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My Trading Skills Continue To Beat The Market

January 25, 2013 Leave a comment Go to comments

A few months ago I wrote about how a trade I thought up on a whim would have generated enough profits to buy the world after a year. Since people are still talking about Apple I decided to check on the trade again. If you didn’t take my advice to sell out 2 months ago and instantly become the best stock picker of all time, here’s what would have happened after holding on another 2 months:

  • Apple has fallen further. It started at $681.32 4 months ago, it was $571.50 2 months ago, and it’s at $445 today.
  • RIM has continued rising. It was at $7.14 4 months ago, it went up to $11.66 2 months ago, and it’s $18.06 today.
  • You would pay another $153.30 in margin interest to keep shorting Apple stock for 2 more months.

So if you held this trade for 4 months it would play out like this:

  • Short 30 Apple shares in September and collect $20,439.60
  • Buy 2862 RIM shares the same day for $20434.68
  • Net cost: $16 including trading fees and loose change
  • Pay $306.60 in margin interest over 4 months
  • Sell your 2862 RIM shares today and collect $51,687.72 (OMGWTFBBQ@$&@$^%*@#&%*@$%!!!!!!!!!!!!!)
  • Buy back 30 Apple shares today at a cost of $13,350 (oops!)
  • Pay another $20 in fees

Therefore your total cost would be $340 and your profit would be $38,317.72. That’s a 11,269% return in 4 months. Overall it’s a bit disappointing since that’s only an annualized return of 143,140,400% compared to an annualized return of 76,117,945,311,128% if you had closed the trade after 2 months and found another similar opportunity.

So if you were considering buying Apple stock 2 months ago because it’s so popular you could have chosen any of these alternatives instead:

  • Buy the S&P 500. You would have 50% more cash today (compared to buying Apple stock).
  • Buy RIM. You would have twice as much cash today (compared to buying Apple stock).
  • Run my long/short trade. Since you barely need any money to do it, it’s hard to quantify how much more you would make. On a position of $20,000 you would end up with a profit of $15,207.90. But you wouldn’t have to put up the initial investment so you could still use that cash to buy more RIM stock and end up with 3x as much cash as you would have if you bought Apple two months ago.

Even at its best I don’t think Apple shares were putting up gains like this. Now the bandwagon is going off a cliff (and everyone thought it was the US Congress that would do that). Without a doubt this timeless lesson in investing will be forgotten next week. Next time there’s a tension this big in the market I may have to actually jump in!


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