PORTFOLIO UPDATE: A HARI KRISHNA IN A GLASS FACTORY
During the trading day Friday, I tweeted the following:
Uncharacteristically cautious of me to be taking exposure off while the market is sitting at multi-year highs. I've been questioning myself over the past couple weeks as to why I am behaving like a Hari Krishna in a glass factory. The market, after all, seems to be as inviting as any a point over the past couple of years. Volatility doesn't exist, unless it is dip buyers driving the markets higher. Back patting, whether self-administered or shared, is surging. Teenage actors are becoming day traders. The money tree seems ripe for the picking.
There is also the issue of raw price, without any regards to resistance areas or sentiment indicators. From a pure price perspective, there continues to be a contraction in volatility, which traditionally indicates a continuation of the current trend. Volume is also contracting, which has been the norm during bull runs for years now.
So why have I deemed it necessary to take my cash position up to 40%, with a 10% leveraged inverse ETF hedge mixed in to reduce net exposure even further?
The primary reason, going beyond the worries I have illustrated over the past couple of weeks, has to do with the performance of the portfolios relative to the market thus far in February. I have a number of risk controls in place, some performance based and others quantitative in nature. I've hit a performance based risk control here in February. Actually, it was right on the borderline. However, I decided to err on the side of caution because of the position of the portfolios (performance wise) relative to the general market.
It would be one thing if I was flat this month. It would be one thing if I was down 1 or 2 percent this month. Being down nearly 4 percent this month, however, while the averages are sitting in what I have deemed an unfavorable risk/reward position just doesn't sit well with me. The default decision in all situations where discomfort reigns should be cautious in nature. I reviewed that philosophy in detail this past week.
I did not liquidate any positions entirely last week. Bits and pieces from each were cut back where I had the opportunity. Large positions were made mid-sized positions. Small positions were made minute positions. There will likely be very little activity for the remainder of February on my behalf. In March, I will weigh things and decide whether to put cash back to work or perhaps reduce net exposure further via raising cash or adding to TZA.
As it stands on the close Friday, current positions include WMIH, SPNS, UPIP, PRXI, MITL and TZA.
