2018 YEAR IN REVIEW – A YEAR OF GROWTH...A YEAR OF OPTIONS

2018 was quite an interesting year for stocks, the economy, and for me.  Before we close the book on this year, it’s also fitting to look back and reflect.  This is bit of my spiritual side speaking but for my financial folks it’s a moment to stop and balance your books. If you’ve read my previous posts, I talk about the importance of goal setting.  Now is the time to reflect on whether you hit those targets across ALL of your Pillars. Did you grow your spirit, mental fortitude, physical well-being, and finances? 

When I take a moment to reflect, I see some small strides I’ve made which I KNOW I will carry on into the New Year. My past year was the year of the FITBIT, where I became physically healthier (even playing basketball one a week) by challenging myself mentally to meet my daily health goals and give up unneeded foods, sugars, etc. I even gave up drinking (with the exception of a HS reunion event) and I was surprised I was up to that challenge (considering Little Jon wrote the Patron song specifically for me).  I concluded my financial challenge of renting, for the last 1.5 years, a house that did not meet most of our needs BUT it allowed us to SAVE and meet our new budget goals (2 paid off vehicles that are over 14 years old).  Again, an exercise in mental toughness for those who struggle with sacrificing today for a bigger picture.  Next, I personally want to thank my family for the changes they made this year to help us meet our family financial budget. This is turning into an effortless exercise (NOTE: IT DID NOT START THAT WAY) of developing a budget at the beginning of the year, then as a family we have to log all of our actual expenses. We use only one joint family account for family planning so there are NO SECRET EXPENSES that crop up (if we didn’t budget for it don’t bring it up and it’s not an item we are buying). In summary, we MET THE BUDGET FOR OUR HOME!!  Another goal met was buying our 2^nd Home! This was accomplished by those seeds we sowed a few years back…renting our first home, budgeting and sacrificing for our new home which took a few years to save up for the deposit needed.   

Many will overlook that these activities crisscross through a few of my Pillars; rarely does a challenge involve just one.  Taking on these goals has made me mentally stronger, a decent multi-tasker, better prioritizing and dealing with RISK.  I am equally proud of the last two items which have fueled my growth the most this past year.  # 1 – I took on the project of building out a consulting practice after companies continued to approach me for my skillset.  I still work in Corporate America but on my terms which has made me SIGNIFICANTLY less stressed (Pillar: Spiritual), in better health (Pillar: Physical), make more money (Pillar: Financial), and more technically skilled (Pillar: Mental/Education) then I have ever been.  #2 – I explored options for the first time in portfolio and it was a big reason for my investing success this year.  I have been studying it for months, used a fake portfolio of money to test trading strategies out, and implemented BASIC trades that have complimented my LONG-TERM VALUE oriented approach.  I repeat, I was afraid and had never traded an option contract in my life.  This year I’ve executed over 80+ option contract trades in a way that I believe lowers my investing risk, especially considering I’ve told people to be cautious because we are in the 10^th year of a stock market rally.  In summary, always stay balanced, clear minded, and focused. Help others yet use common sense and be prudent. The survivors in "The Walking Dead" did not survive from being lazy...you always have options and choices in life. Stay blessed.

For my reflection, and those of you that come here for the stocks my Financial YE Trading Review:

What Worked?

VALUE – By sticking with my value approach, I barely bought or sold ANY stocks in the last year. I sold 3 stocks this year that I held for more than 1 year because I felt the markets were reaching their tops.

Apple (AAPL) – I sold my entire position of Apple @ $200. Remember when we bought under $100. So long old friend until we meet again.

PBF Energy (PBF) – I sold energy which shot up earlier in the year. Now energy is back down to its lows. We’ll have to scrape the bottom of the barrel and see if its value time to pick shares back up.  PBF was in the low $20s and I sold $47. Funny at the time I thought I got out a little early.

Sirius Satellite (SIRI) – I owned this stock because I used to own XM Satellite radio, yes since 2005.  I watched the charts hit highs of $6.62 and decided to part ways after 13 years.  In a strange twist of irony, I recently purchased Pandora…who is being acquired by SIRI. We may be reunited again J

OPTIONS – My experiment in options was helpful this year.  When the market is up 10 years straight, the only thing that is certain is VOLATILITY.

            Volatility Index (VXX) – I traded the VXX over 5 times successfully for big gains. My only reflection was to bet bigger.

                Options – I traded over 80+ options contracts. I needed to test my strategy okay. We traded small amounts for high success. I might be above an 85%  success rate. Time to ramp up

DISRUPTION – I traded options contracts 3 sectors that were ripe for Mergers and had a handful of option contracts that did well when the stocks were acquired by other companies:

KLX Inc. (KLXI)

Dell Technologies Inc. (DVMT)

Cronos Group Inc. (CRON) * I believe the deal is still pending, but my options were sold

Red Hat, Inc. (RHT)                                 

Time Warner Inc. (TWX)

What Kind of Worked?

Radisys Corporation (RSYS) – I held RSYS for years. Sold some during the good times and closely followed the quarterly earnings. They were in the process of turning the company around but had the RISK my small consulting practice has. They were reliant on 1 or 2 big vendors. The biggest being Verizon. When VZ abandoned their unlimited data strategy for a while it hurt RSYS earnings. I felt vindicated when the acquisition was announced and I believe Reliance Jio purchased this company early as 5G is now taking off a major strategy for all telecom companies. So I feel vindicated they were purchased and rebought before the acquisition. BUT I did take a loss on this position.

What did Not Work?

I have 3 simple lessons learned that all investors must heed:

1)       If the Government is MAD at another Country, GET OUT of those option contracts: I had two Chinese stocks that got beat up once the Trump Administration decided to impose tariffs on China:

NXP Semiconductors N.V. (NXPI) – I had a profitable position, up huge. Trump Administration began their tariff stance and China retaliated by NOT APPROVING the Qualcomm merger of NXP. Qualcomm needed approval from 9 countries

JD.com, Inc. (JD) – Another contract that was positive, and you know the rest.

2)      Don’t trade options contracts into earnings season:

Match Group, Inc. (MTCH) – I got busy at work and should have exited this position before earning. Went from being up big, to a small loss. Lesson learned

3)      Don’t hold option contracts when the market begins declining:

Teva Pharmaceutical Industries Limited (TEVA) – I was up by enough points that I was going to simply let the contract expire profitable. I don’t think you understand, Teva was at $23 or higher and I had a contract for $17. During the market downturn, I saw the unbelievable happen in a matter of 2 weeks. Again went from being up to taking a small loss.

Caesars Entertainment Corporation (CZR)

Side Hustle 101 - Start Your Business

Started from the bottom...now we're here.  If you are starting a new business, I suggest investing your first few weeks or months developing your business plan by defining what product or service offering you plan to provide for customers. You should know if your business primary focuses on businesses (B2B) or is your focus on consumers (B2C). I often ask people how will you make money, what does it cost (expenses and overhead) to make money, and how many competitors are out there trying to take business away from your you and your company. My favorite is can your business be easily copied? Lastly what is your exit plan or at what price would you sell if you were made an offer. 

I've had a chance to participate in a few discussions or pitches and often you will hear the same responses from new and experienced business persons:
- My business is unique
- I do not know my costs, but it will not cost too much OR these costs are needed
- My services are for everyone
- I do not have any competition because I will work harder
- This business is not for sale

I do not blame anyone that responds this way because it is often human nature and when you start a business it is personal and many treat the company like their baby. But when it comes time to invest and I am running through my risk management checklist, I mentally note that this entrepreneur may not be strong in running a business and bad governance is a never a good investment.  I usually ask one question which ends my investment process: "Can I see your business plan?"

So my challenge to entrepreneurs: Learn to Develop A Business Plan.

Then have as many people as possible read it, question it, and be comfortable going back to the drawing board when tough question arise. Also, make a mental note that if you respond with one of the common answers above you may have more work to do.  Then, I recommend watching as many episodes as possible of really good business shows like "Shark Tank" or the "The Profit" that are featured on CNBC.  Chances are you will hear someone with a similar business idea as yourself and it serves as a really good opportunity to prepare yourself on how to answer those questions AND see your competition in action.

This applies to entrepreneurs, your real estate business if you're a landlord, and your financial investments if you're a money manager.  Have a plan and know your numbers (the budget).  Who cares what the hustle is as long as it's making you money (and legal).  And as Mr. Wonderful said from the investment show "Shark Tank" if your business is not making money in 3+ years...it's basically a hobby. I tend to agree as it aligns with Warren Buffett's number 1 rule to investing: "Never Lose Money".

My Personal Experience: I've started a consulting practice which has been thriving now for 2 years. I've kept it barebones and will expand when the risks make sense, so the math is simple not much expenses but I the profits are more than I would make as a salaried employee (accounting for benefits and retirement planning) I have complimented that with a rental property that I manage, and a financial investment portfolio that I manage. All of these need a well thought out plan and when the risks don't equal the reward it's time for me to walk away or exit from any or ALL of these investments.

   

Side Hustle 101 - Pay Yourself First with a Solo IRA / 401K

Retirement Planning - 401(k) Plans

I'm back because it is year end time.  Today is an alert to pay yourself first. If you ONLY have a W-2 Hustle, my hope is that your employer give you benefits that allow you to contribute to a 401(k) type of plan.  The goal is to do whatever it takes to make sure that you contribute the maximum amount to your plan. This is a big deal because it reduces your taxable income. Yep, if you're not maxing your contribution, you are basically paying extra in taxes in each year. It's also good to know how much your employer contributes via a matching program.  Many companies match your contribution up to a capped amount of about 3%.  

Solo 401(k)

For my independent contractors, entrepreneurs, and sole proprietors, you should have a Solo IRA / Solo 401(k) plan. The equivalent retirement plan to the 401(k) plan offered to W-2 hustlers. I'm not going to get into the specifics of how to sign up for one because its a whole post unto itself...but just know you enjoy the same benefits as your W-2 friends and more.  For instance, the federal government allows you to provide a matching program just like "big" corporations do and trust me the matching is much better.  

Maximum Contribution Limit: The contribution limit for any employee (W-2 or Independent Contractor) who participate in 401(k) plans has increased from $18,000 to $18,500 for the 2018 tax year. Source of Authority: IRS, check their website if you're unsure where to look.

Quick reminder to pay yourself first before the end of the year.