Active Stock Trading

Recently I’ve gone from dabbling in active trading to making it almost a full-time job. It started off as an excuse to procrastinate and put off finishing the book. It was also a way for me to scratch my gambling itch between poker trips.

It’s turned into one of my most productive income streams. So far this year I’m beating the S&P 500 index – the gold standard of investing – by more than double.

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I had very little money in stocks until after the Presidential election last November. Realizing the potential effect corporate tax reform would have on U.S. stocks, I dumped all my cash into an index fund that tracks the S&P (basically a big basket of U.S. stocks).

The immediate returns were great, but after a few months the prospect of a quick reform of the U.S. tax code started to dim. Just having money in a big bucket of stocks wasn’t going to work anymore. It’s easy to invest when you know almost everything is going to go up, but now I had to go back to picking winners.

I still like the diversity of index funds, but I don’t want to invest in everything. I believe increased U.S. production of oil is going to keep the price down, so I don’t want to own energy stocks like Exxon. Retail stores are dying, so I don’t want to own all the consumer staple or discretionary stocks. The death of retail is going to hit commercial real estate hard, so I don’t want to own most stocks from the real estate sector. The improving job outlook and soft cap on oil prices should be good for the travel industry, so I want to over index on airlines and other travel companies.

I’m very bullish on the tech sector, but there are several stocks I don’t want to own, like Facebook and Netflix. Both may very well continue to go up for a long time but I feel like those two in particular are overvalued (Facebook’s growth is coming from developing countries which severely limits ad revenue growth and I believe Netflix’s model is too expensive. Of course I could be wrong about both).

The end result is a Frankenstein Monster I’ve built that contains certain whole sectors of the S&P (Materials, Utilities, Financials, Industrials), Southwest Airlines, Expedia and Alaskan Air in Travel, but heavily weighted toward a handful of tech stocks. There’s a decent amount of Microsoft and Nvidia in the mix, but the majority of my portfolio has been Amazon, Apple and Google. It’ll likely change, but so far it’s been doing very well:

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