LTHM - Capital Gain/Loss On Holdings And Trading Gain/Loss With Cash Cows

2023-12-25 10:03:02 ET

Summary

• I discuss my investment and trading strategies before and after March 2022.
• I highlight the importance of trade income, capital gains, dividend collection, and tax harvesting in my investment approach.
• I want to see the Bull Plateau (or Bear-Market Rally) as long as possible, by avoiding too hot or too cold market.

Investing and Trading Before and After Mar 2022

I have no idea about how bears set their portfolios and then how they manage them.

As a bull, I had made a couple of well-diversified portfolios with equities and bonds in the long term (about 3-5 years, depending on age). The original asset allocation (i.e., 60:40 or 50:50, also depending on age) had remained the same until the end. This is what I called "Investing", clearly distinguishable from what I called "Trading".

The backbone of the dual framework of investing and trading was laid down in details, by " Investing...Vs....Trading... ", and they had performed very well until March 2020. Why?

The successful workhorse from Mar 2009 should be changed on Mar 2020 due to three pillar reasons: 1) The disruption of the Covid-19 Pandemic in 2019, 2) the fiscal and industrial policy of the new administration, started in 2020, and 3) my aging and the weak eyesight, and the hospitalization for 2.5 months to cure the bone fracture from Nov 16 last year to Feb 1.

The main features of the new workhorse are: 1) The reliable dual portfolio system discontinued, and replaced by it with several online savings accounts. 2) the really lucrative trading has been entirely shut down since Mar 2020, primarily damaged by the recession call from the NBER (National Bureau of Economic Research) and the ensuing bear market in Mar 2022. 3) The instant (a few seconds or a few sessions) trading was reinstated on Mar 31, 2023 (as a first rocket launch), and accelerated after Oct 30, 2023 (as the second rocket launch).

Realized Trade Gain/Loss vs. Unrealized Capital Gain/Loss

There are four buoyant benefits in my workstation: 1) The trade income, 2) the capital gain/loss, 3) the dividend collection, and 4) the tax harvest.

The Trade Income ["TI"] is highly significant.

The Capital Gain/Loss ["CG/L"] is a ultimate saver.

The Dividend Collection ["DC"] is a shadow cash cow.

The Tax Harvest ["TH"] is not an alien.

The TI is a tiny cash earner each moment, but it teaches us that repeating a small gain many times turns out to be magnificently huge. "A mountain can visualize, getting mountainous dusts", as an oriental adage says. For example, if you get S10 (average income) 20 times a session, annually you will end up $50K (=$10 x 20 times x 5 sessions x 50 weeks). When you are able to, increase a daily income ($10) or the multiple (20 times) or both, a seven-digit-annual income would not be completely out of reach, as the adage says.

The CG/L, DC, and TH operate on the holdings which are not a Portfolio (intended to be well diversified in a targeted time dimension), but simply a group of securities (stuck below their cost lines due to various reasons in different time), as a residual of the instant trading. I called them "POWs" (Prisoners of War) who are captured and cared for by the enemy, and waiting for release in unknown time.

The Fate of POWs

Table 1 has 20 POWs as of Friday (Dec 22). Since we have so many battles among the market participants (institutional or individual, bullish or bearish, mega-cap, or large-cap, or small-cap, bot-trade, and so on), a number of new and released POWs continuously update the list on the Table.

In the current battle field in the Bull Plateau (or Bear-Market Rally), however, the majority combats, about 70% (according to my recent records), are done in a given session (as we called "day trading", which requires at least $25K as trading capital each account), so the turnaround rate of POWs is pretty low.

The size of 20 is very low because we have not had any noticeable figures day trading previously, and also, the POWs have much strong chance of release in the current active market.

Realized Trading Income [TI] vs. Unrealized Capital Gain/Loss [CG/L]

Table 2 is sorted Table 1, by the ascending order of the last column, G/L%, which is a CG/L%, showing the "Loss" order (from higher to lower).

The CG/L is a daily unrealized gain/loss on the holdings. The CG/L and TI are two major contributors, determining the investment performance. Both TI and CG/L normally move together, but on the current market in particular, they are complementary each other, by moving, quite often, in the opposite direction.

Last Wed (Dec 20), for example, the market was very negative both at opening and at closing, with pretty high between hours. I made $303.55 for trading but my 2 brokerage accounts (Charles Schwab and TD Ameritrade) downed by about $700. It's a very curious session, demonstrating a typical case of a complement, resulting a $400 loss (= a $700 loss + $300 gain [TI].

Last Tue (Dec19) on the other hand, I gained about $1K (= $0.6K (CG/L) and $0.4 [TI]). Mon (Dec 18), Thu (21), and Fri (22), we had a flat market, but my TI was good, as usual.

13 POWs are the dividend paying stocks or ETFs (Exchange Traded Funds) in TD, whose tickers are with bold , but we have more dividend-paying securities in Schwab. Therefore, the gains/losses data have been understated because the dividends received was not added to the G/L.

In TD we don't have any candidate for TH today data (which changes every day), but Schwab has some, but I want to hold them further because I have enough capital-loss carryover for several years. (The annual max to use capital loss is $3K.)

The Polar Opposite in the Forecast on the S&P 500

The S&P 500 Index (or [[SPY]] (SPDR S&P 500 TEF Trust) or Economy) is not like other ETFs, as asserted in "The S&P 500: We are All The Blind ". It not only represent the U.S. Economy, but also SPY is globally trading 24/7.

The S&P 500 ( SP500 ) ratcheted upward again to the 4,700 level on Dec 13, closing at 4,707.09, and stayed a bit better level until Dec 15 when the S&P 500 was flat (actually down by 0.36 or -0.01%), as shown in Table 3.

The S&P 500 made 3 unusual consecutive advances: 1) A 8-day rise in a row from Oct 30 to Nov 8, 2) a 5-day ascent in a row from Nov 14 to Nov 20, and another 5-day surge in a row from Dec 8 to Dec 14.

The first breakage was a tiny down, -0.01% on Dec 15, and the second was a whopping slide, -1.47%, on Dec 20. These two negative movements were really welcome because I don't want to see a straight and powerful ascent of the S&P 500. Some pauses or minor setbacks made more secure for the bull plateau to last longer.

There have been so many posts on the S&P 500 forecast in recent weeks. As an all-time bull, my preference is to find a steady uptrend, and then predict how long the uptrend will last in terms of years, not in terms of prices.

All posts bravely, nonetheless, pick their target prices: Most are between 4,000 and 5,000 this year, although some are below the low bound or above the upper bound.

The Conclusion

Both one of my favorite writers and I are always bullish, have the top-to-bottom approach, and he has clients but I don't. We currently share the same wish: the market is somewhat cooler than hotter so the Market Cycle is lengthening rather than shortening.

Albeit there are some delicate nuances between his "Rain" or "Chip" and my "Pulse" or "Cash Cows", we have the same thread to stretch the current optimized bull market under the "auto-landing" mode of the Fed (Federal Reserve).

We disregard the various needless noises surrounding the coming Fed policy.

I am, nevertheless, much more optimistic than him: I don't anticipate any market pullback in remaining 4 sessions this year, and no pullback/correction in new year, and beyond, perhaps until 2026.

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