Ken Deen's THE AGGRESSIVE TRADER STATUS REPORT 1339 Virginia Rd. Vol. 1, No. 37 Montecito, CA 93108 April 13, 1992 (805) 565-2039 CompuServe: 72020,2050 March 1992: Overview March was the first down month for The Aggressive Trader. The model portfolio lost 4.8% in March (vs. -1.9% for the S&P 500, and -4.7% for the Nasdaq Composite), bringing the year-to-date gain down to a still excellent 5.5% (vs. a -2.5% loss for the S&P 500). The statistics on closed-out stock trades are also excellent (see Table 5). 11 out of 15, or 73%, were profitable. The average trade returned a 5.4% gain after a holding period of only four weeks. Looking at all closed out options trades (see Table 7), I fare less well. Only 4 out of 9 options trades were profitable. Please note, however, that two of the losing trades were 'portfolio insurance' (OEX puts). This is significant because I did not expect these OEX puts to show a gain. I bought them only as a hedge against the risk of a market fall. (The market did fall, but not while I was holding these puts! I'll have more to say on that subject in the "Analysis of Successes and Losses" section below.) Just as when one buys fire insurance on a house, one expects, even hopes, to lose money on the deal, I hoped to lose money on these puts. Excluding the 'portfolio insurance', then, the situation is brighter. Instead of 4 out of 9 profitable trades, we have 4 out of 7. Instead of an average loss of 4.6%, we have an average gain of 10.6%. U.S. Investing Championship: 3rd Place! A couple of weeks ago, I decided to enter the U.S. Investing Championship. I am entering two separate contests: the stock division and the options division. Top performers receive considerable attention in national financial media. I see this as a means of establishing an independently verified track record, of promoting my newsletter, and of attracting clients for my money management business, which I am now setting up. I was pleased to learn that I can enter the contest retroactively to Jan. 1 by submitting brokerage statements. I have one account which was up 27% year-to-date in late March at the time I spoke to Norm Zadeh who organizes the USIC. He informed me that this puts me in 10th place in the stock division and 3rd place in the options division. One may well ask, if I have an account that was up 27%, why am I not tracking that account in this newsletter? And why is my Model Portfolio doing less well? I have two answers. First, at the present time, my aggressive trading is spread over multiple accounts, one of which just by chance happened to get my best winners. My second answer is that I am going to start tracking my personal aggressive trading accounts in this newsletter, so that such a divergence will not occur in the future. New Portfolios Since Zadeh's investing contest requires me to select one portfolio for tracking my stock-only performance, and a separate account for tracking my stock + options performance, I am setting up two new accounts specifically for contest purposes, and transferring my aggressive trading assets into these two accounts. This is convenient for the newsletter also, as I can now begin to share with you my actual performance. All buy and sell alerts from now on will report the number of shares traded (or to be traded) in each of these accounts. My monthly status reports will report on both of these portfolios. This new policy has several advantages for you, the reader: * All performance numbers will be based on actual performance in my own accounts. You will know exactly how well I am doing with my own aggressive trading. * The newsletter will track a second portfolio, one which includes options trading. * When I buy, you will always know in which account I am buying, and exactly how much I am buying. * No more artificial selling in the newsletter portfolio "to raise cash" when I personally am not selling. * My newsletter performance will be backed up by actual brokerage statements. It is my hope that these changes will make this newsletter even more useful to you. Your comments and feedback, as always, are welcome. Negotiating the Transition My intention is that the current Model Portfolio in this newsletter will become identical to and be replaced by the new stock-only contest account. I will fund the new account to about the $50,000 level in order to make this possible. The new stock-only contest account, which I will refer to henceforth as the "Stock Only Account", is not yet available for trading. An IRA transfer is involved here, and this takes time. It should be ready by the end of April. The current contents of this account are similar to the newsletter Model Portfolio. At the end of April, assuming the new account is ready, I will issue one final flurry of "artificial" buys and sells in the Model Portfolio, and an adjustment of the cash balance, in order to make it match exactly the new Stock Only Account. Once this is accomplished, the newsletter Model Portfolio will be replaced by the (then identical) Stock Only Account. The new options contest account, which I will refer to henceforth as the "Stock+Options Account", has already been set up and I am commencing coverage of it with this issue. Table 3 shows the March 31 status of this new account. Table 4 reviews the transactions I have made so far this month. Table 4 is the only table containing April data. I wish to begin tracking this account as of the first of April, so I provided Table 4 to make up for the lack of detail in my buy and sell alerts so far this month. Questions and Answers Q: Why do you sometimes give alerts after you've made the trade, and sometimes before? A: I always write and send my alerts as soon as I make the decision to buy or sell. If I reach a decision when the market is closed, and I have enough time before the market opens to do so, then I will write and send the alert while the market is still closed. Otherwise, I first call up my broker and execute the trade, then I immediately write up and send the alert. I am usually able to accomplish writing and sending the alert in less than an hour after making the decision. If you wish to receive my buy and sell alerts in the most timely manner possible, please contact me about fax service. Analysis of Successes and Losses My main problem in March is that the market moved against me. The 4.7% loss in the Nasdaq Composite matches almost exactly the loss in my Model Portfolio. Growth stocks, in particular, have been taking it on the chin. The OEX puts (my 'portfolio insurance') I purchased were no help, in part because I held them for too short a time. I sold the last of them on March 3. My technical indicators turned very bearish in early February, and they were correct, but I under-estimated how long the danger period would last. My current thinking is that there is a better way of managing the risk of an excessively risky market climate. Instead of buying OEX puts, I am buying puts on specific companies whose stock I believe to be headed south. I have been spending a great deal of time in March researching, back-testing, and writing computer software to screen for stocks which are likely to drop in price. Preliminary results are very encouraging, and I have begun, just in the second week of April, to use this software for live trading. If this software had been available on March 24, I would have bought puts on Borland International the next day. Borland closed at 63 on March 24. On April 10 (the most recent close as I write this) Borland closed at 52! My intention, then, is to manage market risk by maintaining a balanced portfolio (at least in the Stock+Options Account) with some bullish positions and some bearish positions. This may be the best insurance in an uncertain market. It has the advantage that I do expect to make a profit from every position, which was not the case with my OEX puts. In the event of a market crash or major correction, my bearish positions should show a huge gain and at least cushion the fall, and perhaps even produce a net gain. I will still be using market indicators to tell me whether I should be more heavily weighted on the bullish side or the bearish side. Regarding the Stock-Only Account, my only defense in an uncertain market climate is to hold cash. Short-selling is not allowed by USIC contest rules in the Stock-Only Account. Performance Review: The Details Here, then, are the details. Tables 1 and 2 review the status of the Model Portfolio as of March 31 (Table 2 gives performance numbers). Tables 3 and 4 introduce the new Stock+Options Account. Table 5 reviews all completed stock trades so far this year and gives some statistics. Table 6 does the same for all completed options trades. Lastly, Table 7 reviews the status of two stocks which are in neither the Model Portfolio nor the Stock+Options Account. In the future, there will be no need for this table, since all my open positions will be in one or the other of my live accounts. Table 1. Model Portfolio Transaction Log Sym- Proceeds Cash Date bol Company Name Bought Sold Price (Cost)** Balance From previous month . . . . . . . . . . . . . . . . $13,199 3/1 SMLS Sci Med Life Systems 65 73.63 $4,762 $17,960 3/4 NTM Nutmeg Industries 300 24.50* ($7,387) $10,574 3/5 PHSY PacifiCare Health 100 55.00* $5,473 $16,046 3/5 NWLIA National Western Life 200 40.00* ($8,040) $8,006 3/6 AESC AES Corp. 270 33.25* $8,933 $16,939 3/16 TECD Tech Data 200 35.25* ($7,085) $9,853 3/17 CLCDF Clearly Canadian 250 23.00* $5,721 $15,575 3/24 SPAR Spartan Motors 400 26.50* ($10,653) $4,922 3/26 WHO Waterhouse Inv Svcs. 150 28.88* ($4,353) $569 End-of-month cash balance. . . . . . . . . . . . . . . . . . . . $569 * In cases where I actually bought or sold a model portfolio stock, I have shown my transaction price and marked the price with an asterisk. In cases where I did not trade the stock, the day's closing price is shown. This applies to all tables in this issue. ** Includes transaction cost of 0.5% Table 2. Model Portfolio Status Sym- Purch # Purch Mar31 Orig Mar31 Gain bol Company Name Date Shrs Price Price Cost** Value $$ % BAMI Basic Amer Medical 2/12 500 16.50* 15.50 $8,291 $7,750 ($541) -6.5% OAR Ohio Art 2/24 200 53.00* 44.50 $10,653 $8,900 ($1,753) -16.5% NTM Nutmeg Industries 3/4 300 24.50* 23.50 $7,387 $7,050 ($337) -4.6% NWLIA Nat'l Western Life 3/5 200 40.00* 36.75 $8,040 $7,350 ($690) -8.6% TECD Tech Data 3/16 200 35.25* 37.25 $7,085 $7,450 $365 +5.1% SPAR Spartan Motors 3/24 400 26.50* 24.75 $10,653 $9,900 ($753) -7.1% WHO Waterhouse Inv Svcs 3/26 150 28.88* 25.38 $4,353 $3,806 ($547) -12.6% Total Value of Model Portfolio Stocks Held. . . $56,462 $52,206 ($4,256) -7.5% Cash Balance. . . . . . . . . . . . . . . . . . $569 One-Month Portfolio Gain. . . . . . . . . . . . $55,424 $52,775 ($2,649) -4.8% Year-to-Date Portfolio Gain . . . . . . . . . . $50,000 $52,775 $2,775 +5.5% ** Includes transaction cost of 0.5% Table 3. Stock+Options Account: Initial Status (as of March 31) Sym- Purch # Purch Mar31 Orig Mar31 Gain bol Company Name Date ShrsPrice Price Cost** Value $$ % NTM Nutmeg Industries 3/4 250 24.50 23.50 $6,165 $5,875 ($290) -4.7% OAR Ohio Art Co. 2/24 200 53.00 44.50 $10,641 $8,900 ($1,741) -16.4% Total Value of Stocks Held . . . . . . . . . . . . . . $14,775 Cash Balance . . . . . . . . . . . . . . . . . . . . . $18,226 Intial Account Value . . . . . . . . . . . . . . . . . $33,001 ** Includes actual transaction cost. Table 4. Stock+Options Account Transaction Log, April 1-10 Sym- Commis- Proceeds Cash Date bol Company Name BoughtSold Price sion** (Cost) Balance March 31 cash balance (see Table 3). . . . . . . . . . . $18,226 4/2 CSGK Cabletron July 55 calls 5 3.75 $27.50 ($1,903) $16,324 4/2 CSGK Cabletron July 55 calls 5 5.25 $37.50 ($2,663) $13,661 4/2 CS Cabletron Systems Inc. 55 54.00 $26.65 ($2,997) $10,664 4/2 CS Cabletron Systems Inc. 55 51.00 $1.65 ($2,807) $7,858 4/2 WHO Waterhouse Inv Svcs 400 20.88 $37.00 ($8,387) ($529) 4/8 OAR Ohio Art Co. 200 44.63 $31.30 $8,894 $8,364 4/9 TDYSD Teledyne July 20 puts 15 0.88 $40.00 ($1,353) $7,012 4/10 DECSI DEC July 45 puts 15 3.00 $70.00 ($4,570) $2,442 ** Commissions in Table 4 are actual commissions paid. Table 5. Completed Stock Trades Sym- Purch Purch Sale Weeks Sale bol Company Name Date Price Date Held Price Gain** AMD Advanced Micro Devices 1/10 19.13 1/17 1.0 18.63 -2.6% SNRS Sunrise Technologies 1/7 19.25* 1/30 3.3 20.75* +7.8% MOR Morgan Keegan Inc. 1/6 21.50* 2/3 4.0 22.63* +5.2% CCR Countrywide Credit 1/6 42.25 2/3 4.0 43.63 +3.3% GNT Greentree Acceptance 1/6 39.50 2/5 4.3 48.75* +23.4% SERA Sierra Semiconductor 1/20 26.50* 2/5 2.3 23.25* -12.3% CNC Conseco Inc. 1/23 74.75 2/5 1.9 65.00 -13.0% STK Storage Technology 1/16 62.50 2/11 3.7 73.50 +17.6% DTM Dataram 2/12 32.75* 2/28 2.3 42.00* +28.2% SMLS Sci Med Life Systems 1/6 89.25 3/2 8.0 73.63 -17.5% PHSY PacifiCare Health 2/5 49.50* 3/5 4.1 55.00* +11.1% AIX Astrotech Int'l 2/21 9.13* 3/5 1.9 10.25* +12.3% AESC AES Corp. 2/13 31.75* 3/6 3.1 33.25* +4.7% FACT First Albany Cos. Inc. 1/20 9.25* 3/9 7.0 9.50* +2.7% CLCDF Clearly Canadian 1/7 21.00 3/17 10.0 23.00* +9.5% Average . . . . . . . . . . . . . . . . . . . . . 4.1 +5.4% ** Does not include transaction costs. Table 6. Completed Options Trades Sym- Purch Purch Sale Weeks Sale bol Option Name Date Price Date Held Price Gain** GNTCH GNT Mar 40 call 12/30 5.63* 2/5 5.3 9.00* +60.0% CCRDI CCR Apr 45 call 1/6 3.50* 2/3 4.0 4.00* +14.3% AMDGD AMD Jul 20 call 1/10 3.63* 1/17 1.0 2.88* -20.7% STKCL STK Mar 60 call 1/16 6.25* 2/11 3.7 15.25* +144.0% CNCEO CNC May 75 call 1/23 7.50* 2/5 1.9 3.63* -51.7% OEXOO OEX Mar 375 put 1/30 6.88* 2/5 0.9 4.88* -29.1% OEXOH OEX Mar 340 put 2/5 0.94* 3/3 3.9 0.13* -86.7% SMQDS+ SMLS Apr 95 call 1/6 10.50* 3/2 8.0 0.63* -94.0% CKQED CLCDF May 20 call 1/7 3.38* 3/17 10.0 4.13* +22.2% Average . . . . . . . . . . . . . . . . . . 4.3 -4.6% Avg, excl. 'portfolio insurance' (OEX puts) 4.8 +10.6% ** Does not include transaction costs. + Note: The purchase price of SMQDS was incorrectly given as 24 in Vol.1 #29. Table 7. Stocks Held, Other Sym- Purch Purch Mar31 bol Company Name Date Price Price Gain** ISKO Isco Inc. 1/17 24.00* 21.50 -10.4% SPI SPI Pharmaceuticals 2/21 33.25* 26.63 -19.9% ** Does not include transaction costs. -END-