What About the Long-Term Performance of Fission OR R3 Account

Subscriber Question: New subscriber here. I’ve watched a lot of your videos…thanks for them all…good stuff. My question is about this long-term performance. In those videos I saw this account get up to at least $114,000 on 12/10/2007 to be exact. And as of 9/28/2009 it’s at $103,000? Am I understanding that correctly?

Kurt’s Answer: Yes, that’s right on. R3 is UP a tiny amount since the fund began. As to whether you are understanding the significance of that performance correctly, read on…

I’d like to call attention to the fact that I’ve traded the RadioActive Trading method since 2002. In that time, I HAVE taken money out to live on. Over the last seven years, some returns have been better than others. R3 is only one example of what’s possible… but it’s actually a very good example because it happened to be traded during the worst bear market we’ve seen in decades.

Only from May 2007 did I agree (in response to a challenge from a subscriber) to set up an account that I would NOT take anything out of, or add anything to, but rather use it as a teaching lab. My partner at the time and I set aside $100K for the purpose. I called it R3 for Real Time, Real Money, RadioActive, and gave full access to the record for subscribers to my newsletter, Fission‘. It’s done quite well.

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While some folks (people that have been star-crossed with the promises of trading gurus) might not consider the net, 3% gain over that period to be good, it way outperforms anything I’ve seen that is long stock. No covered call trading guru that honestly publishes all his/her results can claim this performance. Few mutual funds are in this category either; I’m aware of only ONE that has similar performance. I’ll bet dimes to donuts that the fund manager used married puts in that time-frame, since their prospectus informs us that they might.

Remember the Trade Simulator Tool? It proves the fact that you can be wrong more often than right and still make money. It ALSO shows that the way to survive a sustained string of losses is to keep those losses in the single digit zone, as I’ve demonstrably done with the R3 account. So we’re on the right track, aren’t we? It’s encouraging to have this real time, real dollar record. It proves that even with an extended losing streak caused by a CRAAZY market… the R3 account is back up better than full strength.

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The key to long term growth is to have bigger wins and smaller losses. Consider these facts:

From May 2007 to Dec 2007, the S&P essentially moved sideways, while the R3 Account gained 14%.

In the period from Dec 2007 to Dec 2008, the S&P dropped approximately 40%. During this time, R3 lost only 7.2% OF that $114K it had gotten to.

Now, you and I know that we saw even FURTHER downside over the next four months. During this time, R3 bottomed as did the rest of the market. I don’t remember the exact number but I know that in March we were at $92K and change, maybe it was $92,300 or so.

S&P, meanwhile, was down about 53% from the time we began the fund.

Let’s think about what happens next: as the market is rebounding, I’m not getting into a lot of new positions at first. I’m taking the losses from January and February and attempting to “stock repair” them. But even with a late start, I took the account from $92.3K in March to $103+K… about an 11.6% gain in less than a year. Not shabby.

It’s that trader’s maxim again: cut your losers short, let your winners run. At the very worst point to have been holding long stock, in March 2008 while the S&P was down 53% from fifteen months before… I BOTTOMED at about 7.7% net loss. That left me in GREAT shape to pick up gains as the market recovered. And gain I did.

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Today, November 6, 2009… the S&P is STILL down from the heights at which it was on May 1st, 2007 when I began R3. About 30% down.

Those bought and held SPY on May 1, 2007 are therefore down 30%. Those that traded covered calls are likely down even more, because individual stocks… particularly the volatile kind that make covered calls trading sexy… tend to take bigger hits than an index.

So, while some folks think I should be ashamed of the meager 3% net that my method has cranked out in the time frame that most everyone else lost 30% or worse… I don’t buy that. Couple that with the fact that I’ve actually seen 200%, one year gains in some married put positions over the seven years I’ve been doing this (check historical data on YHOO, EBAY, and AMZN). You can do very, very well trading stock with protection.

The fact that I started R3 in May 2007 and rolled it up 14% in about seven months (in a sideways market) should speak volumes about what is possible buying long stock, protecting it with put options, and using the “Income Methods”… WHEN the market is cooperating. When it stopped cooperating, the puts saved me and anyone else that was smart enough to listen to me.

Also, again in the period of the last seven, eight months or so, the 11.6% gain from the bottom oughtta say a thing or two.

I’ve done this method since 2002, and this was my first catastrophic market. I’ve learned a lesson or two from it. Right now, we have in development, a way to play the short side of the market RadioActively and you can bet I’ll have ‘er ready by the time we have another market top. That way we can have protected positions and take advantage of BOTH sides of the market instead of just being long stock all the time.

About Kurt Frankenberg

Kurt Frankenberg is an author and speaker about entrepreneurship, martial arts, and trading the stock and options markets. One of several "Biznesses" he founded as a teen, The Freedom School of Martial Arts, has been in continuous operation since 1986. Kurt lives in Colorado Springs with his wife Sabrina, German Shepherd Jovi, and his ninja cat Tabi.