My Personal Finance Journey

Personal finance observation, musing and decisions in a journey toward financial independence by 2020 with at least $3 million.


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My Portfolio in 2003: Losing to the Benchmark But Still Winning Handsomely

Contributed by mm | December 31, 2003 10:46 PM PST

Overview

Year 2003 is a mixed bag for my portfolio: my portfolio achieved a handsome gain of 21.07% APR for the year, although it is still 471 basis points shy of S&P 500's advance of 26.38%.

I made 14 trades in my actively managed portfolios (i.e. ordinary brokerage accounts and Roth IRA, but excludes 401(k) account). Excluding two trades regarding the low-risk investment in FTHRX, there is a total of 12 equity trades. This is in the range I expect for my investing style.

I started the year with a portfolio value of $25,572 and closed the year at $28,730. I made a few buys in the first few months but started to become bearish since May so I started to liquidate my positions after that. I still perceived the market as overvalued, but this contrarian view makes my performance falling behind the benchmark.

My account turnover of the year is 125%, the same as last year. This is a bit higher than I target in the long run.

Overall, it is a great year for me. I reaped significant profit in some positions, learned some important lessons, and am well positions for the next year.

Highlights

- I achieve a gain of $5,065 of the year on top of an average balance of $24,037 of investments.
- My value-investing approach starts to pay off. 60%+ APR has been achieved in S, CI, FBR and OCA.
- My Roth IRA has a good start: $6,000 initial contribution at year starts turned into $7,604 now, or 27% annual gain.

Lowlights

- I learned a big lesson in the $5,065 loss of shorting AMZN. Although I think AMZN has always been richly valued for a long time, I underestimated the market fever and failed to hedge my risk.
- Sometimes I sold too quickly. In retrospect, I can hold S a bit longer but I missed the chance to double my money. Instead I only got 19% return on my original investment. (On the other hand, I feel my sales of FBR and NTBK are reasonable -- market simply overreacted afterwards.)

Looking Forward

I believe 2004 will be a very challenging year due to political uncertainty brought by the presidential election, the determination of the economic recovery, the indecision of Fed in front of potential inflation, and most importantly, the overall rich valuation of the current market.

I will continue to play defensive in the near future. I may embark on some defensive large-cap plays for my new Roth IRA investments ($9,000) but will be willing to keep most of my liquid assets in cash. Speaking of my current holdings I will soon sell my RJR positions but will be happy to hold on my OCA, PPD and FDP positions.

2004 Objectives

I'm setting up the following quantitative objectives for my portfolio for the year 2004:

Absolute ARR: Goal = 10.0%, Stretch Goal = 15.0%
Relative ARR (based on S&P 500): Goal = 3.0%, Stretch Goal = 6.0%

I also hope to keep my number of trades below 12, and portfolio turnover below 100%.

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