During the trading day Friday, I tweeted the following:
Defense in the markets is a an exercise in sacrifice. I've had positions that I have loved in the past that I've had to shed in the name of asset allocation. In order to create the proper equity curve while maintaining one's own sanity, these types of sacrificial exercises need to be tended to from time to time. Otherwise, your portfolio simply ends up becoming a derivative of market volatility that will eventually be susceptible to a terrific swoon that you will be powerless over because you have no cash to allocate at prices you never thought you would get. Any asset allocation worth its salt should take into account the risk equation the market is offering at any given moment. In fact, this consideration should take precedence over any fundamental research or favorable micro scenarios that your mind can dream of.
With respect to KCG, it was a sacrifice that I didn't enjoy making, but nevertheless had to. It came down to two strikes against KCG that made me liquidate the name first when looking to raise cash:
1. Market cap was higher than anything contained in the portfolio
2. Liquidity was greater than anything else contained in the portfolio
The first consideration is one of correlation. The second consideration is one of convenience. Together, they made the decision quite easy.
As it stands now, the portfolios are roughly 80% long spread out between WMIH, CIDM and BFCF. 20% of the portfolios are sitting in cash.
It should also be noted that this was the worst week for the market in 19 months. Despite that fact, the concentrated portfolio you see above finished the week up. That is exactly what I like to see and hope to see more of that in the week ahead.
