As 2015 drew to a close, this would be a good time to review how our portfolio did during the year. 2015 was a year of frustrations and whipsaws: traders around the world feel the bad breath of the twins. Our tactical portfolio got hit with a 3.19% year to date loss in terms of the US dollar. However, it scored a 5.13% gain in terms of CAD when we take into the account of gain from CAD/USD exchange rate.
Glorious first half of 2015
We had a smooth sailing from Feburary to mid August with 16% gain by then (in the USD term) despite of the fact that the overall US markets went nowhere during that period. We were able to sustain whipsaw from Feb through May because prudent risk management, ie. limited sizing of our portfolio.
Whipsawed in massive sell-off and subsequent ups and downs since late August
However, those gains weren’t enough to offset the damage caused by the combination of the summer market whipsaws and being “too long ” during the August sell-off. We had to close 1/3 of option long positions at height of market panic because of sudden withdrawal of margin power given by our trading execution broker (as part of their risk management maneuver). If those positions were kept, we would have a substantial gain by now.
Be very careful with margin power; try to control margin at maximum 2:1 instead of usual practice of 3:1 . During sideways markets like the summer of 2015, it is best to minimize positions either long or short to margin 1:1 (no leverage at all). Always keep extra dry powder of buying power, which can be deployed at market selling climax for substaintial gain when selling pressure subsides.
Gazing into 2016
I don’t have crystal ball to look into. The US markets may well be still in a giant topping process as I have pointed out before in this piece. However, upside surprises may not be far away from around the corner. We are going into 2016 with consumer confidence strong. Christmas spending up a ripping 7% plus YOY. Wage gains are strengthening. Gasoline and natural gas heating bills are down dramatically giving consumers more cash to spend elsewhere. Congress just pass a budget that will boost the economy by almost 1%. So the economy will be perfect for a strong stock market.
Two areas of interest to me are: energy stocks which have been beatened down and left for dead; elevated fear among market participants.
keep trading, be humble and nimble!