What?! Another 2016 Report post?
Unfortunately, right at the end of 2016, more precisely on the 30th of December 2016, I have noticed a series of conceptual mistakes in calculating returns from Options and this inevitably brought me to re-think from scratch my Portfolio spreadsheet as it was not fit for the task that the Long Haul Portfolio is now undertaking.
Alas it was not just a matter of changing a thing here and there, and was only thanks to the spreadsheets that I have found on Two Investing that I managed to create a model that can work with 3 currencies, options, account cashflow and finally the Italian tax system in order to have an “idea” of what is the tax burden that I have to report at the end of the year.
As I was incorrectly reporting options gains (I was reporting all premiums regardless of an option being closed or not, so actual gain was not locked it), numbers are totally different from what I wrote in previous posts.
Incidentally this was a great mistake to make “now” because it taught me another lesson about options, especially on rolling options to different months/strikes. As by rolling you close one option with a loss to open a new position further in time (normally the difference between the two is positive, so if all goes well there will be a gain in the end), you actually take a loss immediately and this is what the Italian government is interested when asking for taxes. As one of my targets is to try to optimise taxes, commissions and so on, 2016 was a major failure for me as I took steps to do “wash sales” confident in a profit that I did not have. So in the end I will report a capital “loss” in 2016 to the tax office (dividends are treated in a different way in Italy and they are taxes no matter what).
I guess you live and learn.
The automagic question that one might ask is: you don’t seem all that concerned about it?
Well under the strictly maniac compulsive point of view, having a bad excel spreadsheet it’s enough to start a depression spiral!! (only joking, I am not THAT bad)
Under the investment point of view, it’s just a cashflow problem. I am confident that the steps that I have taken to roll options and enter certain strategies is going to go well, so it’s just a matter of a postponed gain (I hope), but as the taxman can change how things go in the end I really need to pay attention and start reporting correctly. I will not be able to replace the work of an accountant (that I need), but I need to get as close as possible to the real final result as some investing decisions are made also looking at the taxable situation.
So without much further ado, here is how the situation has been in 2016:
What has changed:
- There are no more 5 months above 1000 euro. Now we have only 4 and 1 with a loss!!
- I have actualized all dividends to reflect the exchange rate of the day of payment (took me ages this one), the total in Euro has therefore decreased a little, but no major worry there.
Here are details for the LH Tracker:
Proportions have not changed all that much, Total Return is still the same. But YoC has changed in a major way, as it lost 1.25% flat over the previous reporting. Again I apologize for it as it might have lead to misleading readings of the Portfolio, but technically that 1,25% should re-appear in due time when some of the “difficult” positions for my options are cleared.
In general terms, over 2 years we still have the same Yearly Return of 3,53%, the same costs of 1.05% (for a Net result of 2.48%) but the PF is generating only 2.13% in dividends and gains from options.
To wrap it all up, 2016 was the second of my “learning years” I am pretty happy of how it went, the basic dividend strategy and stock picking worked fine, and I have learnt a lot of new strategies that I can place for those.
Options are relatively new, so I guess there is much more that I need to learn, but they are certainly going to be a drive to growth of value, especially once I manage to clear the mistakes made when I started and that I still drag along now (I refuse to make a loss if I can).
The Google Sheet Drama taught me that it’s always good to review accounts and the way me made things, it was thanks to the community that I started re-assessing my reporting system and found that I was wrong.
I am now ready to start working (late) on 2017 targets! 🙂