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.

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.

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.

It is strange how quickly time slips by. I was looking at the dates when I last posted and realised that almost 9 months had slipped by; when I last made a post, we had just launched the investment club accountancy product. Since then we have added a number of new features, such as the ability to attach documents and embed images in a private club forum, plus a suite of performance reporting and taxation products for private investors.

More recently we have introduced performance reporting features as part of an early stage beta trial. The performance reporting in its full glory will enable you to view your investment performance as a combined pool of assets, or drill down to view the performance of a specific portfolio or stock within the portfolio. You will then be able to compare the performance of the portfolios or stocks to market indices, specific stocks or your other portfolios. Which leads me to two other important changes since I last posted.

Two new developers have joined Sensatus, mainly Jason Cartwright, who has taken on the role of Systems Architect Director and Christine Ottaway who has joined us as a Software Engineer. Christine has been working around the clock on the Performance Reporting feature and promises to have it fully up and running by the end of December! There are fingers on the line here.. no we won’t chop off one of her fingers for missing the deadline… then again having recently completed a Wilderness First Aid course, which by the way was excellent, it would be good to get some practice in…

Jason on the other hand took on the pain staking task of developing a suite of tax products for private investors, which is now available on beta trial. After rolling out the investment club product that manages investments club accounts and generates their tax returns, we had a lot of UK private investors asking us to develop a product that would calculate their personal UK Capital Gains and Income tax.

As a result we have now introduced a new suite of taxation products that are available for beta testing when you log into timetotrade. The Capital Gains product calculates your UK tax liabilities based on the investment transactions that you have entered into your timetotrade ledgers. It works out realised gains and losses, disposal dates, based on the UK Inland Revenue Share Identification rules such as the Same Day rule, Bed & Breakfasting FIFO rules, LIFO matching from 1998 and Section 104 holdings. The Capital Gains product also calculates, Indexation for Section 104 holdings determines your Taper Rates for business and non-business assets and Allocates Losses from your current years losses and carried forward losses; the end result is statement of your taxable gain after taper relief and allocated losses.

Everything has been laid out in the format required to complete your Capital Gains Self Assessment tax return, SA108. Using the timetotrade Capital Gains product, you can now determine your tax liability at a glance and view your unused annual exemption and losses. You can then model disposals to determine your resulting tax liability to make best use of your annual exemption. Another nice feature of the Capital Gains product is that it will also let you know when you have to complete and return your SA108 tax return.

If you would like to have a look at the new timetotrade Capital Gains tax product, click on the following link to view a demo account: timetotrade Capital Gains demo

When prompted to enter an email and password, use the following details:

Email: demo@sensatus.com
Password: demo1

If you would like to start using the timetotrade Capital Gains tax product, then click on one of the following links to set up a timetotrade account:

Create a FREE timetotrade Private Investor account now

Create a FREE timetotrade Investment Club account now