AskDong

There’s just one word way to describe the Markets in June . It sucked. All the major indexes were down well over 5 percent. My own portfolio fared little better. I keep telling myself that I’m in it for the long haul. Eventually, I’ll have myself convinced.

Below is my historical performance for the last 6 months.

Brokerage Accounts: Accounts in which I pick individual stocks and some mutual funds. My IRA account(s) are amongst these accounts.
Asset Account: Accounts in which I managed on basic asset allocation principles. These accounts accounts consist of my 401k and Vanguard accounts.
All Classes: Total from all accounts

Today is the 3rd Friday in June. We all know that means. Or at least those who trade options. Options expire on the third Saturday of each month. However given that markets are closed on Saturday that effectively makes the expiration the Friday the day before.

I’m short two call contracts (controlling a total of 200 shares) on EWZ, the Brazilian iShares ETF, that expire today. These are “covered calls” as I actually own the underlying shares. I sold these calls over 6 months ago with a strike price of 90. Today EWZ has been trading between 90.12 and 91.73. If EWZ closes tonight at $90 or under, I can pocket my profit. However, if EWZ instead closes at anything above $90 I will likely get my shares of EWZ called away. I don’t want this to happen as I would effectively be selling my shares.

EWZ has been a star in my portfolio and a holding that I want to keep for the long haul. The ETF has returned over 100% since I brought it. I would be stuck with a tax bill in excess of $1000 if I were to sell right now, and given that I do want to hold the ETF it’s best not to create incremental tax bills until the day I really want to sell. That said I do believe that fund itself could face substantial downward pressure. Emerging markets have been a hot performer over the last few years, and I for one assume they are in bubble territory. That’s why I sold the calls originally and am likely to do so again. I’m willing to take profits from the volatility along the way if I can.

n.b. As I wrote this post, I ended up buying the calls back for $1. I potentially left $200 on the table if EWZ closes at 90 or below, but I feel better with the certainty that I will not have my shares called.

My investment update missed the big rally from yesterday, and big decline today. Given that yesterday and today are a wash, my results are actually quite current. May was an uneven month. The market neither rallied or tanked. Though the Nasdaq and the Dow diverged. The Nasdaq outperformed the Dow.

Below is my historical performance. I’ve added the the performance of my complete portfolio to the chart.

Brokerage Accounts: Accounts in which I pick individual stocks and some mutual funds. My IRA account(s) are amongst these accounts.
Asset Account: Accounts in which I managed on basic asset allocation principles. These accounts accounts consist of my 401k and Vanguard accounts.
All Classes: Total from all accounts

I’m a little late on my investment update as I’ve been trying to get it out around the 1st of the month. The month of April pretty much continued how it started. The market rallied while I lagged relative to market. My lagging is not very surprising given that I have quite few put options on the NASDAQ and the DOW. Those haven’t worked out very well recently, but I guess that’s what hedges are for.

I am finally up for the year. Almost all of that can be attributed to the calls on AAPL that continue to race onward an upward. Last month AAPL shot past $150. The stock is up above $180 now….

Now that I have a few months of data for my historical performance chart, it’s actually beginning to look like something.

I have a couple stocks in my portfolio brightly colored red. Yet, every time I see them I have stop myself from buying more. The two common cliches that prevent me from doing so are. 1) Don’t Catch A Falling Knife 2) Don’t Average Down. I’ve managed to resist the temptation, and in the past this resistance to my own nature has served me well with two other stocks I used to own, WM and AHM. I took my 20% loss on Washington Mutual and avoided losing another 60%. I took my 50% loss on AHM (American Home Mortgage) and avoided losing everything as the company declared bankruptcy within a few weeks of when I sold out my last shares.

While fortunate in those transactions, my losses also highlight the biggest trap of investing/trading - Falling in love with your stocks. I fell in love with AHM and WM when I should have sold much earlier. I only take solace in that in the end I realized the relationship could not work because the love was not returned. As with relationships, it’s better to cut your losses than try to make an untenable relationship work.

So what do I own today that I need to think seriously about selling? Mylan Pharmaceuticals (MYL) and United Health (UNH). MYL is a company I’ve owned at some point another in some account or another for over 12 years. It’s loved me in the past, but it no longer loves me today. Fundamentally, I should own neither MYL or UNH. I don’t know the first thing about the pharmaceutical or health care industry. I’m not much of a consumer or connoisseur of either.