Regular readers know that I started a project last year called Zero To A Million. The goal of this project is to prove that anyone can become a millionaire by investing a small amount into the stock market each month.
It’s also to prove that you can invest in individual stocks and you don’t have to follow the crowd into index funds.
We got off to a great start in 2019 beating the S&P 500 by 6 percentage points largely driven by gains in Apple and Alibaba. However, 2020 has not get off to such a great start.
What Happened In January?
January was a busy month. We had the drone attack on Iran and the emergence of coronavirus.
Here at Decoding Markets we attempted to make sense of this volatility. We tested some new trading ideas and also published a new course called Essentials For Amibroker.
It was also a difficult month for the ZTM portfolio and I made a couple of ‘mistakes’. These are the first real mistakes since starting the project back in February last year so let’s take a look.
1. Selling Apple
The first mistake was selling half of our Apple shares which I did at the beginning of January for a price of $302.
In some ways this made sense. Apple has gone up a tremendous amount and our Apple position had grown to roughly 24% of the total portfolio.
Selling half the shares brought the position down to only 10% of the portfolio, more in line with our other holdings.
However, Apple has continued to grind higher and now trades at $321 a share which means we have lost out on some significant gains.
In hindsight, I wish I had sold fewer shares because Apple is not a company that I am bearish on long term.
2. Nasdaq Hedge
The second mistake was purchasing the SQQQ Short QQQ ETF which I did on the 23 January at a price of around $19. I just felt that the market was becoming extremely overbought and there was too much risk on the upside compared to the downside.
As it happens, a few days later the coronavirus hit and stocks dropped back by about 4%. The hedge worked initially but I was expecting a bigger drop so didn’t take any profits.
Actually, I was quite lucky to get out of this trade for a tiny loss since the market has managed to bounce back to new highs. Nevertheless, this cost us some money in fees as well.
3. Unilever Trade
I also made the unusual decision to buy Unilever shares towards the end of the month then did a turnabout and sold them after only a couple of days.
This was another mistake (not in keeping with our long term approach) and we lost some more money to fees.
As mentioned I did make a few mistakes in January and overall I was more active than I should have been.
This means the index was able to close the gap on us and cut our lead. Our total return now stands at 13.23% while our capital has increased to $18,531.38.
Meanwhile, if we had invested the same amount into the SPY each month we would be on $17772.03 for a total return of 8.59%.
That said, I’m not particularly bothered about ‘beating the market’. I am more interested in growing this portfolio and showing it’s possible for anyone to do the same.
Overall, the portfolio is still doing well and I’m pleased with how things are progressing.
As you can probably tell, I have become quite bearish in the last couple of months and I feel that generally, this is not a good time for people to start investing large sums into the market.
This bull market is the longest in history, stocks and real estate are at all-time highs, unemployment is at a 50-year low, valuations are high and there are extreme levels of investor optimism.
If the idea is to sell when others are greedy then now is surely a good time.
That being said, we shouldn’t try to time the market too much. If the market enters a blow-off phase it might go up another 20%-30% which we would not want to miss out on.
That is why I will continue to drip regular amounts into the market as recommended by the ZTM strategy. However, I will not be investing full amounts, I will try to accumulate some cash and I will be targeting more diverse, higher quality securities.
See you next month for the next installment.
Thank You For Reading
Joe Marwood is an independent trader and the founder of Decoding Markets. He worked as a professional futures trader and has a passion for investing and building mechanical trading strategies. If you are interested in more quantitative trading strategies, investing ideas and tutorials make sure to check out our program Marwood Research.
This post expresses the opinions of the writer and is for information, entertainment purposes only. Joe Marwood is not a registered financial advisor or certified analyst. The reader agrees to assume all risk resulting from the application of any of the information provided. Past performance is not a reliable indicator of future returns and financial trading is full of risk. Margin trading can lead to losses more than in your account. Mistakes in backtesting and presenting of analysis regularly occur. Please read the Full disclaimer.