.5% of my total net worth. Home equity is obviously subjected to the house valuation, but I would prefer a cheaper housing so that I can upgrade.

In any case, I have about two thirds (1-33.5%) of my net worth in “risky” investments, which supposedly should balance themselves out somewhat. They are

45% of my net worth in mostly energy+metal stocks, and
21% of my net worth in company holdings (high-tech) but the leveraged power of my company holdings is actually much bigger than my 45% unleveraged holdings in energy+metals (less than 2X however).

I think by most measures, I am probably taking less risk than I should be taking, especially given my age.

I’ve gone through some crash analysis of my own net worth, and I can sustain a 100% loss in my company holding (21% of my net worth), or 100% loss in my home equity (17.5% of my net worth), or 50% loss in my own energy+metal stocks (~22.5% of my net worth). All the above events, I will still have 80% of my net worth, assuming they don’t happen simultaneously.

The bet is that energy+metal will negatively correlate to my high-tech company holdings and my home equity. In the case of falling home equity, it will only translate into an improvement of my life standard. So I don’t worry about that. Overall I think I should be in pretty good shape, with my asset allocation plan.

At other times when I’m more bullish in my own investment, I would be utilizing more cash to hold more energy+metal stocks in order to counter-balance the combined total of my high-tech company holdings and home equity which are quite a big sum to hedge in leveraged terms.

Obviously I believe in what I’m investing in energy and metals. But even more importantly than a potential high(??) performance, they also serve as a very good counter-balance against my high-tech company holdings (well, not all the time obviously, but at least that is the plan.)

If I have liquidated my stock options, my asset allocation will most certainly look a lot different. At the minimum, I will increase my general stock market holdings from 0% to some significant percentage. Currently, I’m assuming that my company stock will positively correlate to the general stock market, and I don’t want to increase any more exposure to it. This assumption is an aggressive bet which is counter-balanced by my commodity investments.

You can see how spectacularly my strategy failed from 05/09/06 to 06/13/06 (21.2% loss in 1 month), and 05/09/06 to 7/23/06 (28.4% loss in 2.5 months) timeframe in the history of my net worth, when my commodity stocks + my company stock went down together very hard. The biggest reason for such a big fall was that my company holdings were about 31% of my net worth on 05/09/06, and I almost lost all of that. But I’m willing to take the risk with the leverage afforded to me through my stock options for a couple of more years. In fact, it is with this leverage in my company stock options, such that I’m willing to allocate more to commodity investments. I have made up most of the lost grounds in my net worth through savings and my investments since 05/09/06 even when the value of my company holdings needs to be 50% higher to be on par with 05/09/06.

This is probably the most detailed and up-to-dated account/analysis of my current net worth & my own asset allocation strategy.

My strategy is definitely not for everyone, given my own special situation. If I calculate my metal holdings using a leveraged combined/controlling value of my home, stock options, etc. as 100%, the PM only comes out to be just 15% to 20%. This is more than 5% recommended by “textbooks”, but probably not an out-sized bet.

Since I was caught unhedged this time, if the stock market goes back up, it will be good news for my portfolio. I still have a couple of outstanding short positions that I have not covered. But I don’t worry too much about them. I would gain a lot more from my long positions than losing money in shorts.

In any case, I have liquidated almost 100% of my general stock market holdings, and have built up my cash position to 26% of my liquid portfolio. It is a lot of cash by any standards, but it is my way of keeping my sanity in this volatile market, since my regular income is relatively small compared to my portfolio.

So let this Goldilock story continues. We will see how it will turn out. I guess Robert Kiyosaki is really bad at his timing. I remember a study done related to smart & dumb traders. The most reliable information among all traders is actually from the dumb traders because they ALWAYS do the wrong thing at the market turn. So if you simply do the opposite of the dumb traders, you will statistically gain over time, .

To put this raise into perspective, I had a comparison point, an actual recent offer by my company to a new hire who is 3 years less experienced than I am, but had a 6.5% higher salary than mine (before the raise adjustment). Now my salary is somewhat higher than this new hire. If I assume a nominal annual raise of 3.5%, my base salary level is still about 3% less than what it should be for my level of experiences, not counting any credits from my above average performance at my job.

For all the regular blog readers out there, I also wish that you are compensated handsomely or at least fairly.

I have updated my net worth page to reflect my new option/share grants.

1. Net worth is up by 2.61%.
2. Value of my company holdings (stock options, ESPP, etc.) is up by 12.55%.
3. Everything else excluding my home and cash is down by 4.83%.
4. If including cash in #3, it’s down by 3.80%.

I didn’t expect precious metals to go down much harder than the general market. My portfolio took a beating. In any case, the market finally has woke up to the subprime lenders’ woe. Although people may attribute the fall to China, or Greenspan’s recession speech, I believe US market is really the core of the problem in the global markets. They can get Greenspan to come out 10 more times to correct his words on recession odds, but it will not change the downward spiral in the mortgage market.

The downfall in the mortgage market is fundamentally very positive for PM. That is only the first shoe to fall. If Fed does not control the blow-up properly, we can see the long-waited $US fall sooner than later. If Fed starts to lower interest rates to arrest the downward spiral, it will also be positive for PM.

I believe the secular bear market in stocks may have resumed. The unfolding of such secular bear market however does not necessarily mean a fall in the absolute price of the stock market this time around. Rather, the stock market will fall on an inflation-adjusted basis, and also against gold. There is also a chance that Fed stops the downward spiral in time, and create a bigger bubble in everything going forward. The most likely timeframe is in 2008/2009 for next (potentially higher) peak. In fact, the stock market can put in a higher high in 2009, but not necessarily beating the accumulated inflation since 2000. I do expect the stock market to go lower than the low on 3/5/07 this year. I also expect the general stock market to put in less than 3% gain for the entire 2007 year.

I’m liquidating most of my non-PM/oil positions which were worth less than 4% of my entire portfolio. Due to the leverage that I can get, I still have not sold much out of my stock options. I am retaining my bets in PM/oil for a continual debasing of the currencies and bull run in commodity market.

Best luck navigating in the dangerous water.

Special note: returns were calculated by subtracting 3.00% APR return of my cash position.

1. Networth is down by 0.13%.
2. Value of my company holdings (stock options, ESPP, etc.) is down by 8.48% partly due to some sale.
3. Everything else excluding my home and cash is up by 0.92%.
4. If including cash in #3, it’s up by 0.79%.
5. My savings of the last month were 0.08% of my total networth.

I have sold a couple of stocks, and my cash position is slightly up for this month. Looks like the stock bull market is still going strong. Gold stocks went down hard, but have recovered all the grounds. Most oil/gas stocks are still down from last year. I’m watching the market closely for any signs of distribution. Holding tight still.

This month my portfolio benefited from the rise of water stocks, some of which have gone up by 20%. This offset a little bit for my losses in gold & oil.

Special note: returns were calculated by subtracting 3.00% APR return of my cash position.

Of course, one ought not be surprised, since Russia and China (for that matter the whole international community) has been trying to get US to sign a ban on space-based weapons for some time. It is also common knowledge that US is the undisputed leader in this area even after this latest Chinese advance. Some might characterize this move by China as a ploy to get US back to the negotiation table, but any realist could see that a space arms race, which has long been going on behind the scenes, is inevitable. Space, as they say, is the final frontier.

This is not to assign blame to anyone, for we are squarely in the realm of “real politik”. It’s a classic prisoner’s dilemma situation where nothing good will ensue. A new international agreement, even if signed, will only slow down the arms race in the best case, just as the nuclear test ban treaty simply moved testing to a digital platform. At any rate, we have to realize that satellites directly above someone else’s territory are indefensible. More fundamentally, US’s hegemonic power is predicated upon a monumental overspending which cannot be maintained when the object of subjugation is a rising industrial power with 1 trillion in reserves.

Alright, enough of being fatalistic. I accept the reality of the world we’re living in, and it behooves to position myself the best way I can. So I’ll make the case for investing in the defense industry here. A space arms race, however irrational and unwinnable, is sure to booster the aerospace and defense industry into the “low earth orbit”.

From Jeffery Saut
The basic premise was already strong prior to this latest incident. Following is from a Jeffery Saut missive dated December 26, 2006. It’s no longer available at the Raymond James site but here’s the Google cache page.

This is the interesting bit:

Having lived around “The Beltway,” we have a pretty decent sense for how the political winds blow. Last week’s visit to “The Hill,” however, surprised us. Indeed, we arrived thinking that political gridlock was likely to be the course over the next few years, but that sense changed after a few conversations. Surprisingly, we found many of our Republican and Democratic leaders pretty much in agreement on numerous things. Of particular note was a near unanimous agreement between the Congressional folks from states devastated by companies moving jobs offshore. While said Congressmen can’t force companies to keep jobs in their states, one thing they can do is vote for an increase in the defense budget and mandate that those attendant high-paying jobs be kept in the United States. The last time such a defense build-up occurred was during the Reagan years and it led to a BOOM in economic activity punctuated by near 8% GDP growth. And maybe, just maybe, that is what the stock market is “seeing.” The quid pro quo is that such a boom would obviously be accompanied by more rate ratchets from the Fed . . . aka, “the fooler.”

I think the message was crystal clear. He went on to suggest two ETFs for this sector: iShares Aerospace & Defense Index (ITA) and the PowerShares Aerospace & Defense Portfolio (PPA).

ITA vs. PPA
ITA tracks the Dow Jones aerospace and defense index (components) whereas PPA tracks PowerShares’ proprietary SPADE™ defense index. The main difference seems to be that PPA contains some consumer discretionary names like DirectTV and EchoStar, as well as some IT names related to biometrics and homeland security. ITA was just introduced last May. Over its short life, PPA has outperformed slightly. ITA has an expense ratio of 0.48% vs. 0.60% for PPA. I personally gravitated towards the former but both capture the desired exposure well. Daily dollar volume is equally low at $1.5-2 million. ITA trades only about 30k shares; however, I have noticed persistent 30 lot orders with a bid/ask spread of 4 cents. I’m not sure if there is a market maker providing liquidity. Perhaps a more knowledgeable reader can shed some light here.

Technical Picture
On the daily chart ITA just completed a breakout and a retest of the $54 level. One may ask whether this is a late stage breakout, but the benefit of the doubt resides with the trend until proven otherwise. As long as it stays above $53, I’m not going to fret much.

The long term DJUSAE vs. S&P chart makes a very convincing case for this sector. In fact, it can be argued that we’re at the brink of a new leg up and this latest incident could very well be the catalyst.

Disclosure: I’m long ITA and all the usual disclaimers apply.

• I’m using my own returns as an example to demonstrate the mechanics of calculating risk-adjusted returns. The numbers are decent, but not great. If you think they’re high, I didn’t mean to gloat. If you think they’re low, well, that’s why I’m still learning.
• I understand that many readers will not have the time or desire to do a similarly detailed analysis; however, for someone interested in getting a professional money manager, seeing how the performance metrics are derived may be of value.
• My portfolio is divided into an asset allocation (AA) portion and an actively managed (AM) portion. Each is calculated separately as well as the combined total. The two portions were roughly equal for most of 2006.
• My own allocation in the AA portion, as described in the series on asset allocation, was 30% domestic stocks + 30% foreign (24% developed + 6% emerging) + 10% commodities including PM and 30% fixed income.
• Tracking started on Jan. 11, 2006, the inception date of my original blog. That’s why the numbers for the benchmark indices do not agree with what you read elsewhere. The stock market did very well in the first 10 days of 2006: the S&P gained around 3.5% and my portfolios gained 4-4.5%. Adding 4% to my cumulative numbers gets you 20.6% for the AM accounts, 16.59% for the AA accounts and 19.11% combined for the whole of 2006.

Most data is contained in the big table below. The first section lists monthly gains for the AM, AA and total accounts. To the right are monthly numbers for index ETFs that I use as proxies to the benchmark indices, such as VTI (Wilshire 5000), SPY (S&P 500), IWM (Russell 2000), etc. EFA (Foreign Developed), EEM (Emerging Markets) and AGG (Lehman total bond index) were also tracked. All these numbers were adjusted for dividend payouts. Finally, there are three columns representing three very basic asset allocations: 70% VTI + 30% AGG (AA1), 35% SPY + 35% IWM + 30% AGG (AA2), and 20% SPY + 20% IWM + 24% EFA + 6% EEM + 30% AGG (AA3).

Click to enlarge in a new window

The returns are plotted below for a more graphical presentation. I’m using SPY as a proxy for S&P 500. From Jan 11 to year end, SPY returned 11.4% which I beat handily, but the ups and downs (volatility) in my accounts also stands out.

Alpha and beta
Regular viewers of CNBC can attest that alpha and beta have become a fixed part of the vocabulary for the financial “in” crowd. They came from Markowitz’s Capital Asset Pricing Model (CAMP). Essentially, they describe the relative performance of a given portfolio with respect to an index (usually the S&P) with a linear approximation. To find my alpha and beta, I plot my monthly returns vs. that of SPY using a scatter plot in Excel (see chart below). Then it’s a just click of a button to do the linear regression.

Alpha is simply the y-intercept of the line. According to CAMP, it represents of the manager’s skill. A positive alpha means the manager is providing extra return beyond the risk he takes.

Beta is the slope of the line. According to CAMP, beta represents the risk in the portfolio. The market by definition has a beta of 1. A positive beta less than 1 means less risk than the market. A positive beta greater than 1 means greater risk; hence “high beta” is synonymous with “high risk” (in a period of market advance high beta stocks should outperform on average). A negative beta refers to a negative correlation with the market.

Now let’s take a look at the red line which corresponds to my AA accounts. It has a slope of 0.8 which means my AA accounts bore only 80% of the risk of S&P. The alpha is 0.0027 or 0.27% per month. That is how much extra return my asset allocation has provided. I’m happy with the way it worked out since my AA accounts include some high fee mutual funds in my 401(k) plan. The parameter R² describes how well the line fits the scatter points. A value of 0.5 is actually fairly low. It means my return is poorly correlated with the market (mostly due to the commodity allocation). CAMP will also say that 50% of my return is due to luck.

My AM accounts (black line) tell a completely different story. Firstly, the beta is negative. This is not surprising as I was highly concentrated in PM and energy stocks. I also timed the market and had significant short exposure such as in September. I still managed an alpha of 1.58% but the R² is so low as to make the whole thing meaningless.

The combined accounts (green line) naturally lie somewhere in between. By adjusting the relative weighting of AA and AM I can make the green line flat with a positive alpha. If I could make increase the R², it would mean that I can reliably generate a positive return irrespective of market conditions. Oh, if only that were true!

Sharpe Ratio
As you can see, alpha and beta are not perfect descriptors of portfolio performance especially when the correlation with the market is poor. There are other ways to describe volatility such as max draw-down (MaxDD) which is simply the worst performance in a given period. My worst month in AM was -7.96% in September when I was long PMs and short the market and suffered a double whammy. In AA, it was -4.06% in May. 20% of my wife’s 401(k) was in her company stock that took a swoon then. In comparison, MaxDD in SPY was only -3% in May.

The most recognized metric for risk adjusted return is, however, the Sharpe ratio (SR), named after William Sharpe, co-recipient of the Nobel prize in Economics with Markowitz. It is defined as

SR = (R – R_f)/StdDev(R)

Where R is the average return; R_f is the risk-free rate; and StdDev(R) is the standard deviation of R. The numerator is the actual return above the risk-free rate, also called the excess return. The denominator is the standard deviation of the return, the technical measure of volatility. The SR, therefore, gives the return per unit of risk. There is a nice collection of web-based calculators including detailed instructions for this calculation at Sharpe’s website.

I have seen people using 0 for the risk-free rate (cash not earning interest). More common is to use the short term treasury rate. My Sharpe ratios are shown in the bottom part of the table above. The risk-free rate was assumed to be either 0 or a constant rate corresponding to 4.5% per annum.

Although my absolute returns were respectable, on a risk-adjust basis they fell short. Looking at the annualized Sharpe ratio with a finite risk-free rate (the last line), EFA at 1.42 was by far the best. My AA accounts (1.12) were better than SPY or VTI (tied at 1.05), but very slightly worse than the simple allocation AA3 (1.13). For all my meddling in my AM accounts (0.70), I achieved a high return but at the expense of even higher volatility. The Sharpe ratio also shows EEM to be fairly poor on a risk-adjusted basis despite having the best cumulative return.

Looking Ahead
It’s clear from this exercise that my asset allocation plan worked well. I rebalance my allocation at the end of last year. The overall assignment remains the same but I overweighed domestic large caps and added some REITs despite my misgivings about the residential real estate market. I also re-jigged my AM/AA balance to favor AA by 10% or so. This exercise doesn’t completely invalidate my work in AM accounts as the absolute return was still greater. Rather it points to a need for better money management so as not to repeat the disaster in September. I’m hoping 2007 to be an even better year.

Portfolio Tracking with Excel
I imagine many of you use either Quicken or MS Money. My wife and I use MS Money and it’s an excellent tool for tracking spending. However, I find it lacking when it comes to the more in-depth portfolio analysis I want to perform. Of course, the data can be exported to Excel, but won’t it be easier to use Excel in the first place?

The task would be too daunting if one has to update the price for each stock or fund manually. Fortunately, Excel incorporates quotes from MSN. To do that, select Data:Import External Data:Import Data… and MSN MoneyCentral Investor Stock Quotes.

Select “Parameters” from the prompt and then “Use the following value”. Enter the symbols separated (e.g. “C, IBM”) by commas and “Ok”.

You should see a table like this (assuming you have a live internet connection):

The parameters can be edited later by right clicking the table. You can get the latest MSN quotes by “Refresh Data”. The “Parameter” field has a limited length, but there is no limit to the number of quote tables you can have. You can use the “Refresh All” button to update all tables at once.

Once you have the quotes, you can do the standard spreadsheet manipulations. One caveat in editing the list of symbols is not to changing the location of the cells you’re referencing to (if you’re a regular spreadsheet user you know what I mean).

Calculating returns with contributions
In personal finance (PF) blogosphere it is common to show the total net worth growth without separating savings from investment gains. While it makes a lot of sense from a PF perspective, it can mask poor returns with a high savings rate. The proper way is to calculate the so called time-weighted returns. The precise calculation is rather involved. Fortunately, there is an approximation called the Midpoint Dietz method: In a given month, define

S: portfolio starting value
E: portfolio ending value
C: total contribution (negative if a distribution)
G: $ gain for the month (negative if a loss)
R: return %

Then

G = E – S – C
R = G/(S + 0.5 C)

This approximation assumes that the contribution is made in the middle of the month which is usually true on average. It’s possible to apply the same formula to the full year, although the approximation becomes pretty rough. The more common approach is to compound the monthly returns:

R_year = (1+R₁)(1+R₂)…(1+R₁₂) – 1

where R₁ is the return for January, etc.

In part 2, I will discuss my actual returns for 2006, its standard deviation, Sharpe ratio, alpha, beta and more

This return of 13.8% also does not account for the fact that I’ve grown my investing portfolio by a whopping 70% since 1/1/06 (from the history since 5/9/06, I grew my portfolio by about 35% using the size on 5/9/06). Overall I’m fairly pleased with my investment return. Here is a highlight of one of the most successful of my moves (in fact, I don’t trade that much at all as you can see that from the cash column of my networth history). For those of you who remembered my post about gold reaching bottom back on Jun 13, 2006, and getting 10%+ return in 10 days, guess what? I was extremely lucky to hit the exact bottom of this recent gold correction. It paid off. Now, just for that portion of stocks, they have returned about 38% in 6 months, better than HUI index. In fact, I think the highest that they went was almost 50%. Of course, don’t you wish that you have acted along with me? Well, hindsight is always 20/20. I also wish that I put a lot more cash to usage than just those. But things can always turn out differently.

Besides, all the actions in gold market, this year, I have benefited from the rise of water & uranium stocks, while got hit by natural gas and alternative energy investment. Oil/gas stocks were somewhat split. The non-dividend paying stocks did okay to well, while the dividend paying stocks got hit by the Canadian tax law changes.

Now, the only thing that has been constantly getting onto my nerves is the sheer size of my portfolio. But I still have 16% in cash relative to my overall portfolio size. In the beginning of the year, I actually had 34% in cash relative to my portfolio size. I have been using the high level of cash to reduce the overall volatility in my portfolio, since I don’t invest in any bonds or bond fund. I take a small hit on my cash return for being flexible in going in/out of the market instead of leaving them in bond funds.

I hope it will not happen in the future, but I can literally go down to below one million networth in less than a month. In fact, in about two months between 5/9/06 and 7/21/06, I lost 28.4% of my networth mainly due to my company stock options. It was certainly very hard to stomach such a horrendous loss. In fact, I probably won’t be recovering majority of that loss anytime soon.

I have also adjusted downward the already moderate valuation of my home by another 5%. Coupled with the updated mortgage balance, and misc, it was not such a big hit to my total networth.

Year 2006 was truly a wild ride for me. I hope 2007 would be easier on my stomach.

Here are some details in the same monthly format:
For the month of December from 12/1/06 to 12/31/06,

1. Networth is down by 2.97%.
2. Value of my company holdings (stock options, ESPP, etc.) is down by 3.73%
3. Everything else excluding my home and cash is down by 2.79%.
4. If including cash in #3, it’s down by 2.35%.
5. My savings of the last month were 0.14% of my total networth, and it will take 58.2 years to replace my networth.

For the past 8 months, 05/09/06 to 12/31/06,

1. Networth is down by 9.44%.
2. Value of my company holdings (stock options, ESPP, etc.) is down by 39.25%.
3. Everything else excluding my home and cash is up by 3.42%.
4. If including cash in #3, it’s up by 3.12%.
5. My savings since 05/09/06 were 1.04% of my total networth, or 56.09 years to replace all of my networth.

Special note: returns were calculated by subtracting 3.00% APR return of my cash position.

1. Networth is up by 9.59%.
2. Value of my company holdings (stock options, ESPP, etc.) is up by 21.79%
3. Everything else excluding my home and cash is up by 9.09%.
4. If including cash in #3, it’s up by 7.07%.
5. My savings of the last month were -0.20% of my total networth. Spending was higher than monthly income due to my vacation trip going back home to visit my parents.

For the past 7 months, 05/09/06 to 11/30/06,

1. Networth is down by 7.57%.
2. Value of my company holdings (stock options, ESPP, etc.) is down by 39.11%.
3. Everything else excluding my home and cash is up by 6.07%.
4. If including cash in #3, it’s down by 5.14%.
5. My savings since 05/09/06 were 1.04% of my total networth, or 56.09 years to replace all of my networth.

There were some scrambling in my portfolio, as detailed in my previous post. This month has been a good month, because both my portfolio and my company holdings went up quite a bit. My company stocks got hit quite big in the last week of November. Otherwise, it would be a lot better.

The spending exceeded my income this month, and I’m paying quite a lot of extra taxes every month now in the final months to make up any unpaid taxes due to misc. capital gain that I had earlier in this year.

Special note: returns were calculated by subtracting 3.00% APR return of my cash position.

1. My money manager sold out most of my pharmaceutical positions due to a Democratic win in the November election.
2. My money manager and I added more energy positions in natural gas companies and Canadian energy trusts.
3. I added some foreign equities.
4. I added NG which I may be selling anytime. This is the only precious metal position that I’ve added, only because I know it would not be volatile at all, but would be more event-driven. I’m pretty loaded in this precious metal sector, and I don’t plan to add more. If I do make any changes, it will be exchange of positions rather than adding more.

My cash has gone down somewhat, and it’s at about 10% of my portfolio value. Comparing to about 30% on 5/9/06, 10% is my historically low point, but certainly high by any portfolio management standard. I usually err on the conservative side, and the cash also includes any cash that I need to use daily.

I will be looking to add more US large cap once the current mini-correction is more complete. But if it doesn’t fall more, I won’t be adding anything, playing conservatively. My net worth has gone up somewhat due to my company holdings (which are usually correlated to the general stock market). I am hoping to liquidate some of these holdings at a higher price than current market price later on.

By the way, I’m still trying to catch up after a long vacation during which I visited my parents back home. This coming weekend, I will try to reply to all the past questions if I have not replied yet. Thanks for your patience.

Why NovaGold? For those who are not familiar with any gold junior companies, Novagold is probably the top three in the juniors that have a very substantial gold reserve base, and is probably the one of the closest to production, starting in 2007. According to my available data, only NAK has a reserve base (42 million ounces) significantly exceeding NG, while the other ones are either very close or below NG’s reserve at 29 million ounces (KRY has 22, IVN has 21, and KGI.TO has 19 million ounces). While there are many reasons for different valuation on these different ounces, due to geography, quality of recoverable reserves, etc. the bottom line is that these are very significant gold reserves. As an example, comparing to a high quality intermediate size production company AUY (recommended by Cramer by the way), it is trading at about 3.45 billion market cap, with about 10 million recoverable ounces.

I’m betting that the value in NG is far from being fully realized by “restocking” all of my shares. By some measurement at ResourceInvestor.com, NG could be valued at $73 a share. While I don’t expect to fetch this kind of value, I’m guessing that $20 or somewhere close to it should be a reachable goal. Friday’s announcement by ABX to waive the minimum tender condition is another proof of its undervalued bid at $16 cash for NG. And certainly that has caused NG to again trade above the acquisition bid price. ABX is one sneaky fox that has outbidded NG’s on Pioneer Metal by going sideway acquiring related interests, and attempting to circumvent to get to Donlin Creek project. And let’s not talk about the 3 to 4 billion dollar loss on ABX’s gold-hedging book that has few people paying notice, plus rumors (or fact?) on serious land claim issues at 25 million ounces Pascua Lama project.

Please do your due diligence before buying any stocks, especially in this very volatile PM sector plus in a smaller junior company.

1. Networth is up by 2.80%.
2. Value of my company holdings (stock options, ESPP, etc.) is down by 0.60%
3. Everything else excluding my home and cash is up by 5.45%.
4. If including cash in #3, it’s up by 4.49%.
5. My savings of the last month were 0.09% of my total networth, or 92.6 years to replace all of my networth.

For the past six months, 05/09/06 to 10/31/06,

1. Networth is down by 14.70%.
2. Value of my company holdings (stock options, ESPP, etc.) is down by 48.51%.
3. Everything else excluding my home and cash is down by 3.52%.
4. If including cash in #3, it’s down by 2.40%.
5. My savings since 05/09/06 were 1.29% of my total networth, or 40.98 years to replace all of my networth.

You can find all the details in this My Networth page.

The last week or so, precious metal markets had a bigger jump. My portfolio came back and made up most of the losses in the last month, but not yet everything. I have not made any further move in precious metal markets. So far, I still remain neutral to slightly bullish. I still think there is a chance of going down to 530 area for gold spot.

My year-to-date (or rather starting from 05/09/06) networth is still plagued by the big drop in my company (leveraged) holdings. I do not forsee that I can make up this drop anytime soon (in years). The drop has caused about 15% drop in my networth, and the absolute magnitude is not easy to stomach by any means.

My savings this month is particularly meager due to advanced charges for my upcoming vacation trip.

Special note: returns were calculated by subtracting 3.00% APR return of my cash position.

My total loss from this tax change is about $5800 from all of my positions (so far). I’m just going to take the losses on the chin.

I won’t be selling them out immediately. I will take whatever dividends that I can get at the rate before tax changes are kicked in, and wait for market to reach some consensus. I will probably put the proceeds into either US trusts or partnerships, the other two categories that I have recommended in my high dividend stock lists. I am still lucky in the way that I have diversified my dividend streams into different country and different kinds of business. Otherwise, my losses will be much worse.

I hope that crude oil stops falling here. If it does, rise of crude would help lift these trusts somewhat. But if you want to play the crude oil, you could put the proceeds into many other alternatives. Bottomline, diversification has always been the saving grace in a down market (and also a dragger in an up market). It’s about how greedy you are and how much risk you want to take.

Certainly a BAD day for all Canadian trust investors. I wish that they could have preserved the trust structures for certain types of business.

I got hammered, but I decided to pick up more.

ERF, PWI, PWE, PVX, PDS, PGH all got hammered. The higher yielding stocks appeared to got hammered less than others. I guess yields always have its use.

According to Yahoo Finance, it’s yielding 11.7% based on yesterday’s close at $28.49 — much more appetizing after the recent fall as can be seen from the chart. My read of the chart also tells me that it made at least a short term bottom. The technical picture was only a secondary consideration since I purchased it for its income generating potential for my asset allocation account.

For obvious reasons, the above is not financial advice. Please do you own due diligence before purchasing any stock! Other similar stocks that you could consider are ERF, PVX, PWI, etc.

1. Networth is down by 2.78%.
2. Value of my company holdings (stock options, ESPP, etc.) is up by 9.08%
3. Everything else excluding my home and cash is down by 9.15%.
4. If including cash in #3, it’s down by 7.30%.
5. My savings of the last month were 0.37% of my total networth, or 22.52 years to replace all of my networth.

For the past five months, 05/09/06 to 09/30/06,

1. Networth is down by 17.02%.
2. Value of my company holdings (stock options, ESPP, etc.) is down by 48.19%.
3. Everything else excluding my home and cash is down by 9.7%.
4. If including cash in #3, it’s down by 7.15%.
5. My savings since 05/09/06 were 1.11% of my total networth, or 37.54 years to replace all of my networth.

You can find all the details in this current networth page.

Here is the quote from last monthly review:

….Not only that, gold market is almost at the point of BIG resolution. I will be watching really closely on the gold market. Furthermore, crude oil’s spot may be close to a low point, I may also be making my move into more energy stocks to take advantage of this low point. The next 1 to 5 weeks, the stock market, CRB, and the gold market will give us an answer of what they want to do. For very aggressive traders, they should take a position right now and put a very tight stop. BIG BIG profits (or losses) will be made in the next 4 weeks! I don’t have a crystal ball, but if you want to take a stand (either long or short) in either gold, energy, or the general stock market, NOW(today, or within days) is the time!

Unfortunately, it turned out that the market did NOT work out in my favor. I suffered a big loss in my own managed portfolio. But fortunately, with my roughly balanced leveraged portfolio, my company holdings saved the day, and made up most of the losses that I’ve incurred this month. However, when looking at since 05/09/06, majority of losses were incurred due to my company holdings.

Special note: returns were calculated by subtracting 3.00% APR return of my cash position.

After this gold merger, I think IAG may be a little too big to be acquired at the price tag of 3 billions.

Man, there goes another reason to be investing in ETF or mutual funds instead of individual stocks.

If you’re very smart, and always pick the right side of these mergers, you won’t WILL get the benefits of consolidation in the mining industry.

Boy, I hate gold mergers!

In my last market post, I said that

From all the above charts, the most obvious conclusion is that HUI is about to break out in a BIG way, under this ascending triangle technical formation. Now my only problem with this is that it is simply TOO obvious. And when it’s so obvious, it scares me, because the market rarely accomodates the wish of the majority.

I guess I was so right! But I didn’t listen to myself! Greed overtook me.

I’m going to stand far away from the trading screens. I’m in for the longer term. Unfortunately, if the 200 days MA supports are broken, I will be looking at probably many months to recover the losses in my portfolio.

US dollar is still looking quite strong. That is definitely a negative for precious metals.

Be really careful, if you are in this PM/dollar-shorting market.

Looks like gold/silver stocks will have a really bad day. After a false breakout last Tuesday, HUI seems to be falling really hard. The “false” breakout did happen on a very strong volume. I’m not sure what’s going on in the marketplace. Looks like manipulation to me. A flat-lined silver is not a free market chart. Unless Kitco’s chart has incorrect data, otherwise I cannot explain such behavior.

OUCH, today is going to a really rough day for my portfolio.

And yak! It’s just early September, almost four more months to go, and I have $557.99 foreign tax withheld already! I have really hard time staying below $600 every year. I just invested about $28500 roughly, and the dividend alone from that is about $2950. Plus all other miscellaneous amounts from everywhere, my total dividends from Canada (15% foreign tax) so far in 2006 is $557.99 / 15% = $3720. I haven’t even counted any US dividends, and foreign tax dividends that didn’t have taxes withheld, plus royalty payments and MLP distribution that don’t get counted officially as dividends by IRS.

Although I would very much like to increase my holding in these high dividend stocks, I really hate to give up $600 for tax credit. Unfortunately if you just go $1 over, filing 1116 form will most likely result in disqualifying the entire $601 credit because these dividends are mostly coming from oil/gas trusts.

I think I’m going to shift or increase these investments into my two custodial accounts, each will have $300 credit limit available for my two children. I’d better do it really soon because I’m really too close to the limit. Selling such stocks for staying below $600 foreign tax credit sound really stupid. But I am too cheap to pay IRS $600.

Have you invested in any of the Canadian Royalty stocks, some of which are in my list? If you do, I don’t know how you stay below that limit. Just about some $25K to $40K will put you over the limit. The alternative solution would be to take the tax bite of 15%, and lived with the 15% discounted dividend rate.

Now I really need to figure out what to do with my dividend stocks. In a way, it’s a nice problem to have. But every year now I have to worry about this. And I kind of knew that I probably should have done this review maybe 2 months sooner. Gush, it’s just three stocks that we’re talking about, but each is paying 10%+.

Am I placing too big of a bet? Possibly. Honestly, I tell you I’m scared. I can easily lose 8 years of my annual savings if I am wrong. Unfortunately, the continual printing press at US Fed gives me no option. Cash is good maybe for now, but in the long term cash is trash.

1. Networth is up by 12.86%.
2. Value of my company holdings (stock options, ESPP, etc.) is up by 102.93%, howdy!
3. Everything else excluding my home and cash is up by 2.35%.
4. If including cash in #3, it’s up by 2.88%.
5. My savings of the last month were pretty much 0.29% of my total networth, or 28.74 years to replace all of my networth.

For the past four months, 05/09/06 to 08/31/06,

1. Networth is down by 14.23%.
2. Value of my company holdings (stock options, ESPP, etc.) is down by 52.50%.
3. Everything else excluding my home and cash is up by 0.80%.
4. If including cash in #3, it’s up by 0.75%.
5. My savings since 5/9/06 were 0.94% of my total networth, or 35.46 years to replace all of my networth.

For my own managed portfolio, I have recovered ALL of my losses since May peak, YES. The values in my company stock holding is up by a whopping 102.93%! But it is still down by 52.50% since I started tracking it. At the end of last month, it was terrible. But this month it is turning around a little bit. I don’t expect it to recover the 52.50% loss any time soon. Just hope that it will keep going up. Here are the words from my last monthly review on my company holdings:

It has been down almost 60% from the peak, and my stock options lost close to 90% of its value. That is the primary reason for a poor showing of my networth this month again. I hope that I don’t need to repeat it one more time. Actually, the worst it can get is to lose 100% of its value. 10% more to go now.

Yep, I guess the worst indeed is to lose 100% of the value, but it didn’t.

Certainly, my own managed portfolio usually doesn’t have very big up and down. I have always expected more volatility from my own portfolio due to its concentration in energy and metals. However, somehow besides the last big dip in May, it is more like a slow moving giant. I guess my heart is strong enough for such volatity.

What’s the most volatile is my company holdings because of its leverage. And it contributed to the majority of the gain of 12.86% for this month.

Special note: returns were calculated by subtracting 3.00% APR return of my cash position.

It’s really hard to play in this gold equity market. The big companies will continue to acquire the smaller ones. But the smaller players may or may not ride the tide together with the big trend. Plus that smaller companies can be really risky. When something goes wrong with small companies, it can be really ugly. HUI looks like is almost at the edge of breaking out the ascending triangle. I am very afraid of placing more bets for fear of a negative resolution. It’s also possible that it fakes down in a big way, and then reverses up.

Commodity index CRB has broken 200 days MA. Definitely not a good sign, if it doesn’t turn up soon. Yet, there seems to be a little more downside to go in oil and gold spot prices. What worries me is that maybe gold and stock markets will not be synchronous this time. The general stock market is looking better each day. But the driving force has been a lower oil price. Looks more like CRB and stock market is going to have a big fight instead of being jolly and rising together.

Waiting….holding tight….what would be the story in about 1 month (or less)?

It will most likely make or break my portfolio.