THERE IS NOTHING TO SEE HERE, CARRY ON
As I sit here to ponder the ongoing conundrum that is the financial markets over a cup of tea, with Bun B delivering his rousing collaboration with Jeezy that they aptly named "Just Like That" playing in the background, I am torn by the continuing bifurcation between the markets and the portfolio of names I have assembled. Typically when greeted with under-performance, such as the case in this particular situation, there are a number of simple alternatives to remedy the issue. In this case, however, I am hard pressed to discover a means of delivering a return via any vehicle that is able to deliver reasonable risk/reward over the intermediate to long-term. My question then becomes: How many other guardians of capital are facing the same dilemma as I am? According to the statistics that are being cluster-bombed into whatever accommodating portions of the mind remain, the average, above average and even mediocre market professional is fully allocated to this market currently. That is a very important distinction if you subscribe to the same core fundamental concept as I do when it comes to the market. That concept simply states that wherever the most opportunity for pain exists, the market will exploit that point. Therefore, if allocation is to the point of being full across a broad spectrum of market professionals, the knife wielding sociopath that is the stock market will turn maniacal, with Wall Street eventually being covered in testes from multiple affluent regions throughout the modern world. A United Colors of Benetton testicular circus for the ages, if you will. It becomes a difficult proposition then. I have two distinct sets of circumstances causing me angst: 1. Risk/reward for new positions that is well below any conceivable comfort level that I am willing to accept 2. A belief in the markets being the ultimate henchman that won't allow me to act with confidence when everybody else is With those factors playing against me, whether or not they are reality based is not important. The fact that I am entertaining them means that there is not a move I can make outside of where I am currently that can be done with any confidence. To attempt to play catch up here because I am under-performing a benchmark that has been on a literal tear has a negative expected value, therefore. So I sit with a 75% invested portfolio in names that really haven't been doing a whole lot outside of SPNS. As I said, there is nothing to see here, carry...
A NEW PROBLEM FOR AAPL: IT IS NOW OFFICIALLY A “CATCH UP” INVESTMENT
Be forewarned: The message that I deliver is generally mundane in nature. I bring no delusion of sudden wealth being created in the equity markets as I have found that when the words sudden and wealth are combined, the word catastrophe is not too far behind. The only way to become wealthy in the markets is through a steady regime of controlling risk. Everything else you are being sold is poppycock that deserves no place other than stuck to the bottom of your penny loafers. There is a grand delusion among a majority of participants on Wall Street that buying into under-performing names during spectacular bull runs similar to what we are experiencing currently is an organic means of diffusing risk. The catch up trade in popular, under-performing names has been a favorite among both amateur and professional investors since the first ticker tape began stringing along the emotions of money hungry young men. Much like cutting profits short, adding to losers or following group think over the proverbial cliff, the catch up trade is a ticket to miserable existence on Wall Street. In the here and now, we are in the middle of an extremely powerful rally that has caught both professional and retail investor flat footed. There are those who are desperate for an opportunity to catch up but are afraid of the risk of buying into the momentum driven leaders of the current rally. Human nature, being as it is, loves the feeling of a bargain when all else seems to be selling for a premium. It doesn't hurt when that bargain just so happens to be one of the most widely held, popular, cult-driven investment names of the past decade. AAPL is going to act as a gravitational moron beam over the next few months attracting the type of capital that is toxic in nature. It will be capital that has either A) missed out on this rally and is now looking for a seemingly low risk proposition to catch up OR B) capital that continues to be infatuated with the story, prestige and fundamental ratios that have been cited for the past 250 points down. In other words, the dumb money. Furthermore, AAPL has another problem that acts as an impediment to its future appreciation. By missing out on one of the most spectacular rallies to grace the pocketbooks of Wall Street participants over the past six months, it has inextricably placed itself in a position of great difficulty. Odds are that by the time AAPL is granted the footing to put together any type of sustainable bottom, the markets will not be as...
5 CHARTS THAT WILL CREATE BENEVOLENCE AMONG INVESTORS DURING THE WEEK AHEAD
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CONSIDERATIONS
Some considerations: 1. I've had May come up as being an important turning point for the markets since Q3-Q4 of last year. I had a strong inclination that it would be a low based on the behavior of the market. It is becoming apparent that this assessment is incorrect. Perhaps May will bring about the elusive top? If so, this rally will have gone much further than most everyone expected. 2. The purpose of trajectory points is to gauge the behavior of the market around historically significant areas of resistance/support. A break of most relevant trajectory points, including generational trajectory points on the S&P and Dow, is in theory bullish. The Dow has now shattered all of its trajectory points. The only hope for the bears is that the S&P 500 doesn't begin running away from its trajectory, similar to the Dow. By the looks of this past week in the markets, the running away process for the S&P 500 has kicked off. 3. How little attention the markets pay to anything except the impetus to advance cannot be ignored. No form of analysis exceeds in a market of this nature, except to buy and hold. Those who have been afflicted by thought the past couple of months have found themselves heavily allocated towards cash or net short. The markets have no obligation to make sense. 4. Financials continue to lead in an organized manner that looks to have continuation in mind. 5. AAPL will be an under-performing asset well into 2014. There will be no respite for the weary. 6. The divergence between equities and commodities still rubs me the wrong way. Perhaps we are entering a period of strong USD/strong equity correlation that will render commodities helpless? 7. All of these considerations have no weighting whatsoever on my actions in the markets. I am comfortably allocated at roughly 75% long and 25% cash. When the proper set of circumstances present themselves, the cash will be put to work. Perhaps during the second half of this month. Perhaps during the second half of this year. I am in no particular hurry. Some considerations I am making on a Sunday morning in a market that probably deserves less thought that most are giving...
PORTFOLIO UPDATE: THE CROSSROADS
During the trading day, I tweeted the following: Not only was this loss a direct affront to the method of technical analysis I subscribe to, but it also laid out my short-term trend indicator. Two proportionately accurate measures of the market befuddled, left shaking and vulnerable against a graffiti marked brick wall. I will have details regarding the potential direction for the markets during the weekend. As of the close today, the portfolios are roughly 75% long spread across WMIH, SPNS, IWSY and...
THE LITTLE BOOK OF WHAT NOT TO DO WHEN BEHIND
2013 has taken on a rigid frown with relation to the managed portfolios. While the S&P 500 is up nearly 9%, the portfolios are essentially flat this year. Not necessarily surprised by this lack of performance given the fact that small-cap names that I choose to participate in often times create their gains in sudden, dramatic fashion, followed by months of relatively meaningless, sideways action. It is part and parcel of investing in companies with market caps below $500 million. However, this tendency toward under-performance has certainly put a damper on my ability to push forward with new ideas. Allow me to explain: There are a couple new investment ideas I have been researching during 2013. One is a retail name and the other a regional bank. Both have the obligatory minimal risk equation as a result of restructuring within the company and apparent stability in price over an extended period of time. Both also have the equally important upside potential in excess of 3 to 4 times current price. What these names don't have is the blessing of a portfolio that is prepared to take on more risk. There are various layers of risk management that are deployed across the portfolios I manage. One of these layers is a simple rule that disallows any increase in net exposure during periods of drawdown. I don't ever want to be in a position where risk is increased as a direct result of wanting to catch up in performance. A devious phenomenon begins taking shape within the mind when pressured by exclusion from the markets as a result of under-performance. It is amplified further when the markets have essentially been lubricated to the point where anyone who places a dollar into the machine is assured of walking away with some form of profit. The pressure of being left out of the party creates a response that is driven on one side by greed and on the other side by fear. The greed reflex sees the amount of capital being created, counting that capital essentially as a loss within the overall portfolio. Every dollar that is missed with every tick higher in the Dow creates a response that moves the participant closer to the investment hell that is chasing performance. Judgment becomes clouded. The barrier to entry for new positions becomes less and less. The opinions of those around you, whether social media related or otherwise, begin resonating with increased intensity. The impetus to act on greed becomes overwhelming in nature. The fear reflex is an even greater obstacle. You see, it is fear that kept the participant out of the market to...
MURDER SHE WROTE STARRING AAPL
There is an entire generation of cell phone and internet driven youth that has come of age watching the lurid filth that modern day television provides. Gone are the days of quality programming like Murder She Wrote starring Angela Lansbury. I have never watched a single episode of this show, as I preferred shows like Silver Spoons and reruns of CHIPs growing up in the 80s. However, flipping through all 12 channels of cable television, seeing Angela Lansbury sitting at her dimly lit desk, fingers clicking away on a typewriter, was an unavoidable and at the same time comforting consequence of my youth. I could wrap in a cool analogy at this point to firmly implant AAPL in some way, shape or form into either Angela Lansbury or the show she starred in. However, I will spare you that injustice. I simply liked the title and felt like typing a paragraph about 80s television programming. Now onto AAPL. If you will recall on January 23rd, I posted this chart outlining a target I had in mind for AAPL over the short to intermediate term, as well as the long-term. The price of AAPL was 514 at the close of the 23rd. However, I put this chart together after earnings had already been announced, with the stock trading somewhere around 470-480 afterhours. Here is a look at the chart posted on January 23rd, showing a short to intermediate term price target for AAPL of 400-420: It does seem that the lower end of that target (based on red trajectory) is in play. In fact, the trajectory currently sits at 390, which seems like a perfectly reasonable downside target. Breaking another round number, after plunging through 500 just a little over a month ago, will set up psychologically depressive havoc in the stock that may just be the proper formula for the process of bottoming to commence. Now notice, I did say the PROCESS of bottoming. And it will be process. In either case, whatever bounce we get starting in the next week or so will likely dissipate by mid-May. The bottom line is that the bearish side of the bet on AAPL is getting close to running its course. Downside from here is roughly 30 points give or take 10 either way. Upside over the next couple of months is 460, perhaps 480. Here is the technical look as of the close...
4 CHARTS THAT ARE CAUSE TO KEEP DISTANCE FROM THE MARKETS, IF NOTHING ELSE
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PORTFOLIO UPDATE: ELIMINATION TIME
During the trading day Friday, I tweeted the following: I discussed all of these moves in fair detail during the February Performance Summary posted yesterday. The bottom line here is that given my cautious stance with respect to the market, I want to focus on names that 1) are in sustainable technical patterns and are clearly indicating so and 2) have little correlation to general market movements. Stocks such as UPIP and PRXI will be more prone to weakening during volatile, generally bearish periods as opposed to companies like WMIH and IWSY that have much less overall participation. Following these moves, the portfolios are now 75% long and 25% short via TZA. The long positions are: WMIH, SPNS, IWSY and MITL. A much more compact, consolidated portfolio composition that will be easier to control under uncertain...
MARKET ANALYSIS AND PORTFOLIO MANAGEMENT: A MARRIAGE MADE IN HELL
In yesterday's posting of the February Monthly Performance Report, I touched on a subject that I believe deserves further exploration. There are two key tenets that create the foundation of the investment process, yet they are contradictory in nature when stripped down to their essence. Market analysis and portfolio management drive the investment process through analytic examination and management of risk that comes with attempting to extract extraordinary returns on capital. These two key tenets of the investment process are like water and oil, however. To the detriment of both the professional and retail investor, these two functions of the investment process are thought of as a singular entity. This pattern of thought in relation to analysis and management create a foundation for investors that is doomed to mediocrity and eventually complete ruin. In order to understand this concept, first we must look at what market participants deem as analysis. Analysis can fall into many categories: Technical, fundamental, macro, micro. And then there are the various sub-categories of each discipline. The methods used within these sub-categories is more or less endless. It is true that analysis of the markets can be tailored to the investors choosing. Much like religious beliefs, in the mind of believer, their method is superior to all others as it has been reinforced through study, examination and proof in the marketplace. The conflict between analysis and management of a portfolio is not rooted in the method of analysis, but rather the process. When the average or in fact, above average market participant begins their process of analytical study of a particular investment, a series of emotional triggers begins to take shape: 1. Value of time: We want to be compensated for our time put into any endeavor, whether through emotional gratification or monetary success. Attachment to a successful outcome as a result of this desire is the first result of the analytical process. 2. The desire to be proven right: The analytical process is nothing if not a stadium for ego to shine through perceived brilliance of analysis. That brilliance is proven through monetary success as a result of time, effort and methodology. Avoiding the pain of your time, effort and methodology being proven completely fruitless is the second result of the analytical process. 3. A sense of community: We naturally seek others who share our view. Whether with respect to politics, sports, hate, love or misery. We want to be connected through shared beliefs. An attachment to a community of those who share your analytical view further reinforces the process. 4. Mental illustrations: Prior to losing my virginity at the age of 16, I had mental...