Saturday, December 11, 2010

A Cycle Turn Of My Own

It is my personal and humble opinion that all of life is connected. Connected in ways that we will probably never fully understand. For some reason that I cannot explain, it seems that major events in my life have been connected directly or indirectly to the financial markets even before I became so involved with them.

I married my wife in December 1987. We were in love. I didn't have a full time job, and I didn't know anything about the stock market or any other financial market for that matter. I wanted to live a simple life, but life had other plans. Little did I know that the crash of 1987 would affect me so greatly. Even though I was highly qualified for a variety of positions in the engineering field, the economy was in the doldrums and there were few jobs to be found. I needed a job badly, and I only had two offers. One required moving to another state to work at a stable Fortune 500 company where I would probably still be working today if I hadn't taken the other job that did not require moving.

The other job (the road less travelled, if you will) has led me down a path that has been an adventure to say the least. But adventures are rarely easy. They can be fun, exciting, fear provoking, life threatening and a host of other uncommon things. I was able to get my professional engineer's license, general contracting license and heating and plumbing licenses while working in the other job that didn't require moving. After some time I got up the courage to strike out on my own in construction in 1995. This was coincidentally the acceleration point for the late 1990's stock market bubble. I had no idea.

I had this sense that housing was about to take off. I was right, but we were not in the right geographical location to really benefit from the boom. So although we were able to develop a high volume of work, the margins were not so great, and the business was difficult.

I started trading in late 1999. At the same time several important developments occured in the construction business. We landed several large commercial contracts, and it really looked as though my dreams were coming true. The sky was the limit. My trading account soared, and so did the construction business. But then just as quickly, the tide turned. First of all, I gave back all of the profits in my trading account and then some. Then, one of the commercial contracts fell apart after 9/11. Things continued to get worse into 2002. It was in December 2002 at the bottom of the dot.com bust that I learned I had a thyroid disease. I was so physically spent that I could barely work, but it was at that time that I committed myself to really learning how to trade.

Over the next four years I worked to regain my health, maintain enough construction work to pay the bills, and I learned to trade. I kept a small account. My goal was not account appreciation, but learning how to trade safely, prudently, consistently and successfully. During that entire time I only added money to my account one time, and it was a small amount. By late 2006 I knew that I had achieved my goal of learning to trade. The only thing to do was to keep on keeping on. I did add a little to the account at that point, and I started using sufficient margin to generate sizeable returns. The experience that I gained during the four years from 2002 to 2006 has allowed me to keep drawdowns under control with appropriate position sizing and risk management. These two things alone have kept me out of trouble most of time.

At the same time that I reached a level of competence in trading. We decided to buy a development from a local developer that was getting out of the business due to health problems. The price was right. I had done a proforma based on a worse case scenario. If the worse case scenario was seen, we should get out around break even. I also knew based on the work of Robert Shiller, Harry Dent and Robert Prechter that the housing market was likely due for a downturn. We had hoped to have the small development finished by late 2007 or early 2008, so I believed that we could miss the coming disaster. Well, I was wrong. Things started off great, but just as we passed the halfway point in 2007, the bottom fell out. The contracts fell through on the houses we had under construction because the banks would no longer loan money to the buyers. We ended up sitting on those unfinished houses until 2009. Fortunately, our business bank worked with us and did not call the construction loans or it would have been all over for us financially.

Also, fortunately we had found a great new realtor who was able to find buyers for those homes. She also got us presale contracts on the remaining lots this year, and we have been able to finish the development. We closed the last unit on December 1. I did some touchup work the following week and everything is complete.

Back in 2006 when we bought the development, I had a strong sense that I needed a backup plan. By another set of fortuitous circumstances it was suggested to me that I should consider doing consulting engineering work by a draftsman that had done some work for us. I had kept my PE license active all these years and a friend referred me to a businessman in our town that needed an engineer. After an interview with him, he hired me to do all of the mechanical and plumbing design for his new microbrewery. He had already been brewing beer successfully for many years and is well known in the area. This launched my consulting engineering business. There have been many ups and downs and late nights, but after two years I was able to replace my construction income. This is what allowed me to continue working on the development even though we only broke even in the end.

I am now officially no longer a contractor. I am leaving that business behind after 16 years. I find it interesting that I may be doing so at another important cycle turn date.

In late 2007, I decided to start blogging. I knew that this would be an exciting time for trading, and I got started right at the beginning of one of the biggest downtrends in many decades. It is my goal to replace my consulting income with trading income. That hasn't happened yet, but I started this site for the purpose of conveying to others what I have learned along the way, and as a way of forcing myself to maintain an even greater level of personal integrity with respect to my trading. I will continue to blog, and I have plans to expand this site to include for pay services in the future. These will be more along the lines of trading education, not stock picks and trading signals. I would rather people learn to trade for themselves.

At this time I am also starting a joint venture with a friend to trade a futures system that has proven successul over the last few years. It is a conservative system, and I expect that it will be profitable over the long run. I will let you know how that is going next year once we get everything up and running. This will not be a fund or for outside investment.

So, I am starting a new chapter in my life. I expect that based on past history future changes in my life will occur at important times in the financial markets as well. If so, they may be coming fairly soon as there will continue to be regular major turning points over the next six years before the next secular bull market gets underway.

4 comments:

NikeBoy2008 said...

good luck in your new endeavor...thank you for this blog

Anonymous said...

good luck in your endeavor...and thank you for this blog

dave said...

Craig,

How synchronous that i should leave a comment recently and thus see this wonderful post about your past & recent changes. Only by looking for comments did i see it. Quite honestly, i haven't looked at your blog much during the past yr. Not because i didn't find it quite valuable, but i had made the decision to cut back because i wanted to avoid another period like 2004/05, which i can only describe as "digging a trench with a spoon".

After devoting 60+ hours a week for many, many yrs to intermediate-term trading, i wanted to cut back for an indeterminate period of time.

I can only conclude since you did not mention otherwise that your wife's health has improved. I am again reading & enjoying http://www.mitfordbooks.com/ which i had urged that you suggest to your wife in her convalescence. So, i once again am enjoying a fictional small North Carolina town.

Best Wishes,

dave

R. Craig Pritchard said...

Dave,

Thanks for asking about my wife. In many ways she is doing better, but in other ways she continues to struggle. We remain hopeful.

I understand completely how you feel with the hours. At one time I am sure I was spending 40 hours a week. Now, even with the blog I put in about 15 hours a week. I think it is a matter of ingrained positive habits. At some point, there is nothing else to do, but follow the plan. At the present time, I can pretty determine what I need to do in a matter of a few minutes at the end of the day. The rest of the time is about understanding what may be coming in the future. I am looking (stalking may be a better word) for the great infrequent opportunites like 2008 and 2009.

I think we will see some good moves over the next two years, but I am concerned that even if there is selling into 2016 after 2012/13 it may be a really choppy down, which I think is the worst kind of market.

All the best,

Craig