2018 US Portfolio Performance Report. Overall = +69.79%, YTD -2.47%

Year 2018 was a year of extremes for US stock market. All 3 indices, Dow Jones, S&P500 and NASDAQ hit an all time this year aa unemployment rate hit 50 years low in the backdrop of a healthy economy. It is also a year where all 3 indices went into correction territory with Dow Jones posting the biggest one day point drop (1175.21) in history in February. This year, Dow Jones also recorded the worse December since depression and NASDAQ went into bear market after 10 years of rally. Then on 26th December, Dow Jones staged the biggest 1 day rally of 1086.25 points in history. This year's market rout was attributed to the fear of trade war between US and China and the fear of Fed's over-tightening of interest rates which could lead to flattening of yield curve. What a volatile year!


For the year of 2018, Dow Jones recorded a drop of 5.63%, S&P500 a drop of 6,24% while NASDAQ a drop of 3.88%.

My US portfolio was flat for 2018. Yearly return was a slight decline of 2.47% while the benchmark SPY (incl dividend) posted a loss of 4.51%. I think the system has done well given that the portfolio is mostly focusing on small caps which tend to be more volatile. Total return since inception is still pretty solid at 69.79% while SPY return is 25.81%. Despite the large swing in prices and strong volatility, the system managed to catch a few big run up stocks such as Bovie Medical Corp and Nevsun Resources. Both made a stunning profit of 61% (check out their posts here and here). It was also fortunate that when the market went downtrend in 2 occasions in February and October, the system's risk management component MATA (Market-wide Trend Analysis. Check out this post) signalled a red flag and made the portfolio go heavy in cash. Hence losses were minimised despite a few stocks that plummet such as Kodak and Gran Tierra.

Top 3 Stocks with the highest return
Bovie Medical Corp (BVX) +61.49%
Nevsun Resources Ltd. (NSU) +61.17%
Harvard Bioscience, Inc. (HBIO) +25.32%

Bottom 3 Stocks with the lowest return
Eastman Kodak (KODK) -26.25%
Gran Tierra Energy Inc. (GTE) -19.46%
U.S. Energy Corp (USEG) -18.75%

What are the few important lessons I learnt in 2018?
1. Consistency is the key in systematic trading. There are good years and there are bad years. There are strategies that profit in bad market and some that will make a loss. Never change strategy just because it is not profitable for a single year or even a few losing years in a row. If you keep changing strategy just because it is not working for the moment, you basically do not have a strategy. If your strategy is back-tested to have an edge, stick to it. If the loss is within the model, there is nothing to be concerned about. Never try to add additional parameters just to make a year profitable as it may result in overfitting of the model. Every update or new parameter must be back tested thoroughly to work for at least 10 years of historical data before being integrated.

2. Risk management and position sizing are keys to avoid risk of ruin. It is fortunate that the system has a sound risk management component MATA. Despite being a long only trend following strategy and small cap heavy portfolio, it managed to stay flat for the year. As the system only invest around 10% of capital per stock, it helped to avoid a single point of failure. For example, if I have put all my capital into KODAK, I could be down more than 26% for the year due to a single stock! Never put all your eggs into one basket. In addition, as MATA recommended overweight in cash before the market reversed into downtrend, the losses were controlled.


What is my plan for 2019?
1. Continue to trade systematically and diligently to achieve abnormal returns

2. Look into a new shorting strategy. I realize this year I have a lot of cash not fully utilized due to the bad market. Perhaps a shorting strategy may help to turn a bad year into a profitable year! Of course it must be thoroughly back tested because shorting has more limitation and cost than long.

May 2019 be a better year for everyone. Wish everyone a Happy New Year!


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