In spite of the potentially provocative title of this post, it has absolutely nothing to do with Weinergate. On the contrary, it's about a relatively dry subject but one which is very close to my heart – – my portfolio spreadsheet and what it tells me each day.
I've got three laptops and seven monitors for my trading system. One of those monitors shows me the most important data, which relates to my positions, their individual profits and losses, and the cumulative profit and loss. This updates second to second, and it gives me an excellent way to gauge the pulse of the market.
The spreadsheet has a huge amount of information on it, but one chunk of cells in particular is very important to me (I've blotted out the private information with actual dollar figures). It shows me my P/L for the day as well as the cumulative P/L for all time as well as interest expenses, dividends, and long-term P&L.
More important than that is the information in the column next to it, which I called my ISQ column. That stands for the three ETFs IWM, SPY, and QQQ, which represent three different slices of the market (small caps, big gaps, and the NASDAQ 100). Sometimes these items are relatively close together, but often they are quite different illustrating where strength or weakness is. Today, for instance, the NASDAQ was quite weak compared to the S&P 500. Below these figures, in bold, is the average of all my presently open positions (in this instance, a gain of 0.21%).
What's in yellow, however, is the single most important data point of all – it shows how I am doing during the current day versus of average of the IWM, SPY, and QQQ. In this example, I was down 0.42% versus a market that was unchanged. I'm not very happy with that, of course, but this is the kind of data point that tells me, for the day, how my portfolio is holding up.
There's another chunk of the spreadsheet that repeats this percentage figure and also computes the percentage if I was 100% committed. In other words, if I am up 0.25% on a given day, but I am 50% in positions and 50% in cash, then the weighted percentage would be 0.50% (in other words, what it would be if I had all of my portfolio in these same positions). By the same token, if I was using margin and had 200% commitment, then the weighted percentage woudl be merely 0.125%.
Since my portfolio is, more often than not, bearishly tilted, my goal is pretty simple:
(a) On UP days in the market, have a correlation of less than -1. For instance, if the market was up 1%, I would be happy being down, for instance, 0.5%. In other words, I understand that I should be losing money on a strong up day, but I'd like to be losing less than I would if I simply were short indexes. This can be achieved by either being "light" in my portfolio (being partly in cash, which isn't harmed by market moves) and/or by having portfolio components which aren't rising as much as the market in general.
(b) On DOWN days in the market, have a correlation of greater than -1. So if the market is down 1%, I'd like to be up more than 1%. Yesterday (June 6th) was such a day. As difficult as it is to make money on the short side in a market like this, what I certainly want to do is make a lot of money during those instances when the market actually manages to go down!
The last thing I'll point out is this: before my trading day begins, I make sure all my spreadsheet figures are accurate to the penny, then I save a duplicate copy of my positions spreadsheet called Positions Comparison. Therefore, as the day wears on, and I move in and out of positions, I have two reference points – one of them is my real spreadsheet (which shows real life), and the other shows what would have happened if I had done absolutely nothing at all (no stop-outs, no new positions). Naturally what I want to see is that I do better on my real-life spreadsheet than on my original one, since the contrary indicates that I'm only hurting myself!
Today, for instance, I was somewhat irked when I checked my Positions Comparison spreadsheet and saw this:
As you can see, I was down 0.22% in this portfolio, which is half as bad as my other one. In other words, my efforts (and my stop-outs) resulted in doing worse than if I had simply let everything "ride" for the day. It's not always like this, of course, but today is a good example of how a single data point can be very illuminating (and perhaps painful).
We live in a "bottom line" society, and there's no better bottom line for me than these spreadsheets. It tells me, tick by tick, if I am adding (or subtracting) value to my portfolio via my efforts, and it gives me a sense as to how I'm doing when stacked up against the market. I urge any active traders out there to help craft their own spreadsheets to provide the same insights for their trading days ahead.