9 Year Old Doubles His Money in 6 Months

Aiden's Account

Back in August 2014, I asked my 9 year old son what he thought about me investing his allowance for him.  When he was five years old we started his allowance at $1 a week for every year of age.  So at five he was getting $5, at six, $6, at seven, $7, at eight years old, $8, and finally at nine, $9.  This was set up to go direct into his bank account we opened together in 2010 at age 5.

I asked him back in August 2014 because his allowance had crossed the $1,000 mark, the minimum balance required to open a brokerage account to start trading equities.

I remember going to the bank with him in August and helping him take out his $1,000 in cash from his account so he could give it to me.  He seemed pretty excited as he understood right away that it was a good idea to grow his money, and of course he trusted me implicitly…or so I thought!  That day at the bank proved to be a bit dicier for me than I thought it would be!  Apparently asking a 9 year old to physically hand over $1000 in cash is a bit more of an emotional journey than anticipated, but in the end, he agreed that growing his money was the way to go!

Well today was a very proud moment for me, my trading system in the span of 6 months has doubled his account.  I look forward to breaking the news to him later today.  The funny thing is, he may not get the significance of it yet, but as he gets older, knowing that he will never have to swap time for money is pretty satisfying for me, and even better, he can do it growing his own money!

Once in a while he asks me “what’s it at now dad?” Well, as the picture shows, his account starting at $1,000 Canadian is now +$2,000 Canadian.  An astounding 100% return in 6 months.

Now, if it can do that in 6 months, what will his little account be at when he’s leaving high school?  I think it would be cool to post an update every time it doubles on this blog.  I am sure I am not the only one that will get a kick out of that.

These kind of returns and more are available in the stock market, and it doesn’t need to be risky either.  Do you really think I would have offered to invest my own son’s money if I had even an inkling of doubt that this wouldn’t work out?  Not a chance.  I look forward to posting the next double, bring on $4,000 by year end!


Diversifying…A Smart Move

Stocks and Bonds

In the cartoon above it jokes about being smart by diversifying.  Diversification is very important when it comes to managing risk and your emotions around trading or investing.

There are many ways to diversify.  You can buy various stocks and hope that a couple of superstars make up for the mediocre performance of some.  Or you can buy a mutual fund like the masses and again hope for the best.

Since switching to Index ETF’s I have not looked back.  The results I get in terms of ability to manage risk while not limiting my upside have dramatically improved since my switch to trading ETF’s over stocks.  But not any old ETF’s. Index ETF’s that are naturally diversified and represent the market as a whole in terms of matching the performance of the S&P 500, the Nasdaq and the Dow Jones Industrials.  Or in the case of my personal favourites, leveraged ETF’s that add even more juice to the upside.

The truth is, it’s very difficult to manage risks in stocks.  It’s a lot easier to manage risk when you are trading the market as a whole in terms of a basket of securities.  So, when one or two have a bad earnings report and sink like a stone, it doesn’t have a significant impact on the performance of the ETF as a whole.

For those that want to match the performance of the market, it pays to just buy an index fund or ETF like the SPY ETF, which tracks the performance of the S&P 500.  By doing this alone you will outperform most money managers.  Warren Buffet has being saying this for years to the common man, the little guy on the street.  And more recently Tony Robbins in his book “Money Master the Game”.

Of course as a trader obsessed with finding tops and bottoms in the market it also pays to trade these instruments.  Having just grabbed at another bottom with, in my opinion, a clear path to a new All-Time High, there is not safer, more relaxed way to trend trade than through the power of Index ETF’s.  But then, I guess I am a little biased!

Market News:

U.S. stocks traded higher on Tuesday, relieved by signs of a coming resolution in the Greece-euro zone standoff.

The major indices traded in the black for the year, with the Nasdaq leading gains with a 1 percent year-to-date gain.

The Dow Jones Industrial Average recovered to trade more than 150 points higher after falling to single-digit gains on Tuesday morning reports that said the German Finance Minister would not agree to a new Greek debt program on Wednesday.

Jens Weidmann, head of Germany’s Bundesbank, held to an austerity line and told Reuters on Tuesday that Greece needed to make a credible effort to recover itself with tighter public finances and economic reforms.

Investors are watching closely for a possible Greek debt deal when the euro group of finance ministers meets in Brussels on Wednesday where Greece’s Finance Minister Yanis Varoufakis is expected to detail new reform proposals.

The Greek newspaper Ekathimerini reported late on Monday a preview from government officials for a proposal that would create a bridge program with creditors in September.

Futures touched session highs on speculation that the European Commission could be ready to table a compromise on Greece’s bailout program and propose a six-month extension to the country’s bailout which is due to end on February 28. The Athens stock exchange was trading up about 8 percent on Tuesday.

The German Finance Minister Wolfgang Schaeuble later said the speculation was “wrong,” Bloomberg reported.

Concerns over the Greek debt negotiations continue to weigh on market sentiment. Speaking from Washington, German Chancellor Angela Merkel said she was looking for a “viable recommendation” from Greece on Monday, after Prime Minister Alexis Tsipras reiterated his pledge to end Greece’s current bailout Sunday.

Greek concerns sent U.S. stocks lower to close in the red on Monday, despite oil settling higher. On Tuesday, stocks also broke a strict correlation to crude.

Crude oil futures settled down $2.84 at $50.02 a barrel on the New York Mercantile Exchange. Gold futures closed down $9.30, or about 0.50 percent, at $1,232.20 an ounce in Tuesday’s session.

Oil resumed its plunge on Tuesday as the International Energy Agency warned oil stocks could reach all-time highs this year. “Despite expectations of tightening balances by end-2015, downward market pressures may not have run their course just yet,” the IEA said in a monthly report.

Halliburton also confirmed Tuesday afternoon it would cut 6 to 8 percent of its workforce, citing the recent plunge in oil prices.

The National Federation of Independent Business reported that U.S. small business optimism fell 2.5 points to 97.9 in January amid worries over the near-term outlook, but a strengthening labor market should keep the economy on solid ground early in the year.

The decline reversed December’s gains, which had taken the index over the 100 threshold for the first time in eight years.

Wholesale Sales for December showed an increase in inventories by 0.1 percent, below expectations, and a decline in sales of 0.4 percent. The nearly flat figures are the latest suggestion, after the fourth-quarter greater-than-expected trade deficit, that fourth-quarter GDP could be revised lower.

Job openings in December rose above 5 million for the first time since January 2001, marginally higher than openings in November. The hiring rate improved to 3.5 percent, up from 3.3 percent in November.

The President of the Federal Reserve Bank of Richmond Jeffrey Lacker said Tuesday morning that June ‘looks like the attractive option’ for raising rates.

In an exclusive interview with the Financial Times on Tuesday, the President of the Federal Reserve Bank of San Francisco, John Williams, said rate hikes are “closer and closer.”

Both officials are voting members of the FOMC, with Lacker a hawk and Williams a moderate.

Wednesday:

Earnings: Mondelez Intl., PepsiCo, TimeWarner, Lorillard, Mosaic, Thomson Reuters, AOL, Generac, Baidu, Cisco Systems, MetLife, Applied Materials, CenturyLink, NetApp, Nvidia, Sun Life Financial, Tesla Motors, TripAdvisor, Whole Foods, Cheesecake Factory, FireEye, Panera Bread, Pilgrim’s Pride, Select Comfort

7:00 a.m.: Mortgage applications

8:00 a.m.: Fed’s Fischer speaks

10:30 a.m.: Oil inventories

1:00 p.m.: 10-year note auction

2:00 p.m.: Treasury budget

News Sources:  CNN Money & CNBC


Know the Probabilities of Success – Be The House

Quote 12

I think there is a bottom in place now.  I dipped my toes back in today after missing Friday’s carnage.  Seeing the strong bounce back today after so much selling is giving me good feelings that my next set of trades will be winners, they have certainly started off that way.

They say volatility is here to stay, but the truth is nobody knows, so we can only trade the market we see in front of us and ignore the fear of loss, as it’s just an emotion the doesn’t serve us.

In fact, in trading, fear is an illusion, even after a period of losses, it’s important to remember that nothing has changed from the probabilities of success.  The probabilities being the three most important stats in any system:

  1. Have a low drawdown %
  2. Know your % Win v loss ratio (our being around 55% winners/45% losses)
  3. And know the average size of winners v losses (our winners are on average 3 times the size of our losses over any period in time).  

We must think like the house, we must be certain we will win over time, certainty comes from knowing the rules, and the rules are based ONLY on high probabilities.  It’s just plain old math.

The thing is, there is no straight path to success, not any great success anyway.   There is also no holy grail.  All systems have to take losses.  They just have to be small.  Anyone that opens themselves up to large losses is just not playing the game to win.  The winners know when and where to take a loss, which by and large is the reason most people fail at trading, as the quote says:  You must first be a successful loser, before you get to win.

Market News:

U.S. stocks closed sharply higher on encouraging news from the Eurozone and stronger oil prices.

The Dow Jones Industrial Average surged 200 points in the minute before the close. In a “double-triple move,” the index gained 100 in late morning trade after earlier falling more than 120 points on weaker-than-expected ISM figures.

For much of the day stocks struggled for direction amid weaker-than-expected ISM figures and firming oil prices.

The late-afternoon rally pushed the S&P 500 above the key 2,000 level, which Cardillo and other analysts were watching for on the first day of February trading.

U.S. crude closed up at $49.57 a barrel, the highest in nearly a month, after touching an intraday high of $50.56 and slumping to $46.67 in Asian trading.

Energy led gains on the S&P 500, closing up 3 percent. Telecommunications followed closely behind, ending the day up 2.43 percent.

The ISM manufacturing index hit 53.5 in January 2015, below expectations of 54.5, the weakest reading since January last year.

Exxon Mobil reported earnings that beat expectations but were lower than the year-ago quarter.

Eighty-five S&P 500-listed companies are posting quarterly results this week, along with three Dow components.

U.S. consumer spending recorded its biggest decline since late 2009 in December, with households appearing to save the extra cash from cheaper gasoline, which could support future consumption.

Asian data out earlier showed that manufacturing activity in China is still contracting. China’s final HSBC Purchasing Managers’ Index (PMI) fell to 49.7 in January, a touch below its 49.8 flash reading. The 50-point mark separates expansion from contraction.

Greece’s new left-wing government began what one analyst called a “charm offensive” on Sunday, in an effort to persuade its euro zone partners to soften the terms of its international bailout. The government has already started to reverse austerity measures unpopular in Greece that were a condition of its current bailout agreement.

Tuesday:

Earnings: BP, LVMH (Louis Vuitton MoetHennessy), UPS, Aetna, Archer Daniels Midland, AutoNation, Gannett, NY Times, Disney, Gilead Sciences, Aflac, CH Robinson, Chipotle Mexican Grill, Edwards Lifesciences

10:00 a.m.: Fed’s Bullard speaks

10:00 a.m.: Factory orders

12:45 p.m.: Fed’s Kocherlakota speaks

News Sources:  CNN Money & CNBC