Tuesday, December 25, 2007

Trading and Investing Cash Flows for 2008

I'll be doing comprehensive reporting on the year's activity and performance later in January but as the mutual fund distributions are in for the year and I don't plan on doing any more trades with real money till the new year I can report on passive and active investing and trading income in terms of cash payments for 2007:

These numbers are for non-retirement accounts only and also do not include unrealised investment gains nor tax credits received. On the other hand, I don't deduct margin interest costs which were capitalised onto the loan principal. So these are the actual cash payments received that we could have had paid out to a bank account (and in many cases did). For long-term gains and takeovers I'm only counting the profits from the transaction though, not the entire cash received this year. At first glance the numbers look good with a 34.4% gain in investing and trading cash flows in USD terms and a 23% gain in Australian Dollar terms (all numbers to the left of the total column are in US Dollars). If you count the takeover of Powertel as a regular long-term gain, long-term gains realised also increased this year by 60%. Despite all my recent gloom trading income rose 56%. The problem is that I was in a much better position at the end of June regarding trading and unrealised investment gains have also fallen substantially since then. Total income is 24.1% of non-retirement net worth at the beginning of the year, which is similar to 2006's 22.8% rate. Again, this isn't our investment rate of return, which I estimate at 19.5% in USD terms including unrealized gains, tax credits, and margin interest, or only 8.3% in AUD terms (19.1% and 10.2% in 2006).

Looking forward to 2008, I am obviously hoping to do better on the trading front, though even repeating this years 56% improvement in trading income would still not give me very good results in absolute dollar terms. I expect mutual fund distributions to be flat or lower as it seems that the rate of payout has been unsustainable due to the funds selling a lot of their longer term holdings this year and I don't expect as large a gain in dividends in 2008 either. In short, I'm not expecting another 23% increase in cash flow and if it comes it will probably have to be from trading.

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