Friday, September 28, 2007

Dot AU

We got into our apartment today, spent a huge amount of money on appliances, furniture, etc. and got the phone and internet running. The last was the only tricky part. A few phone calls to the ISP and Apple too. The ISP had no record of the account we opened on 21st September. Then we had to get the hardware and software aligned and then remember that my new e-mail/username ends in and not just .com.

Thursday, September 27, 2007

Do You Have a Chequebook?

Met up with a second friend (T) last night. He brought with him all my mail - I've been using his address as my address in Australia until we get our own. When we move in Friday, the phone guy should come and give us a phone number as well as installing a modem (phone over the cable TV system). When we have a phone number it will make sense to again change all our addresses. Most important mail was our ATM/EFTPOS = debit cards as well as a pretty much useless cheque book. I asked T whether he had a chequebook. He said: "My father does". Today, we will kick back into high gear on our move again. On the agenda is hiring a car again, converting Snork Maiden's international driver's licence, getting cash for our first couple of weeks' rent and buying some supplies. The last couple of days we have been relaxing and looking around town. The picture is of the National Museum. It opened shortly before I moved away from here before. The building is far more impressive than the displays. Some interesting aboriginal and Torres Strait Islander stuff. The rest was not very coherent and too humanities, political correctness driven. Not much science. If you knew nothing about Australia you wouldn't have much idea afterwards. Not sure who the audience is supposed to be. The day before we visited the botanical gardens and had a great guided tour. All these attractions are free and within walking distance of where we are staying.

Wednesday, September 26, 2007

Follow Up

My friend sent me an e-mail today. He starts: "this isn't meant to put any more pressure on you".... "but we have a temporary open position in our department for a background researcher". Pay would be $A65k. After the election the position might become permanent and there could be a promotion. I'm not quite ready for this yet. I think the positive is that there are opportunities out there. But I'd like to learn more about what they are first and settle down a bit. My ideal position would be half time in the afternoon in the City Centre. Unlikely there is such a position of course.

Tuesday, September 25, 2007

Get a Job

Yesterday lunchtime, we met with one of my friends here at the "Labor Club". In the "old days" we used to hang out at the Labor Club a lot as it was on the edge of the university campus and had the cheapest beer in central Canberra. The old building has been demolished for new development and the club moved to a new location in the city centre. It is very slick compared to its previous incarnation. Very upmarket. Maybe that's representative of what has happened to the Labor Party too. The funny thing both myself, my friend, and another guy we used to hang out with there are all Liberal Party voters now (I always was). We don't like the social conservatism of John Howard but we support the generally free market approach of the party. We all have training and work in economics related areas. The absent friend likes Howard's foreign policy which we don't agree on.

These "social clubs" are very popular in Australia. They are generally organized along ethnic or sporting lines. A big source of revenue is from gambling machines - pokies - as well as bars and restaurants. The old Labor Club was dominated by a huge battery of pokies. In the new venue they are hidden away. You don't need to belong to the Labor Party, just pay $A2.20 to join the club.

Anyway, my friend wanted to encourage me to find a job. He said that government (he works for government) is short of people. He also sent me a job ad from my former university employer here. My brother also asked me when I was going to get a job. The answer is I am going to try trading for a while. Maybe up to a year. If it doesn't work out after that, I'll then get a job. Moving to Australia to follow my partner is a good reason for leaving my previous position. And likely I would be moving industry too. I've been working on academic research for 20 years since I was an undergrad (some of that work then was later published). I want to have a break and re-assess. I'm not going to completely leave the academic game in the coming year. I remain associate editor of an academic journal, will continue advising my students back in the US, and probably will submit a paper or two for publication. My dream is to be a "gentleman scholar" :) I long realized I wasn't going to be a big academic star. I do have a very good track record in publication and citation. But the key nowadays is fund-raising and I haven't had much success there. And I have a distaste for begging for money to do research when the research really doesn't need funding to succeed. So like Steven Wolfram I am going to try to find the money somewhere else.

Monday, September 24, 2007

Beginning to Relax

After the first week here we are beginning to be able to relax a little. We saw Parliament House, Floriade (and annual Spring flower festival in Canberra), the National Capital Exhibit (explains history of Canberra), and a stroll in Commonwealth Park along the shores of the lake with views to the Brindabella Mountains (picture of the Brindabellas above), and sat at an outdoor cafe in Garema Place. Canberra is cold in the shade and warm in the sun at this time of year.

I've also been testing a few trading modeling ideas. One result is that the correlation between the returns of the overnight session on the NDX and the intraday session is only 0.03. The overnight session has a correlation with the previous intraday session of -0.03. These are low correlations. Yet both have much higher correlations with my model's direction. Trading both sessions is a good diversification strategy. The overnight session (daytime in Oz) has half the volatility of the intraday session. A strategy that uses my model for market direction and trades twice a big a position overnight as intraday has a higher Sharpe Ratio (return/standard deviation essentially) than a strategy that always has the same size position. It has lower returns, but can be leveraged up more. I haven't yet computed Sharpe Ratios for the separate sessions individually. Probably something I should do. I also experimented with different stops. There is a risk-return tradeoff there too. A 1.25%-1.33% stop has maximum return for the NDX. A 1% stop strategy reduces the beta of the strategy to the index to zero (from about 0.15) but reduces returns (alpha is constant). Going to a 1.5% stop and above reduces alpha. In fact a no stops strategy in the last two years has a higher Sharpe Ratio than 1.5% or 2% stops. The key thing here is a setting a stop at a point where if the index reaches that point it tends to run away to the upside. The market often improves after going 1% in the wrong direction. It has much less of tendency to improve after going 1.25% in the wrong direction.

Sunday, September 23, 2007

Optimism and Pessimism About Finances

It is easy to be optimistic about your financial situation when you are looking at projections of future finances. Well, as long as that is a positive picture. It's quite different when you aren't earning money and spending heavily in reality. At the moment I am pessimistic on our finances. Snork Maiden is naturally more optimistic than me, we balance each other. But that can lead to disagreement on what to do. This will apply also to retirement planning or trying to be a long-term investor in the face of market volatility. You may believe that in the long-term the stock market goes up, but it is hard to maintain that belief in the face of immediate contrary evidence.

Anyway, yesterday we did buy a solid wood table and six chairs for $A599 ($US500). We thought this was a good deal. So now we have something to sleep on and something to sit, eat, work at. We bought another couple of small electrical items and planned other purchases. We also looked around used car dealer lots. I really don't want to get a car until we get a clear picture of our ongoing finances but seems there are some decent deals to be had. Used Australian cars (Ford and GM Holden) are much cheaper than Japanese ones. We also looked in bicycle shops. I tried out a secondhand mountain bike that was a priced at $A95 and was a great deal. I didn't buy though.

All in we probably will end up spending around $A5000 (almost not worth converting these numbers to USD anymore given the strength of the AUD, but that is $US4350) on setting-up house expenditures. We will spend several hundreds on car hire, luckily we didn't have to pay rent at this furnished apartment for the two weeks we were here (would be $A1050). If you want to know how much it costs to move country then you need to add in the $US7-8K we spent on shipping, the $US2,400 on plane tickets, $1-2k on SM's visa expenses and more things I am sure. We should get back around $A5.5k(plane ticket + $A4k) from SM's employer. Either an "emergency fund" or a good credit line could handle such a move. But someone in significant debt couldn't do it.

Saturday, September 22, 2007


We got all our utilities ordered, though to actually get phone/internet service a guy needs to come out to the unit. Likely we won't have a phone there until 1 October at the earliest. We did get a mobile phone (cellphone) while we were signing up but after getting it home were confused on how to set it up. We'll call the company on Monday. After the US, the shortness of business hours here is very frustrating. Most stores in the Fyshwick industrial area which we visited on Friday afternoon shut at 5pm. Much of the CBD does too and phone helplines tend to have very limited hours too. This is good for the work-life balance of the people who work at those places perhaps but not for the people needing the services. In the afternoon we visited lots of furniture stores and ended up buying a bed and getting delivery set up for after we get into the apartment. Something to sleep on is the #1 priority. We are now looking at giving back the hired car on Sunday and then getting it back on Thursday for our actual move in. Snork Maiden would like to buy a car but Moom is worried about getting tied to big expenses (insurance, maintenance etc.) until we get to see what our real life budget is likely like and how we are handling our lifestyle. We are paying extra rent to get an apartment within walkable or short bikeable distance of work, stores, and public transport. We've also been discussing which of our various accounts to use for what, the financially cheapest solution isn't always the one that feels best psychologically for Moom. We see this with a lot of PF Bloggers debating whether to save money in savings accounts or pay off credit cards. Here we have money in accounts in different countries in different currencies. Some are more immediately accessible than others. I feel we need a big emergency cash buffer in Australian Dollars (that can easily be transferred online) at the moment. On the other hand, the only way we can use that money at the moment is to take it out as cash from a teller in the bank (or use a check or set up an electronic transfer (BPAY) online). We haven't got debit cards yet. Our foreign (American) accounts and credit cards have fees involved (1-3%) in making purchases here and the US Dollar is also very weak, on the other hand we have cards we can use to spend that money in stores but transferring the money here will be pretty involved. We would need to transfer it to a brokerage account first and then do a wire here. I've never actually done the latter from those accounts.

I finally got 6 hours of sleep last night and am feeling a lot better.

Friday, September 21, 2007

Rented Apartment Moving On To Next Steps

We signed the lease on an apartment yesterday but can't move in till next Friday. They approved our application without even apparently contacting our references. The current occupant is the owner. This building has a "Mediterranean" style and maybe 20 or so apartments on 3 or so floors. On the other side of the street is a park. We can just see the mountains on either side of the Canberra Valley from our two balconies. And we're walkable distance from the CBD (downtown for Americans) and to Snork Maiden's office.

My cold got worse and am not sleeping much at all, so huge effort getting stuff done, but still it is happening. Probably today we will sign up for all utilities - ACTEW/AGL/TRANSACT covers electricity, water, gas, phone, and internet in one office/bundle. We don't need water but do need the others. Unlike the US, internet packages here come in different prices according to maximum allowed downloads. The problem is that upfront I have no idea how much download capacity we need. You can check how much capacity you are using so far in the month at any time and they also send warning e-mails. Over-running the package results in charges of 13 AU cents per MB! You can change the package for $A20. So I guess we'll get a midrange one and change it if neccessary.

Yesterday was our first day of browsing in the industrial area of Fyshwick. We got a basic idea of what is available in appliances but can't buy until we get into the unit and measure the space available to fit a fridge etc. We need to move out of this accommodation a week from Saturday so it is going to be a big time crunch. Therefore, our priority is that a bed can be delivered Friday or Saturday. Any other stuff is lower priority.

Last night I tried to log on to Interactive Brokers TraderWorkstation but couldn't. After discussion with one of their support people seems that the university, whose campus we're staying on has a firewall that blocks that application from reaching the IB servers.

Tuesday, September 18, 2007

Not Very Frugal

We looked at 4 apartments today ranging in rent from $A290 to $A450 per week. We only looked at the $A290 one to see what you could get for that much. Inside it was a lot nicer than on the outside but it was rather small. The first one was on the 8th floor with a very flimsy looking balcony parapet that I'd said looked scary before we even looked inside. Great location though. The last two were being shown by the same agent. $A400 and $A450. The latter nearer the city center and larger. Moom thought the $A400 one was more "homey" and well located for a bus to Snork Maiden's employment location. But SM thought it was too small and it didn't even have a bathtub. So we will look around the $A450 apartment's neighbourhood tomorrow and then likely file an application with the agency. I think we should act when we have a viable opportunity. If we pass this one it could be a while before we find a place without competition to rent it that we actually like. Now the challenge is going to be earning enough income to cover our future expenses. The opposite of the usual PF frugality. I am still sufferring from jetlag and last night I didn't sleep at all as this was compounded with worries about whether we would qualify for an apartment we actually want to rent due to our "odd finances" and about earning enough to cover everything. The agent at least thought we would be approved. Based on my observations, the rental market here is fairly inefficient compared with the US. First, almost all rentals are condos owned by individual landlords. There are no rental complexes. At least none I've ever seen. Second, most agents put minimal effort into marketing rentals. In the US it was the norm for agents to drive clients around several apartments in an hour or so. Here the most common approach is a "viewing" - a quarter hour slot when the apartment is open for viewing. Times of viewings are only known a couple of days in advance almost by word of mouth. Most are on Saturdays. However, three of the units we saw today were not viewings - we were the only people seeing them.

Monday, September 17, 2007


Today we saw one apartment and one house. The apartment was in a brand new luxury building. Rent $A450 per week ($US1666 per month). It was nice with plenty of balconies etc. but maybe not my "cup of tea". Snork Maiden was impressed and seems that is the standard that other places will be judged by. Later we saw an old house in a suboptimal location. On the outside it looked nice. Inside the floor plan and decoration was chaotic, like a crazy maze. I always sketch out a floorplan of the places we visit to help me remember them. Halfway through, Snork Maiden said: "Don't bother". The rent was $A400 ($US1480 per month). In between we gathered plenty of information. We have several lined up tomorrow. Looking at one of the rental applications I am feeling a little scared about whether we will be accepted as I don't meet usual criteria for identification or income. How much rent will they allow us on SM's salary? I guess we'll soon find out. SM definitely prefers areas within walking distance of the city centre now. Before we came here, she told me she'd like to live further out in a house with a garden. But the reality is that even Canberra's centre is very quiet. This suits me, as long as we qualify for the rent on a place that is big enough for us.

Sunday, September 16, 2007

Driving on the Wrong Side of the Road

We rented a car to help with our first week of looking for somewhere to live. Snork Maiden's first experience of driving on the lefthand side of the road. These signs above are pretty useful :) First we aimlessly drove around some quiet neighbourhoods getting the hang of things and then started serious exploring of the neighbourhoods we'd probably like to live in, so she could get a feel for what they are like. We also did some more shopping. By the end of the morning she was getting noticeably better at making the right moves without my reminders about what side of the road to drive on, which way to turn, and not to veer towards the curb. The windscreen wipers got a good workout as that switch is in the position where the indicator switch is on lefthand drive cars.

An Economist From Birth

Once I told my father's cousin-in-law (is there such a relationship?) in Israel that I liked to visit stores when I travel and see what the prices are like in different countries. She said: "You are an economist from the womb and from birth", which sounds a lot better in Hebrew: "Ata kalkalan mibeten umilayda!" Anyway we just made our first shopping trip in Australia. I did live here before but that was five years ago and the Australian Dollar has appreciated tremendously since then. Conclusion is that Americans will find prices reasonable here for groceries and meals but some things are especially expensive. We checked McDonalds for the "Big Mac Index". Actually the "Value Meal Index" - One combo was priced at $A5.65 which is $US4.75 and so cheaper than in the US. At the supermarket some particularly expensive items were:

Apples: $A6.99 per kg = $US2.67 per pound
Bananas: $A3.99 per kg = $US1.54 per pound

We didn't buy any, but salmon is $A26 per kg = $US9.93 per pound

As I remembered, wine isn't especially cheap, which is surprising. Only a few bottles below $A10 (=$US8.50). I guess the price is comparable to the US.

Now we are in the process of trying to rent a car.

Terra Australis Incognita

For me it is a very familiar country. But Snork Maiden hasn't been here before. Both of us have done this before - move to a country on perhaps a permanent basis that we have never visited - when each of us came to study in the US.

Anyway, we were met at the airport by the guy Snork Maiden will be working for and a cab driver they hired, loaded all our bags somehow or other into his car - the trunk - or should I say boot - was open and another two jammed between me and Snork Maiden on the back seat. We are now settling into our temporary apartment on the university campus. I stayed in the same complex 11 years ago when I first came to Canberra. Snork Maiden seems extremely happy with Canberra and Australia so far and is recording her first impressions. Maybe I'll have some guest blogs from her.

* Terra Australis Incognita - the unknown southern land - was what early mapmakers called the supposed great southern continent combining both Antarctica and Australia. Eventually, explorers found that there were in fact two much smaller southern continents.

Thursday, September 13, 2007

New Beginning

Today is Rosh Hashana, the Jewish New Year. It is traditionally the day the world was created. I know this is far from a traditional way to celebrate this day, but today we are on our way to a new beginning too.

Moving to a new country is like a minor form of death and rebirth. You break so many of your attachments to your previous country, get rid of many possessions and then squeeze what is left down into what can come with you through the metal tube in the sky. Then you pop out in a new country and start rebuilding. There are few people who have moved country as much as I have. This will be my second time living in Australia after my third time living in the US. I've also lived in Britain (3 times?), where I was born, and Israel. Snork Maiden is also moving to a country she has never visited. Each of us has done that before when we first came to study in the US. I was very nervous right before that first move to the US in 1990, wondering whether I had done the right thing. And though we've spent several weeks together at a time we haven't lived together longer term. So that is a new beginning too.

The art work above by the artist Yaacov Agam is titled "Rosh Hashana".

Wednesday, September 12, 2007

Back To Square One

At least I can say I followed the model today more or less. But I still lost money. Looking back at the last 2 1/2 months I lost $3140 in July (in trading) and then gained $1028 in August. Then the first trading day of September I was down a couple of thousand. In the last week I clawed it back until I was down $160 or so for the week at the end of last week. But today and yesterday I gave a lot back and now am down $1133 for the month which takes me back to the end of July pretty much. I think I will now give trading a break until we arrive in Australia. Hopefully I learned something from all this meandering up and down in trading equity over this summer. On a positive note, this is my best trading year ever. You can see how bad the others were. Last year I made $5,958 in short term capital gains and futures profit and loss. This year I have made $11,628 so far or $13,447 using the method I use for my monthly reports.* In 2002-5 I lost money at trading. In previous years in Australia there were some years I made money and some I lost but none as good as this. The statistical analysis is still showing some significant edge despite my poor recent trading. So I'm determined to keep on going.

* Taxable capital gains includes Australian trades and all short-term gains on what I consider to be long-term investments (not including mutual fund distributions). This includes some "strategic trades" aimed at realizing tax losses. The monthly report method only includes my US accounts and measures account equity irrespective of realizing trades. It also includes trades in my Roth IRA and net interest on the accounts.

Snork Maiden Got Her Visa!

Everything is ready, only final preparations to go. Now I feel like the countdown for one of those moon or shuttle missions is on :)

Tuesday, September 11, 2007

Symbion Health - Healthscope Merger Scheme Defeated

This evening (US time still) was the shareholder meeting to approve, or as it turns out reject the Symbion Health-Healthscope merger scheme. The scheme was defeated because Primary Health voted the 20% of the company it had acquired against the deal. 99.2% of other shareholders voted in favor. But not enough other shareholders voted for the yes vote to pass the required 75% threshold. I'm glad though that my little parcel of 4000 shares wouldn't have made the difference. They needed another 1.1% of the total number of shares to be voted in favor. But right now the stock is only off about 1/2% and Healthscope and Primary are both up. Healthscope and Symbion will now see if there is another way to do a deal.

Snork Maiden made it OK to Washington. Hopefully, everything will go smoothly at the Embassy in the morning. This is what credit cards are for.

Last Minute Craziness

Snork Maiden got the e-mail this morning granting her Australia visa. But it said that the visa needs to be "evidenced" at the Australian Embassy. I phoned them and asked them what that means. They said: "she needs to send the passport in to get a label put in it". "But we're going to Australia on Thursday!" They told me she could do it in person at the Embassy in Washington between 9 and 11 am. So I booked her flight for this afternoon and a hotel for tonight and hopefully she'll get it all sorted out tomorrow morning. I was doing all this while her movers were taking her stuff out of her apartment. She only slept a couple of hours last night in a last minute rush to pack everything. Cost is around $1000 for this trip. It's good we don't live on the West Coast. The flight will be a direct 1 1/4 hours each way.

At my end things are a lot calmer. I'm having a big giveaway on Wednesday afternoon. I invited all the grad students in my former department to come take stuff. Wednesday night I'll be staying at a hotel a few blocks away. My landlord is very laid back. They just told me to leave the keys in the apartment when I'm done....

Saturday, September 08, 2007

Weekly Trading Report and Goals

This isn't a regular feature of any sort, just an update on my trading one week into the month. The model is still short but I closed all short positions before the close today, worried about rumors of the Fed making a surprise interest rate cut on Monday morning based on the employment report that came out Friday morning that showed that employment in the US fell for the first time in four years. I doubt they will do this, but you never know what might happen. The 1998 scenario is still playing out perfectly just faster than things happened in that year. If we continue to follow the script there is only about a week to the second bottom of the market paralleling the second dip in October 1998. Unfortunately we are travelling to Australia on Thursday and Friday next week, so I am not sure how to play this. If we are still on the short side for Thursday I may keep my Ameritrade account in a hedged position (short enough SPY to hedge away market risk). This will reduce my overall portfolio beta from 0.5 to 0.4 or so and mitigate the effects of any severe drop in the market.

I ended the week down $167. I was down around $2000 on Tuesday after a stupid NQ trade. I posted that bear picture as I was feeling like a bear getting run over by bulls or maybe by a truck full of bulls. Again I was trading against the model. If I hadn't taken that trade I would be up $1100 on the week. If I'd taken the trade in the direction of the model...

My aim at the moment is very modest - earn $1500 a month from trading for the rest of the year. That would bring my total to $19000 or so which was my original goal for the year. It also means maintaining the same average pace for the rest of the year. My goal for next year - I know it is a bit early to be setting next year's goals - is to double this to $3,000 a month or $36,000 a year. That is only half way still to the real goal of making $75k per year from trading, replacing my previous salary. The $36k goal looks very doable if I reduce the number of very bad trades - all the majorly losing trades against the model for instance - and only slightly increase capital deployed. I'm also setting a goal of adding $100k in net worth next year. Here is a budget - in the same format as my monthly reports that shows how we achieve this:

I know it is silly to include everything down to the last cent but I can't be bothered to round this forecast from my projection spreadsheet.

Current other income is the sum of Snork Maiden's salary and tax payments. I will be paying taxes on investment and trading income and I've deducted these here. Half of the current investment income comes from trading and I'm expecting the Australian Dollar to rise to 87 cents by the end of 2008. The non-trading, non-forex rate of return implied is 10.5%, which does not seem unreasonable. We'll be earning $68k from salary and trading income after paying all taxes and spending $47k. Our savings rate from this active income is therefore 30%. I put this in for Enough Wealth :) Snork Maiden and her employer will be contributing $9000 a year to her superannuation fund. So, if everything goes to plan, it should be doable.

Thursday, September 06, 2007

Stock Market Participants' Returns are Lower than Index Returns

Just read a very interesting paper in the American Economic Review (here is an earlier version). The author demonstrates that the average stock market participant - we're not talking just individual investors here but all participants - earns less than the index return. This is because companies tend to issue more stock when stock prices are high and make more distributions - dividends and buybacks - when prices are low. For 1926-2002 on the NYSE/AMEX exchanges the buy and hold index return was 9.9% and the dollar weighted actual return experienced was 8.6%. On NASDAQ the respective numbers for 1973-2002 were 9.6% and 4.3%! That's the effect of all those stocks issued at the height of the 1990s boom. Similar results are found for other countries. In some the effect is larger and some smaller (e.g. Australia). This drag on performance isn't quite the same as that of brokerage and management fees (though those can be reduced too) because at least in theory :) you can avoid buying overpriced IPOs. Though if a stock you own is issuing more shares causing dilution I guess that is part of this effect too. And this is also before the fact that small investors tend to be less knowledgable (but maybe overconfident) and underperform large investors.

Wednesday, September 05, 2007

Tuesday, September 04, 2007

The Rich Have Capital Gains the Middle Class Capital Losses

This table which I derived from a spreadsheet I downloaded from the IRS website * contains stunning data. You have probably heard that most traders lose money in the stockmarket but maybe you didn't know how badly most people lose money and how strongly the propensity to lose is related to income. This data is for 2005 and I am guessing contains loss carryovers from the great 2000-2002 bear market. Looking at short-term capital gains, the only income groups that had a net gain in aggreagte were those earning more than $5 million dollars a year. All other income groups had an aggregate net loss. For the $75,000 to $100,000 bracket for example the returns reporting net losses reported losses around four times greater than the returns reporting net gains. It gets worse for lower income groups. For long-term capital gains all income groups earning more than $100,000 reported an aggregate net gain. Again the ratio of gains on tax returns with net gains to the losses on tax returns with net losses rises directly with income.

I excluded the number of returns from the table to make it more legible. The tendency is for the lower income losing returns to lose far more than the winning returns gained. Not for there to be much larger numbers of losers.

If I've interpreted this data incorrectly, let me know. I'm planning on doing some more posts based on this data.

* The New York Times hid the information about this data deep in this article.

August 2007 Report

All figures are in US Dollars unless otherwise stated. This month again saw negative investment performance in USD terms, though this was due to the sharp fall in the Australian Dollar and underlying performance was positive. Trading results were positive but volatile and spending was very high. At the end of the month I merged my finances with Snork Maiden for purposes of reporting net worth etc. The income and expenditure figures for this month are mine alone, but the final net worth figure is our joint figure. Net worth fell in US Dollar terms and rose in Australian Dollar terms post-merger. Both figures fell on a pre-merger basis.

Income and Expenditure

Expenditure was $7,959. More than half the figure was moving expenses and more than a quarter the cost of my new computer. Other expenses totalled only $1625. Yes, there is a retirement contribution ($901) there though I am no longer employed.

Non-retirement accounts lost $11,332 but would have lost only $2214 if it were not for the sharp decline in the Australian Dollar. Retirement accounts lost $4151 but would have gained $2693 if exchange rates had remained constant. Net worth declined by $23k on a pre-merger basis. At one point in the month it was down around $50k.

Net Worth Performance
Net worth fell by $US5755 to $US439,155 and in Australian Dollars gained $A20817 to $A538,576. Non-retirement accounts were at $US242k. Retirement accounts were close to $US197k.

Investment Performance
Investment return in US Dollars was -3.75% vs. a 0.23% loss in the MSCI (Gross) World Index, which I use as my overall benchmark and a 1.29% gain in the S&P 500 index. Non-retirement accounts lost 5.13%. Returns in Australian Dollars terms were 1.36% and -0.02% respectively. YTD I'm up 12.9% vs the MSCI with 8.3% and the SPX with 5.1%. My non-retirement accounts are up 17.4%. So I'm not too concerned about this month's performance, especially as we gained in Australian Dollars!

The contributions of the different investments and trades are as follows:

The returns on all the individual investments are net of foreign exchange movements. Foreign currency losses appear at the bottom of the table together with the sum of all other investment income and expenses - mainly net interest. The biggest positive contribution came from the CFS Conservative Fund which has a 30/70 equity/fixed income mix. Interactive Brokers began to rebound this month. Voltality (of the right sort) should help the stock. The investment in Hudson City Bankcorp also began to pay off as it is seen as a solid bank in a shaky environment. Something similar could be said about Berkshire Hathaway. Trades in IYR, Lehman, Toll Brothers, Beazer, and the S&P 500 made nice contributions. All three of my earnings plays (AAPL, GOOG, DELL) did not work out and neither did NDX trading this month. The quant fund meltdown resulted in a huge loss in the hedge fund of funds management company Everest, Brown and Babcock and to a lesser degree in their fund of funds EBI.AX. The latter is very undervalued at the moment.

Progress on Trading Goal.

Asset Allocation
At the end of the month the portfolio had a beta of 0.50. Allocation was 35% in "passive alpha", 63% in "beta", 4% allocated to trading, 5% to industrial stocks, 10% to liquidity, and we were borrowing 17%. My Australian Dollar exposure fell to 59% partly due to the fall in the Aussie and partly due to the merger which brought in $US17k in US Dollars. The merger also increased "liquidity". We will keep this very high level of cash through the move to Australia. We'll spend quite a lot more in the process and then reallocate our cash when things have settled down in October.

Monday, September 03, 2007

Retirement Account Beneficiaries

Here's a more serious post :) Following on from the "merger" I am updating the beneficiaries on my retirement accounts. This is known in Australia as a "binding death nomination". The U.S. term sounds a lot less gloomy! It is important to do this whenever there is a change in who you would like to receive your retirement money if you were to die before them. Otherwise your money will go to who you previously designated. The money so designated does not go through the same process as your other assets would in case of death (probate) instead it goes directly to who you specify regardless of any laws on who receives the assets of people who die without a will (intestate) or whatever else the will says. The US tax implications are complex but generally it is better to direct the money directly to who you want to receive it rather than to end up paying it to your estate (the default with no beneficiary designated). When the money is paid to an estate it loses its retirement account status - if paid to a specific beneficiary they may be able to retain it as an inherited retirement account.

In Australia there is no estate tax and following the new super legislation I am supposing that there is no income tax on a dependent receiving a death benefit, however large. There used to be income tax above the "reasonable benefit limit". But if the money was paid to the estate much more income tax might be due ("the benefit is taxed as an ordinary eligible termination payment ")? Anyway, it sounds like it is a good idea to designate a beneficiary. It's important to remember that the designation is only valid for three years, after which it must again be renewed (how annoying). At the moment my Australian designation would go to my estate as no-one qualified for the limited categories of beneficiaries allowed.

I changed my US beneficiaries online. The Australian fund (Colonial First State) needs a hard copy form signed in the presence of witnesses that will wait till we get to Australia.

Saturday, September 01, 2007

Merger of Moomin Valley and Snorkdale

The merger of Moomin Valley and Snorkdale was announced today. In a stock for stock transaction, Moomin Valley, as the larger of the two enterprises, acquired all outstanding shares in Snorkdale in return for shares in Moomin Valley. Following the merger, the combined organization will move its headquarters to Australia to pursue new opportunities in supplying scientific and research services to the Australian government.

The merger is effective from the close of business on August, 31, 2007. Pre-merger the shareholder equity of Snorkdale was $17,672 and that of Moomin Valley $418,857. The tangible assets of Snorkdale consist of $19,140 in cash and deposits and $1468 in credit card debt. Moom, CEO of Moomin Valley, who will be CFO of the joint venture, was quoted as saying:

"The net financial assets of Snorkdale are obviously much lower than those of Moomin Valley, but we are pursuing this merger to combine the unique and significant human capital of Snorkdale with that of Moomin Valley. The intangible assets of the new organization will certainly be very extraordinary, dare I say peculiar :)"

Commenting on the financial status of Snorkdale, Moom further commented: "Snorkdale is a much younger organization, and as such has developed an amazing financial track record to date. At the equivalent stage of development (in 1994), Moomin Valley had net assets of around -$11k. I believe this bodes well for our combined financial future."

The combined enterprise, which is yet to be named (suggestions?) will be reporting its first accounts for the month of September and despite the move to Australia will still report in US Dollars in order to better inform the worldwide community of PF Bloggers. Moomin Valley's net worth for August, which will be reported soon, will reflect the merger though the August accounts in terms of expenditure and income will be pre-merger.

Dr Yoyo, CEO of Snorkdale, was unavailable for comment at our press deadline.

Congratulations to Snork Maiden a.k.a Dr Yoyo!

Snork Maiden a.k.a. Yoyo successfully defended her PhD dissertation on Friday. You can read all about it here.

Trading Report for August

I gained $1028 in trading in my US accounts. That's 5.6% of the capital allocated to trading. The month started well and then things got worse and worse. By last Friday I was down $1900 for the month. Then on Monday and Tuesday I gained $3400 to be up $1500. Since then the market rallied again and the gains have been gradually bleeding away. I'm sure you can imagine how demoralizing this chart would be:

Obviously, one reason I feel more comfortable trading on the short side is that I am long my investment portfolio. When I trade on the long side I am adding to my risk. When I trade on the short side I am hedging my risk. The latter feels more comfortable. Many of the more bullish people on the internet only invest or only have a small trading account. The former have to feel bullish and the latter don't have as much on the line when they go long. Many famous investors like Buffett or Soros usually sound bearish. A lot of people online who do both investing and trading also tend to sound bearish. I need to be able to separate the activities better in my mind. My trading has a beta of -0.61 to the NASDAQ 100 index. Objective evidence of bearishness. Of course I have an alpha of 5.0% per month or I would have lost money in the last year. The model I am trying to follow is market neutral.

The theoretical model gained an amazing 22.5% this month. The NASDAQ 100 index rose 2.9% in August.

On my annual goal of breaking even on my US trading accounts I am now at $55,972 and have contributed $64,000. US trading has gained $14,839 so far for the year. With this month's data my alpha relative to the model is now -2.1% per month, which is a big improvement. My beta is 0.79, which is lower, showing I am reducing my risk. I think it is good to reduce risk and focus on increasing alpha at the moment.

My overall investment return will be negative for the month in US Dollar terms but probably positive in Australian Dollar terms reported net worth will probably rise in Australian Dollar terms and fall in US Dollar terms. This is because of the steep fall in the Australian Dollar this month. At the worst point, my net worth was down around $US50,000 on last month. The quant fund meltdown also had a very negative effect on underlying returns this month. I'll post a full report in a few days time.

Even though my trading gains were rather meagre this month, the fact that I was in the black gives me a nice psychological boost. Two negative months in a row would have been rather depressing at this point.