Happy New Year everyone! The beginning of January is normally a time when everyone reviews the success of their picks from the year before and here will not be any different. On this site, I periodically post articles of securities using the "Divi-X" System, as well as articles on securities I invest in personally using the "Divi-X" System (you can find all of them under "Case Studies" from the "Main Menu").
Last year, I wanted to do a personal "Divi-X" portfolio review for 2015 but I didn't have enough activity to justify it. Normally, I am not an active trader (I'm a buy and hold kind of guy), but last year I did manage to make a few trades and I'm going to share the results with you now. Following, is a table with every buy and sell transaction I made in the year 2016 using the "Divi-X" system. For the casual reader, it pretty much sums it all up. For a more in-depth look at the numbers behind the numbers, I think you'll find the remainder of this article interesting.
I'm not the type of person that feels the need to have my money in the market at all times. I will sit on cash earning nothing waiting for a good opportunity rather than invest in something just for the sake of being invested. I do always look for good stocks at a reasonable price so if I get extra cash I can invest it right away. That doesn't always pan out, however, which is why you will notice that my first investment purchase in 2016 was on Feb. 17th when I purchased 300 shares of Prospect Capital Corporation.
My Return on Investment
We're going to take a look at my returns for 2016 a couple of different ways. Normally, I would take my accounts ending balance at the end of the year and divide that by my balance at the beginning of the year to figure out my overall return percentage. But because I have other activity in my account besides investments using the "Divi-X" system such as, long-term holdings, dividend reinvestments, or sometimes idle cash, it's not always so clear cut. I cover this in great detail in my book.
Actual Returns per Security
First off, the returns you see in the chart are my actual returns on investment using the "Divi-X" system. Take a look at New York Mortgage Trust, for example. I invested $201.00 to purchase my 300 shares of NYMT @ 4.67/share. I then sold my 300 shares about two months later @ $5.63/share and netted a $272.55 profit for a return of 135.60% (annualized, that's about a 1007% return but not realistic so let's move on). The same investment without "Divi-X" only netted a 23.99% return. Still very good but pales in comparison to "Divi-X."
If you are reading this article and scratching your head, it's because you haven't learned our very simple system.
Overall Return Scenario One Performance
Because I was buying and selling throughout the year, my invested cash balance was never the same. Up until my first purchase of PSEC in February, my invested cash balance was $0.00. At it's highest point, my total cash out of pocket was $2090.45 reached on June 24th when I purchased GameStop Corporation and that was for just over a month because I shortly sold more PSEC on August 9th reducing my cash invested amount by $284.74 ($116.79 cash invested plus $167.95 net return). Then it was reduced even further by $937.94 when I sold GameStop on August 29th ($782.25 cash invested plus $155.69 net return) leaving me invested at only $867.77.
Anyway, let's just say we were to calculate our overall return on the point when we were invested the most at $2090.45 in June of 2016. How did we do?
If we use the $2090.45 to figure our return on investment you can see that had we not used "Divi-X" (in purple), we would have earned a very decent 31.67% on our money, or $662.08. Now if you look at the "Divi-X" returns (in green) just to the right, we get a return of 70.07%, or $1464.77. That is more than double what we would've earned had we not used "Divi-X," or 38.40% more and $802.69 more.
Overall Returns Scenario Two Performance
Now, I would think that if you had nothing else to invest your money in and it just sat idle till an opportunity came along, Scenario One would probably be a good method to calculate your returns on. But what if that were not the case and you always had your money working for you? How then, would you calculate your investment returns?
Based on one of my opening statements when I started this article, I mentioned that I am the type that sits on cash waiting for an opportunity so Scenario One would be for me unless I had other opportunities available. If I did have opportunities available, Scenario One would not be fair. Now if those opportunities are with "Divi-X," those returns would be rolled into the rest. But, if those opportunities are not "Divi-X" related (rental home, business expansion, CD's, annuities, etc.), that cash is removed from "Divi-X" return calculations. So then, what do we do?
It makes no sense to calculate returns on the highest dollar amount invested at any one time, because if it isn't using "Divi-X," it theoretically is invested somewhere else, hopefully earning satisfactory returns as well. And, because my cash invested at any one time fluctuated drastically throughout the year, it's hard to pin down an exact dollar amount to calculate my returns on.
Here's what you do. Simply calculate the average invested monthly dollars throughout the year.
You may notice in the image above, that our invested balance reached as high as $2446.20 at one point, which is a bit higher than the $2090.45 maximum we reached in Scenario One. The reason is that in Scenario One, returns on investments were used toward the new investments requiring less cash out of pocket. In Scenario Two, we did not do that because we swept gains out of the "Divi-X" account which we assume would be reinvested elsewhere. Anyway, back to the image, we see that our Monthly AVG invested balance for the year 2016 was $1519.79. That is the number that we would use to calculate our overall returns on.
A sizable difference over Scenario One with and without "Divi-X." Without "Divi-X" turned in a performance anyone would be pleased with, but WOW! Look at the returns using "Divi-X." We literally almost doubled our money with a 96.38% return on our invested cash. A whopping 52.82% outperformance over without "Divi-X."
This article was suppose to be a simple performance review for my 2016 stock transactions but it quickly evolved into a more in-depth, how-to article. In any case, I hope it merited your time and I wish you a safe and prosperous New Year. Till next time, many happy returns!
Authored by Lee Carroll Wentker
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