2012 Performance Evaluation (Part 4)

In the last few posts, I have been conducting my 2012 annual review.  In the future, this will take only a day or two.  Since I have never blogged about it before, however, this time I am reviewing back to inception.  I reviewed 2008 and 2009 in http://www.optionfanatic.com/2013/02/13/2012-performance-evaluation-part-3/.  Today I will continue with 2010-11.

By the numbers, 2010 went like this:

May 6, 2010, was the infamous Flash Crash where the DJIA dropped over 1000 points in one hour.  May capped my MDD for the year of 20.5%.  In the last post, I said this would be an acceptable annual MDD if it never got any worse.  The largest MDD seen in the major indices for 2010 was 13.9% (Russell 2000), though.  That makes my MDD seem a bit less heartening.

As market volatility soared from April to May of 2010, my portfolio hemorrhaged cash.  The psychic pain became too much to bear on May 6, when I closed the last of my long positions.  This may sound familiar because it is:  a third time being caught trading too large.  As is often the case when trading too large, I was forced out at the absolute worst time (MDD).

2011 was very similar to 2010:

Again, this year brought a more severe mid-year market crash (Russell 2000 down 24.3% in 2011 vs. 17.1% in 2010 over roughly a 1-month time period), albeit without the magnitude of volatility increase seen during the Flash Crash (volatility spiked 65.2% in 2011 vs. 172% in 2010 over roughly a 1-month time period).  I was camping at the time (with my laptop), and was caught with my pants down carrying too large a position for–what time is this?  2007, 2009, 2010… oh yeah, the FOURTH time.  In prior posts, I have said that a 20% maximum drawdown (MDD) from one year to the next would be acceptable to me.  In 2011, my MDD was 50.1%.  Contrast this with the largest broad based index MDD of 25.6% and you have a recipe for disaster.

The analysis will continue with my next post.