Welcome Back to the Markets, Kid......POW!!!

So, the first week back in the markets is in the books. And I wasn't greeted with a welcome mat.

The overall markets continued their bearish slide to new lows, and finally took the last remaining bright spots in the market with it - and thus my portfolio.

The market began this bearish turn in late May. However, stocks in the energy, drilling, machinery, and agricultural sections of the economy had continued strong and many continued to mark new highs. This was no surprise, considering supply and demand in these sectors.

However, even the market leaders can't fight the trend forever. And true to form, the bear market finally got its claws on the high fliers and is beginning to bring them back to earth.

Having built my portfolio on these aforementioned last remaining leaders, it is no surprise that it took a beating this week. While the S&P 500 lost 1.21% for the week, my portfolio took a 11.08% hit. Ouch. Welcome back, kid.

The carnage: Seven positions were entered and promptly exited this week for losses averaging 9.4% each. The eight remaining positions still on the books are all currently showing losses.

The only position of these that shows real potential for big gains is RBN (Robbins & Myers). To a lesser extent, BABY (Natus Medical) looks promising as well. Hopefully these positions will hang on long enough for the general markets to hit a near-term low. The beginning of a new uptrend in the markets should provide an impetus for these stocks to take off. But, regardless, I won't hesitate to pull the trigger to exit these positions if they hit my stops.

As the markets maintain their bearish tone, it is important to focus on the fact that odds are we are much closer now to a near-term bottom. With the leading stocks in the market finally getting knocked of their perch, the signs of capitulation are starting to pop up. And that's what you need to end a bearish slide. You need investors to finally all throw in the towel in a flurry of high volume panic selling. Until we see that, this bear market will continue wearing us down.

Meanwhile, I'll keep maintaining my watch list of industry leading companies with solid fundamentals. These will be the companies that will eventually lead us out of this bear market and will out-pace gains in the general market.

Positions exited on Thursday:

PBR @ 64.34 for a 9.0% loss
CAM @ 52.36 for a 6.1% loss
NBL @ 94.95 for a 8.7% loss
ARD @ 47.55 for a 13.7% loss

I'm new to this whole "blogging" thing and haven't quite figured out how to make my excel spreadsheets available for people to view on this site. Bear with me as I figure out a way to post this info. In the meantime, I'll just list my existing positions and performance to date:

Portfolio start: Monday, June 30, 2008
S&P 500: -1.21%
Portfolio: -11.08%
Positions:
OXY, RBN, GHM, CNQ, ECA, SWN, BABY, APA.

It's Getting Ugly Out There

It was interesting to watch the general market throughout the day just keep trending lower and lower. I'm starting to smell the blood in the water.

Meanwhile, politicians keep spinning their wheels with horrible ideas in an effort to appease voters. "Excess Profits Tax"? Sue OPEC? Please.

Yet, some politicians are standing in the way of wind farms being built out west for some reason that just adds up to NIMBY thinking (Not In My Back Yard) and drilling in ANWR because it would be unconscionable to inconvenience a mountain goat or migratory bird. It really is just laughable.

Meanwhile, early in the day as the market was attempting to show signs of life, a few more stocks set of triggers for me to add to the portfolio. Unfortunately, all of these stocks turned tail almost immediately after I entered them.

I should take this quick moment to point out something: It will never be my intention to catch the bottom of a stock before it takes off. Nor will it be my intention to sell the absolute top. It's impossible. I gave up trying that years ago.

I would rather buy a stock at highs and watch it go higher. And I'd rather get out of stock after its already made its high for the move. Prove to me its not going higher, then I'll get out. I will leave lots of profits on the table an infinite number of times. But it is this same philosophy that will keep me in the BIG winners that might double or triple in value. Those trades are the ones I'm in business to catch.

Today's portfolio changes:

Subtractions:

Sold GTI @ 24.74, losing 9.4% on this position
Sold ACI @ 67.69, losing 10.3% on this position

Additions:

APA, Apache Corp @ 144.28
NBL, Noble Energy @ 104.00
ARD, Arena Resources @ 55.11

The markets are down over 20% putting them in BEAR MARKET territory. Eventually, the market will come back. And when it does, it will be led by companies with strong fundamentals, increasing earnings, and positive outlooks. All the world is screaming doom and gloom. It takes a little more work, but if you look closely...there are great young companies flying under the radar getting ready for huge breakouts when the market finally stabilizes. I'm gonna stick to my process with full confidence that I'll catch a handful of those future leaders that will take my portfolio to new heights.

Despite all the politicians attempting to stick their nose into the markets, in the long-run I believe in free market capitalism to fix what ails it. The market is never wrong.

Day 2: Building this portfolio

Day two was much the same as Monday, continuing to add positions in a flurry as signals were popping off everywhere.

Let's start with the bad news first... in only the second day, a position triggered its stop-loss and was sold. ANSS is the stock. Bought it Monday at $48.26, and sold it Tuesday for $44.00. The position lost 8.8% in total. It was nice knowing you.

Four more positions where added today, and when you look at my portfolio now, you'll notice heavy weight in the Energy and Machinery sectors. This is where the bull market is now. Can it change tomorrow? Absolutely, and I'll have to keep on my toes when it happens.

As it stands now, even though energy stocks are in a bull market, I will still seek to take profits on the way up as long as the overall market continues to be in correction mode. There's an old saying on Wall St: "Bulls make money, bears make money, but pigs gets slaughtered." With that in mind, when the market is in a correction, there is no point in overstaying your welcome. You'll likely regret it.

Here the additions and subtractions to the portfolio on Tuesday:

Subtraction:
ANSS, Ansys @ 44.00

Additions:
CAM, Cameron Int'l @ 55.76
SWN, Southwestern Energy @ 48.58
ECA, Encana @ 92.02
CNQ, Canadian Natural Resources @ 103.21

Each weekend, I will display my total portfolio and discuss it's overall performance. Stay tuned.

Sean McLaughlin
Chicago, IL

First Positions

Monday was a busy day as I established my first positions. Most days won't be this busy. Once I have my 10-20 positions on, stocks will have to get sold before I make any new additions.

No doubt, this will lead to missed opportunities. And this has caused frustration in the past. But the important thing to remember is: You can't catch 'em all. It's impossible. I can "woulda, coulda, shoulda" myself to death easily by recounting the uncountable times I've sat on the sidelines and watched a position double or triple just days after getting out for a tiny profit (or worse, a loss).

The important thing is to stay true to a process, stick to my principles, and focus on putting positions on in stocks that have solid fundamentals and underlying reasons to own them. I'll catch a few...

This being said, here is the rundown of the positions I put on yesterday:

ACI , Arch Coal @ 75.48
ANSS, Ansys @ 48.26
GHM, Graham Corp @ 74.96
GTI, Graftech Int'l @ 27.31
OXY, Occidental Petroleum @ 90.01
PBR, Petroleo Brasileiro @ 70.72
RBN, Robins & Myers @ 45.84

It isn't lost on me that I've embarked on this journey literally two days after the stock markets "officially" landed in Bear Market territory. However, as Jim Cramer likes to say: "...there's always a bull market somewhere!"

As of this writing, Oil & Gas drillers, Metals producers, Energy, and Agricultural themed companies continue to rise in the face of soaring crude, rising inflation, and good old fashioned Supply and Demand. As such, you'll notice that many of the above picks (and many to come) will be focused in these areas in the short term.

Strategy Overview

The strategy that I will be employing will be centered around a mix of Fundamental and Technical analysis of stocks.

Stocks of companies I will be selecting to trade and invest in will be leaders in their fields. These companies will be experiencing strong quarterly and annual Earnings per Share (EPS) and sales growth, and will be members of top performing industry groups. Their stocks' price performance will already be outperforming at least 70% of all other stocks' performance. These stocks will also be experiencing increased accumulation by large mutual funds and hedge funds (institutional buyers).

From this pool of eligible stocks, I will be determining entry points based on break-out and trend continuation chart patterns.

My method draws heavily on the teachings of William O'Neil of Investors Business Daily as well as Richard Dennis and William Eckhardt of "Turtle Trader" fame in the commodities arena.

I will not invest more than 10% of total investible cash in any one company and will seek to limit my portfolio to no more than 20 companies at any one time (utilizing leverage where necessary).

During periods when the broad markets are in correction (as they are currently), I will attempt to take profits on the way up sticking to a 3:1 profit target. This means I will attempt to take profits three times what I am risking upon initiation of the position. For example, If I purchase XYZ stock at $100 and my stop-loss is $90, I will exit my position for a profit at $130.

During confirmed rally periods for the general market, I will give winning positions more room to grow. While maintaining a strict stop-loss, I will let violations of 50-day trendlines be my signals to exit positions.

As Jesse Livermore, one of the greatest Traders of all time has been known to repeat (in paraphrase): "The best money is made in the sitting and the waiting". When general markets are in confirmed rallies, I will attempt to do just that.

Without giving away the farm, this is a broad overview of how I will build my investment portfolio. If my hypothesis is correct, and I execute according to this strategy, it is my belief that I can target annual returns in the neighborhood of 100%. While this number is certain to cause investment professionals from all corners of the globe to scoff at my assertion, I believe it is absolutely within the realm of possibility. It is my intention to find out.

Wish me luck.

Sean McLaughlin
Chicago, IL

The Beginning of a Journey

Today is Sunday June 29, 2008 and I sit on the precipice of a new beginning. Perhaps new beginning may be a bit inaccurate - a new start may be more appropriate. However, it has the feel and the makings of a true new beginning.

It is over the past two weeks that I have decided my true calling is to be a Trader. A full-time trader, dedicated to earning his living in the markets.

I am no stranger to this role, as I spent nine of my best years attempting to accomplish this. And it worked - for a time. Sparing you the details, towards the end of my previous run, I was burnt out having struggled to earn steady profits and relying on managing money for other people (prop trading firms, for example) that required I follow their rules and parameters for entering trades and managing risk. Due to these constraints and my inability to accept direction from others, I was doomed to fail.

Though I have continued to trade in a small way - in January 2007 I had given up. I had lost all ability and confidence in myself to provide for my wife and myself as a Trader. It was time to get a "real" job.

Since February of 2007, I have been employed in various roles for a fast growing, pre-IPO logistics company in the transportation industry. The experience has been fruitful. I've gained confidence in skills I didn't know I had. I've been given duties and responsibilities on escalating scales of importance. And I've made many friends in the process. However, one thing that always felt out of my control was my ability to succeed. And again, I really don't enjoy having other people tell me what to do. Recognize a common pattern here?

I have now spent the better part of the last year and a half away from the trading world, spinning my wheels in the corporate world. During my spare time I have immersed myself in studying the stock market, taking the 50,000-foot high-level view of trading and portfolio management instead of viewing it from the trenches. This new perspective has given me fresh ideas, fresh confidence, and the willingness and belief that I can be successful again in this pursuit.

Which brings me to why I've started this blog and what I hope to accomplish:

As a totally independent Trader managing my own money, it is my intent to hold myself accountable. While I don't work well under close supervision, I do feel there is value in broadcasting my portfolio results for the world to see - the good, the bad, and the ugly. If for nothing else, this blog will force me to stay true to my strategy and provide a diary for constant review and improvement. And it also satisfies a small interest in being a Writer that I've always secretly harbored.

It is my expectation that I will do well, and deep down inside of me is a hope that perhaps somebody or some group out there will recognize the value of what I'm doing and would like to hire my services to manage a portion of their risk capital.

At the very least...and perhaps this is more realistic, I hope my personal Journey to Prosperity will prove to be inspiring to other traders, investors, or people who are currently or considering chasing their dreams - whatever they may be.

Tomorrow is Monday, June 30 and my Journey begins. I still have my day job, but I will be resigning from that no later than the end of August. The potential trading profits from my modest sized trading account won't be enough to solely provide for a comfortable standard of living in the short-term (for this my wife and I will count on her job). But it is my hope and expectation that biting the financial bullet in the short-term will pay significant dividends in the long-term. Both financially, and mentally.

If you've made it this far, thanks for reading. Please feel free to post comments, suggestions, criticisms, or well wishes.

Sean McLaughlin
Chicago, IL