time to blog

It is the first day back to work after the Christmas break, it is minus five degrees Celsius outside and the heating in my house stopped working last night. That being said, I’m feeling very happy and over the last week I’ve been ‘chomping at the bit’ to get back to work.

Why I hear you ask? Well after years of work, the first version of the timetotrade algorithmic trading product is nearly ready to go live; and it is very good. There are also a range of feature enhancements and bug fixes, all of which will go live in the coming weeks. I will wait until then before I say more.

On a side note we have just updated the ‘Import Manual’, as timetotrade now provides accounting support for shares, funds, forex and spread betting transactions. We have had to add some additional fields to enable the importation of spread betting and forex transactions, therefore you will have to update any import templates that you use.

Over the Christmas break I read a fascinating book that was first publish in 1923 called Reminiscences of a Stock Operator. The book is biography of one of the most outstanding traders of his day, Jesse Livermore. It charts his rise from his first winnings of $3.12 at the age of 15 in 1892 up to the $100 million fortune accumulated after the markets crashed in 1929. If you think ‘Spread Betting’ is a new fangled invention, then think again. Jesse Livermore was banned from every ‘Bucket Shop’, as they where known in those days, on the West coast of America. It was not a one way ticket and he went bankrupt more than once, which makes his $100 million winnings in 1929 all the more amazing.

But less of that! Happy New Year and thank you for your ongoing support.

OK, so the title is a bit misleading. No I don’t collect stamps, nor do I have an interest in doing so and I don’t see myself as a dude. However this morning I bought shares in Stanley Gibbons. For me the logic was simple; fundamentally this company is very strong with no debt, lots of cash, strong brand and solid earning per share growth expectations. Couple this with a heavy sell off and a recent change in the price trend, makes it very attractive.

To see the full research click here:

To view the charts click here:

Talking about ‘dude type activities’ I’m now doing the whole ‘web 2.0 squared’ thing and posting my trades on twitter. You can follow me on twitter at http://twitter.com/timetotrade

This is rather exciting.. actually it is very very exciting; I just got my first trend line alert from timetotrade!

This is a very important step, which marks the first phase in realising a new suite of charting, trading and accounting products that will be rolled out over the summer months.  Very exciting.

Martin Zweig once said, “If you can protect in bear markets you don’t have to be a hero in the bull markets”.  The Sensatus Investment Club have averaged 1% return per month (0.98% to be precise) on our combined cash and investments over the last year and are now in profit; quite an heroic performance during the bear market, giving us a 36% head start on the FTSE if it turns now.

The Sensatus Investment Club set up at the end of 2006 and had built up enough cash to start investing in March 2007; just as the bear market was beginning. Over 2007 the volatility in our portfolio was extreme as we didn’t have much money to diversify with and our fate was tied up in two or three stocks.  Then the inevitable happened; one of our stocks blew up leaving us 15% down come the end of 2007. Our target had been to generate 2% return per month, however by the end of 2007 we had lost the equivalent of 2% per month.  This was not exactly the start we had hoped for. However, it was the best thing that happened to us, because as a new club we had been eager to rush in and had not been disciplined in our stock selection.  That has since changed and I’m glad we worked it out while we only had a small amount of money at stake.

At the end of 2007 we sat down and reviewed how we selected stocks and adopted an approach based on criteria reportedly used by Martin Zweig and Warren Buffett mainly:

Martin Zweig:

• Look for shares where earnings growth is accelerating
• Look for shares that are reasonably priced
• Don’t buy stocks that are under-performing the market; buy shares with some relative strength
• Look for trends and external correlations

Warren Buffett:

• Free cash flow of at least $250 million
• Net profit margin of 15% or more
• Return on Equity of at least 15% for each of the past three years and the most recent quarter
• A dollar’s worth of retained earnings creating at least a dollar’s worth of shareholder value over the past five years
• A market capitalisation of at least $500 million

The criteria that our investment club now use is based on selecting investments based on:

• History of Earnings growth increasing over time
• Earnings growing faster than Revenue
• Debt to Equity ratio, ideally under 25%
• Strong Cash position e.g. current ratio greater than 1
• Return on Equity greater than 15% (very important)
• PEG of under 1
• Low Forward PE, typically under 20 to 30
• Relative Strength
• Strong Brand
• Like Products

The results speak for themselves with the Sensatus Investment Club now profitable against a back drop of the FTSE falling 36.8% and averaging a loss of 1.51% per month since we started trading.

Sensatus versus FTSE - Monthly Internal Rate of Return (generated by timetotrade Performance - Portfolio tools):

Average Cost Return on Open Positions (generated by timetotrade Performance - Portfolio tools):

Key lessons learnt since our investment club formed:

• Don’t rush in
• When starting off, invest no more than £1,000 per stock therefore reducing your exposure to a bad investments
• Diversify by investments, sector and country (see pie charts below - currently overweighted in Retail due to strong performance in related investments)
• Be disciplined in selecting financially strong companies
• Be patient however remember that the only way to beat the market is to make investments
• Be disciplined about selling if there is a change in the fundamentals or the stock breaks through a long term support trend line

Sensatus Sector Diversification (generated by timetotrade Performance - Weighting tools):

Sensatus Currency Diversification (generated by timetotrade Performance - Weighting tools):

I better get back to work as I have to finalise a presentation for the IX Expo event on Friday. For one of the products that we are working on in timetotrade we have been testing algorithmic trading strategies and one of the strategies has generated 2,733 pips return on the EURUSD currency pair since the 2nd of February 2009.   I will be presenting the strategy at 11am at the IX Expo event in London if you feel like popping in for a chat.

Over the last two months we have been reviewing alternative IT hosting solutions for the timetotrade website.  There are three types of solutions that we are looking at, one of which is Cloud Computing.  Our initial research into Cloud Computing may be of interest to IT Professionals and timetotrade users who wish to develop an understanding of new products that companies such as Amazon, Google, IBM and Microsoft are either currently offering or bringing to market.

The three types of hosting solutions that we are reviewing for the timetotrade website are:

• Buy Servers, lease data centre space with networking and manage the solution ourselves
• Lease managed servers from a service provider including networking and data centre management
• Implement a Cloud computing solution

The first two options are classic solutions, however the third Cloud computing option took a while to unravel the details of what you actually get and how much it costs. The following focuses primarily on exploring the Cloud computing option and compares it to the other options available.

Firstly, what is Cloud Computing? Basically it is a means of sharing computing infrastructure between multiple users. The owner of the shared computing infrastructure maintains and operates it, while users upload software onto the shared resource and pay the owner for the amount of processing that they require.  The amount the user is charged is historically based on either the amount of ‘CPU cycles’ ie. the amount of work done by the shared computing infrastructure or by the amount of time the computing resources are used.

The concept of sharing computing resources between users is not new and dates back to the earliest computers. What is different about Cloud Computing solutions is the ability to access the infrastructure via the internet i.e. the cloud, and then remotely configure it, as if it were a traditional server.  As a result a user can remotely set up a computing ‘instance’ on the shared computing resource, were an instance is equivalent to the computer (server) described in the solution requirements below.  For example consider a university with a large dataset that they wish to process, which is beyond the processing ability of local university computers. Using the cloud, the university would be able to set up multiple or large ‘instances’ to process the data.  When finished, they turn off the instances and free up the computing resources for another user.  The university is only billed for the time they use the Cloud processing capacity.  All of this is set up by the university staff from the comfort of their own premises without any input from the owners of the cloud computing infrastructure.

From here on in this blog entry is more aimed at IT developers and admins. In case I loose you at this point, Cloud computing is here to stay with the big selling point being the flexibility to get access to as much processing capacity as you need, when you need it.

In researching cloud solutions I initially tried out the Aptana Cloud to see how easy it was to set up. Aptana have a nice Eclipse plugin that enables you to launch a project from within Eclipse.  It took about 15 minutes to work out what to do using the very helpful webcasts and then another 15 minutes to set up an account and publish a simple PHP website with a Word Press blog using MySQL.  The Aptana solution was very easy to set up however it is more focused on lower end website hosting and when I used the entry solution to display an eZine it was very slow.  What did get my attention was the higher specification Amazon ‘EC2′ offerings, as it was more in line with the type of solution that could be used to host timetotrade.  In assessing the Amazon Cloud computing solution, the main areas of focus were security, CPU processing capacity, disk I/O  and memory performance.  In summary:

• Cloud security would appear to be good with strong port and access control (using keys rather than passwords), however there is some concern regarding what would happen if a hacker got control over the VM ware; Ref: O’Reilly EC2 security review  and Tips for Securing Your EC2 Instance
  
• I/O disk performance looks acceptable with read times largely in line with what you would expect from a SAN (Storage Area Network) or locally attached disks; Ref: Paessler’s Comparison of hosting options and Mudy’s blog on EC2 IO
• Memory speed would appear to be significantly slower than your average server, with a local server performing four or five times faster than an EC2 Instance.  For some of the products that we are rolling out this is a real concern; Ref: Paessler’s Comparison of hosting options
• Regarding CPU capacity there are consistent reports that CPU intensive programs are only able to get access to 50% of the supposedly available CPU capacity.  However the counter argument from Amazon is that they have sold a measure of computing capacity which does not relate the the CPU providing that capacity.  This is a perfectly acceptable response, but it does make it hard to determine what amount of processing you are actually getting for your money.  That being said out of all the concerns this is the least important as the timetotrade solution is more bound by disk I/O and memory performance. Ref: CPU Utlization below 50% and CPU performance 50% of expected

The next big question is cost of ownership; is it cheaper to build and maintain your own solution, lease it or use the Cloud?  To assess the cost of ownership, the following basic requirement bench mark was used:

• Hosting: Single data centre solution i.e. no replication between redundant sites or load balancing costs
• Servers: Single server with two Quad Core 2.5Ghz Xeon E5420 CPUs; 8 GB RAM
• Storage: 4×146 GB SAS Disks in a locally attached RAID configuration
• Networking: Inbound IP requirement of 1 TeraByte with an Outbound requirement of 50 GB per month
• Security: Firewall, Intrusion Prevention, Detection etc
• Life Cycle: 3 year depreciation on hardware

Option 1 - Build Your Own:

• Hosting: Adept provide 4U of rack space for £99 setup plus £1,709 for 12 months hosting based on their website prices
  
• Server Cost: DELL™ PowerEdge™ 2950 at £2,444.00 or £92.00 for 36 month financing
• Storage: 4 x 146 GB drives included in server cost
• Networking: 4 TeraBytes of Data transfer included with Adept Hosting solution
• Security: Entry level Fortinet Fortigate appliance at £1,500 (approximate)
• Strengths: Full control over solution; Good disk I/O and memory performance due to exclusive usage of local resources
• Weakness: Pricing does not include the cost of in-house solution monitoring and maintenance; tied into hardware for three years; no facility to test new software loads in a live environment; not immediately scalable
• Total Cost (36 months): Set up cost is £3,308 plus £92 per month, which is equivalent to £184 per month over 36 month period

Option 2: Leasing (based on FastHosts website pricing)

• Server: 2 x DS 850 to get the equivalent server configuration; cost £189 x 2 = £378 per month
• Security: includes networking and security
• Storage: 2 x 500 GB SATA drives per server i.e. 4 in total
• Network: includes networking and security
• Strengths: Local hands on Support Provided by FastHosts; additional capacity can typically be provisioned within 24 hours
• Weakness: Not ideal disk configuration; reduced control over solution configuration; no facility to test new software loads in a live environment; tied into 12 month contract
• Total Cost: £378 per month

Option 3: Cloud

• Server: Amazon EC2 Extra Large Instance at $2600 setup plus $0.24 per hour (based on 3 year term hosted in US); monthly operating cost is $175; at a GBPUSD exchange rate of 1.5 that equals £117 per month; set up cost at a GBPUSD rate of 1.5 equals £1,733
• Storage: 1690 GB of temporary instance storage included; persistent storage on Amazon S3 is $0.15 per GB-month of data stored.  Assuming 50 GB of persistent storage is needed for backups and rebuilding instances, it would cost £5.7 per month at a GBPUSD rate of 1.5
• Networking: 1 TB Data In at $0.10 per GB plus 50 GB Data Out at $0.17 per GB at 1.5 GBPUSD exchange rate equals £72 per month
• Security: included in solution
• Strengths: Lots of local storage with off site persistent storage for backups etc; the ability to flexibly increase processing capacity or reduce it accordingly; good SLA if backed up by actual performance; can temporarily turn up multiple instances to test different software branches before going live or merging code
• Weakness: Possible memory performance issues; unknown security threats; costs based on Dollars which could increase the cost of ownership over time; currently doesn’t support load balancing but can be implemented via a ‘roll your own’ approach; that being said Amazon have announced a loading balancing solution scheduled for release during 2009; possibly latency issues if you set up a US instance for a UK customer base in order to get the more competitive pricing; 3 year instance reserve payment required to achieve quoted costs
• Total Cost: set up £1,733 plus £195 per month which is equivalent to £243 per month over a 36 month period.

Conclusion:

The most cost effective and highest performance solution is to build your own, but the pricing does not include the additional engineering resources required to maintain and monitor it. As for option two, the leasing costs could possibly be reduced by finding a provider that offered a higher spec single server solution however you do get engineering support. The weakness of both of these solutions is lack of flexibility as you are tied into a hardware infrastructure for the contract period or life cycle of the equipment, with no provision for replicating the live environment for testing.

After researching the Cloud solution I had initially discounted it due to concerns relating to performance but what keeps drawing me back to it, is the core unique selling point - on demand computing. Using the Amazon solution we would have the ability to create a disk image and deploy it at will, be it for testing, increased capacity or to rebuild another instance in a different region after losing a data centre in the event of a outage.  Amazon are also talking about rolling out a load balancing solution with the on-demand creation of instances when capacity thresholds are hit.  Combine this with the ability to distribute the instances across multiple regions and you have a very high availability solution with small incremental on-demand processing costs, as you don’t have to commit yourself to one large instance. This is the real strength of the cloud computing - flexibility; but is it worth the trade off on system performance and financial cost?

It has been a crazy two weeks of none stop work with everything coming together just in time for the Easter break. Well almost. Over the last week the timetotrade website performance had almost ground to a halt due to the continued growth in users.  Historically the number of timetotrade unique users has been growing at approximately 10% per month. But over the last 6+ months this has accelerated dramatically, with unique users for example over the last 30 days up 23%; the best part is that these large double digit growth figures are becoming the norm rather than the exception.

This is great and thank you very much for your support, however the increased rate of growth is putting our IT infrastructure under a lot of pressure.  To address the performance issue, over the last week we have been re-writing sections of The River and Accounting features to optimise database queries, improve I/O performance and memory utilisation. The new optimise Accounting & Taxation code is now live with a number of bug fixes included.  In addition the new Tax forms required for submitting Investment Club and Private Investor tax returns for the year ending 5th of April 2009 are now available.  The initial enhancements of The River code has been deployed today (Thursday 9th of April 2009) with the main fixes due to go live after the Easter break; hopefully for now the responsiveness of the website will be acceptable while we finalise testing the next phase of enhancements to The River.

On a second front we are in the process of designing a new IT hardware infrastructure solution with higher performance servers distributed across two datacentres.  The new IT infrastructure will offer a significantly improved browsing experience with much improved service availability.  If everything goes according to plan the new solution will be built, tested and ready for use in May; until then we will work hard to optimise the performance of the existing solution.

You might ask why we are pushing out products so quickly; the bottom line is that we are aiming to have a range of core products deployed and stabilised by the end of the summer before we start executing the next phase of our business strategy.  Before we execute the next phase, the website and related products and services on offer must be stable.  The only way to know if they will be stable is to stress test them in a live environment over an extended period.  What is our strategy? What products will we be rolling out?  Well you will just have to wait and see, but I can assure you it will be worth the wait - well I hope so.  On that note I hope you have a great Easter break; I looking forward to catching up on some sleep..

It has just been one of those days.  Yesterday I sold the EURUSD pair at 1.36 with the intention of buying back at 1.3370.  We have been working around the clock to get a new version of timetotrade ready for release and last night in a state of exhaustion I decided that I just didn’t want to take a loss on the trade so I lowered my stop to 1.3580 and reduced my buy to 1.3470 just in case the forex market moved during the night.

I woke up around 6am to find I had stopped out and with a small profit of 20pips.  As I lay in bed pondering whether or not to re-enter the sell order, I decided to wait for a few hours and set about testing the new version of timetotrade that went live at midnight.  Despite testing the new version heavily before it went live and even reaching a rare state of ‘zaro bugs’ (a mythical state in software development), this morning the new software load went pear-shape.

To make matters worse, last night’s closing buy order at 1.3470 was not cancelled when the stop triggered, which resulted in a 120 pip loss as I unwound the position. I was not impressed to say the least; I mean really really not impressed, especially when my initial strategy was bang on the money.  On a plus note I made 249 pips over the last few days, so I shouldn’t complain, but I really do hate losing so heavily over something so stupid as a wrong order entry.

So currently I’m now long on the GBPUSD pair at 1.4314 and debating what to do on the EURUSD pair.  When I say debating, it is more of a case of talking to myself, which probably isn’t very healthy.  As I ponder this the developers are busy debugging timetotrade and I’m writing this blog entry, to stop me hovering over them like an anxious Father waiting on a child to be delivered.   Oh, almost forgot to mention the new ezine that we have been working on; click here to check it out.

Every now and then you read something that just puts a smile on your face.  We are in the process of recruiting another developer and today a recruitment consultant sent me an email quoting Harvard business management logic as to why we should recruit even more people.. hmm.. so he is suggesting that we follow the steps of Harvard alumni such as:

• Stan O’Neal & John Thain - Chief Executives, Merrill Lynch
• Andy Hornby - Chief Executive, HBOS
• Christoper Cox - Chairman, Securities and Exchange Commission (SEC)
• Jeff Skilling - Chief Executive, Enron
• Rick Wagoner - Chief Executive, General Motors
• George W Bush - need I say more?

and of course a very funny quote from Andrew Lahde, a hedge fund manager who made a fortune during the downturn, “The low-hanging fruit, ie idiots whose parents paid for prep school, Yale and then the Harvard MBA, was there for the taking… All of this behaviour supporting the aristocracy only ended up making it easier for me to find people stupid enough to take the other side of my trades.”

Now don’t get me wrong, I have some friends who have graduated from Harvard and they are lovely hard working people who deserve the success they have found, but none the less the recruitment consultant did put a smile on my face.

Weir, pressure, support.. it sounds like a bad cryptic clue on an crossword.  Yes I’m actually talking about Weir plc not some sort of “small overflow-type dam commonly used to raise the level of a river or stream”.

I like Weir (of course I don’t recommend them as that would really annoy the folks at the FSA).  Why do I like them, well ask yourself what common factor links investments that you like. Yes, that’s right, it makes you money; and Weir has done a great job of doing that for me.

Today Weir pulled back to test support, which normally means it is time to buy; click here to see the research on Weir in The River. Despite a beautiful 21% roll last month after buying at support and selling at resistance, this time around I’m not so sure.  The last time it was at support the daily interval stochastic looked like it was oversold and changing trend.

This time around the daily indicators are trending down and look like they have more left in the tank.  Will Weir be able to withstand the downward pressure and hold support?  Who knows, but right now I’m not prepared to put my money on the line to find out.  If it breaks support, it could be worth a closer look at 300 pence.  For now it is time to sit back and let Weir show its hand.

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