In a glum twelve months of investing where my portfolio dropped in value over 40% from its peak at one point (up nearly 25% since then, but you can do the math and see that isn't even half of what I lost), I thought I was a genius for buying Bear Stearns at $4.10 and flipping at $5.70. Apparently, I could have been even geniusier.

In the American:

Neumann and Kenny came up with a strategy to capture the value in this pattern. Consider the day on which [Jim] Cramer recommends Stock A (Wednesday in the example above) as Day 0. The authors say you should sell Stock A short when it opens on Day 1 and cover your short at the closing bell on Day 1. [...]

Following such a strategy for 127 recommendations studied between July 27, 2005, and September 9, 2005, would have produced a profit of $861.32 on an investment of $10,000. That’s an 8.6 percent gain in just six weeks, which, when annualized, comes to about 70 percent. The gain does not include trans­action costs.

Yeah, not including transactions costs makes a big difference. Add in $10/trade for 254 trades, and that is a $1700 loss on an investment of $10,000. And that is before one accounts for the bid-ask spread.

Better answer: if Jim Cramer recommends a stock you want to buy, wait until Day 2 to buy it so the market shakes off the artificial boost he gives it at the beginning of Day 1. No promises that is a winning strategy either.

That Apple stock I could have bought for $790,000 (if I only had $790,000) is now worth $840,000.

On the other hand, the bozos who gave several hundred dollars to line-sitters for iPhones sure look stupid right now.

I try not to wince when I consider that the Apple stock I sold for about $60,000 in 2001 (and could have repurchased for about $40,000 in 2003) is now worth more than $790,000.

With a tax refund winging its way to me (I was able to find a capital loss in December to avoid paying capital gains taxes, but I would've been better off financially holding on to the stock as it rebounded), I went and calculated my net worth. If one believes the sales price the neighbor of mine with an identically-sized condo (but one fewer parking space) just listed his unit for, some time between September and today I became a millionaire, albeit one with illiquid assets that would expose me to expenses and tax liabilities that would take me well below the million-dollar line if I were to try to translate them into fungible cash. Not bad, considering my net worth was negative when I was thirty.

I'm skeptical that my condo value has really increased 10% in six months, however. On the other hand, smaller (if newer) units further away from the Metro, also with only one parking space, are ostensibly selling for more. The market is what the market is.

I don't feel like a millionaire. Maybe it's because I have days when I have only $23 in my checking account and it's a pleasant surprise when Slim buys a book for me that I thought I'd have to wait for in paperback. Or because Slim always leaves the bread heels for me.

	January 2007	2007 YTD	Last 12 months	Annualized rate, life of portfolio
Ted Portfolio	4.3%	4.3%	14.4%	16.5%
S&P 500	1.5%	1.5%	14.5%	13.6%
Mortgage (cost of capital)	0.4%	0.4%	5.3%

Buy: AES @ $21.59; ATU @ $47.26

Sell: half of KMX @ $55.15

A good chunk of this month's profit came from KMX; I should offer a newsletter service that lets people know when I sell stock, so that they can get in on it. (BBI is up a painful 70% since I sold it.) KMX went up another 5% after I rebalanced my portfolio. AES got immediately hit by Venezuelan confiscations, which I mistakenly thought were already priced into the stock. PIR had a good month, as did FLWS; CBH, not so much.

One reason I use Schwab for my investing.

In late August/early September, I considered buying stock in Markel Corporation (MKL). I waited for a price of $350, but it never quite got that low, and I didn't want to buy as it kept going up past $380. Four months later, now it's over $480. If it becomes the next Berkshire, and I didn't buy over a 5% difference in price, I'm really going to kick myself. (I did, on the other hand, use that money to buy Berkshire itself with its B-series trading at 310, now at 360+.)

I took profits on half of my Carmax (KMX), whose run-up had taken it to an uncomfortably undiverse 30%+ of my portfolio, and used some of the proceeds to buy shares of AES. I was promptly rewarded by Hugo Chavez confiscating their Venezuelan properties. One would have thought the market already accounted for that in the stock price, but apparently not, and I took a hit.

Similarly, Apple stock goes up $10 just about every MacWorld, even when they're not announcing something as cool as the iPhone. One would expect people to buy before MacWorld, rather than as they're hearing about Jobs's speech, but that somehow never happens. This implies that, should something happen to Warren Buffett's health, Berkshire stock will drop precipitously, even though his death is fairly certain at some point, and that should already be priced into the stock.

	November 2006	2006 YTD	Last 12 months	Annualized rate, life of portfolio
Ted Portfolio	-2.4%	10.8%	10.3%	12.9%
S&P 500	1.9%	14.2%	14.2%	13.2%
Mortgage (cost of capital)	0.4%	4.8%	5.3%

	December 2006	2006 YTD	Last 12 months	Annualized rate, life of portfolio
Ted Portfolio	6.0%	17.5%	17.5%	15.2%
S&P 500	1.4%	15.8%	15.8%	13.4%
Mortgage (cost of capital)	0.4%	5.3%	5.3%

New investments: Wal-Mart $45 call (WWTAI) @ $6.70; UTI @ $19.375; CAB @ $25.21.

Sold: OSTK @ $14.81

Overstock killed my November, and was a drag on the year, and, like Blockbuster, I seem to have sold it near the bottom. I got back into the Wal-Mart calls just as it had bad news that drove down the option, though it started to recover in the last week. But a good December, led by Carmax, pushed me back ahead of the S&P, if not by a lot.

It was a volatile year: three swings of at least 20%.

My hold of Carmax was the best investment of the year, a near-double that almost compensated for stupid decisions with Overstock and Blockbuster. My return for the year would have been 9% higher if I hadn't given up on Blockbuster, and another 10% or so higher if I had avoided Overstock. I suppose I need to avoid turnaround companies where I'm not happy with the product or service, even if I think the stock is underpriced: Pier One and 1-800-Flowers, which I still hold, were losses for the year, too. (On the other hand, I made some good money with Six Flags, though that I held on to a little too long.) Hasbro, Berkshire, Nationwide, Safeco, Discover, and short-term shorts in asbestos stocks produced some good profits.

I need to re-evaluate my cost of capital, since I can now pay off my mortgage entirely.

2007 is off to a rollicking start, already more than 2 points ahead of the S&P.

Via cousin Garance's blogroll, Trulia is a wonderful application of Google maps to real estate listings. It finds that year-over-year price/sq.ft. in Arlington have increased 8%, which is a better indicator than the possibly misleading median sales price.

	October 2006	2006 YTD	Last 12 months	Annualized rate, life of portfolio
Ted Portfolio	4.2%	13.6%	15.6%	14.6%
S&P 500	3.3%	12.1%	16.3%	12.8%
Mortgage (cost of capital)	0.4%	4.4%	5.3%

Beat the S&P for the third month in a row.

New investments: Select-Comfort (SCSS) @ $20.70.

Sold: ATHR @ $20.50; Wal-Mart $45 call (WWTAI) @ $7.00

Quick flip: out and in of OSTK in response to a one-day move for a short-term profit

I need to have more faith in my choices. I sold my Wal-Mart call at a 17% profit in response to a stop-loss, but it popped up to $9 and is $7.80 now. The MO call I sold for a small profit went up another 30%: I really should have waited for the stay order I predicted to be issued. Between the two mistakes, I missed out on another 2% gain.

	September 2006	2006 YTD	Last 12 months	Annualized rate, life of portfolio
Ted Portfolio	9.6%	8.9%	6.6%	13.1%
S&P 500	2.6%	8.5%	10.8%	11.6%
Mortgage (cost of capital)	0.4%	3.9%	5.3%

My dividend schedule is such that every third month isn't quite as profitable as the others, yet I still had one of my best months ever.

New investments: Berkshire-Hathaway (BRKB); 3M (MMM); Atheros Communications (ATHR); Wal-Mart call option $45 exp. Jan. 08 (WWTAI)

Sold: Brocade @ $6.30 (oops); reduced position in OSTK @ $20.04

Quick flip: small profit on Altria calls

My first venture into options has been successful; I bought Wal-Mart leaps at $5.90, and they finished the month above 8, though slipped today in response to poor September sales; I expect a rebound, but have a stop in to take profits if they keep going down.

With 5.5% CDs available, I'm changing my cost of capital for the next six months to reflect this.

The BRKB investment is psychologically alarming, because it's startling to see one's stock move $22 in a day until one realizes that's on a base of over $3000. CBH, KMX, FLWS, HAS, all did exceptionally well. PIR popped a lot from its sub-6 low, making me regret not doubling down after a 50% drop, and it's up further today after a CEO resignation.