PORTFOLIO UPDATE: STRICTLY BUSINESS
During the trading day, I tweeted the following: A majority of the liquidations I make within the portfolios I manage are due to asset allocation decisions as opposed to any fundamental opinions with respect to company that I am liquidating. JMBA certainly falls into that category. I expect the stock to be significantly higher in the coming 12-24 months but have to be cognizant of companies that are have a greater degree of market risk than others. Being that we are in a softening environment if I can find names that have a lesser degree of market risk or beta then I will allocate towards those names. I have recently discovered a technology company that seems to have minimal downside risk with even less correlation to the general market. Completely under the radar with tremendous upside potential. I will be detailing the company in a research report in the coming one to two weeks. The current portfolio has been performing remarkably well this month despite the volatility in the markets. Given this fact, I don't want to tinker with it too much, taking away what has been relatively steady performance in a terrible market. The allocation is currently 70% long, 25% short and 5% in cash. Long positions: WMIH, IWSY, HMPR and CIDM Short positions: TZA (long) I'll have full performance and position details in the monthly summary this...
PORTFOLIO UPDATE: FIRST LEG OF ADJUSTMENTS COMPLETE
During the trading day Thursday, I tweeted the following: The decisions I make with respect to allocation are 100% systematic in nature. I feel it necessary to constantly remind readers of this fact so that you don't think that I suddenly wake in the morning and decide that the portfolios need to be positioned more defensively. The discretionary aspect of my reducing or increasing allocation has to do with what I choose to reduce or increase. In this most recent case, the reason I chose to eliminate SBCF had to do with two factors: 1. Liquidity: SBCF was a small position to begin with and had ample liquidity to absorb any selling 2. Exposure: The position rounded out the financial exposure I had in the portfolios with WMIH and HMPR. WMIH is a large position and HMPR a mid-sized position. I didn't mind reducing my overall net exposure to the financial sector just in case. I trimmed away very small bits from other positions to get to the desired target of 75% long and 25% short via TZA. The 75% long exposure is in WMIH, CIDM, HMPR, JMBA and IWSY. Compact, focused and concentrated. Just the way I like...
PORTFOLIO UPDATE: SUMMER REMIX
During the trading day, I tweeted the following: The initial position in TZA was taken at 32.50 on May 23rd. This addition takes TZA up to a large sized position. At the same time, I am in the process of reducing long exposure slightly down to 75% from the 85% long exposure that I started the month with. Details of the transactions will be posted on Friday. This is certainly not a point in time during the raging bull market that has been 2013 to gallivant around without any concerns whatsoever for risk. People seem to have a short memory of how terrible the pain of getting caught in a dramatic change of trend in the markets can be when you are overexposed and under-prepared. My only focus here is to make sure I do not fall in the overexposed and under-prepared category. Thus far, I have been perfectly content with the portfolio performance in the face of early June weakness. An initial sign that the overall construction of the portfolios matches up well with the current intent of the markets. My goal during bear trends, regardless of the length of the move, has always been to protect assets as opposed to generating pure alpha from the short side of the market. It has been my experience that psychologically there a rare few investors who can adapt to both sides of the markets allowing for profit to ensue regardless of the circumstance without getting their signals crossed at some point in time. In other words, attempting to profit equally well during both bull and bear trends leads to an anxious tendency to flip from one side to the other prematurely. I'm not saying it can't be done. There are better ways to exert one's creative energy in finance, however. My own energy is better served looking for the risk/reward opportunities in misunderstood companies with tremendous upside and minimal risk. Everything else is lunch money. With that said, the portfolios are: - 75% long in WMIH, CIDM, IWSY, HMPR, SBCF and JMBA - 25% short via...
PORTFOLIO UPDATE: WANDERING IN THE LAND OF THE ABSTRACT AND IMPERFECT
There are many facets of traditional portfolio management that I believe are ineffective. One of the most serious offenses against the habit of effective portfolio management is sticking to an investment thesis that is being disproved by the market, clinging onto statistics of a fundamental nature that inherently lag price. There isn't a disaster in investing that has not had the words "but the fundamental outlook seemed so great," attached to it. Just ask those who bought AAPL at 600+ last year. Or real estate investors in Las Vegas and Miami in 2006. Or even the investors who were clamoring to buy BAC at 50+ in 2007. All of the aforementioned modern day lessons in cultivating capital losses have an investor attachment to a fundamental scenario that is on the edge of a cliff in common. You won't find clues of what is to come in any 10-Q, press release or investor presentation. Often times, management at the company doesn't realize that the the land is shifting beneath their feet. The greater wisdom of the financial markets is the only tool that accurately surmises when a fundamental shift of dramatic proportion is occurring in any one industry or sector. And the greater wisdom of the financial markets is only evident in price and volume. If you sit around and wait for a press release or analyst rating to get you out of a failing company or industry you will be getting out with every other Joe who is searching for the exact same information you are in order to make an effective decision. This isn't kindergarten recess we are talking about here, where you get hugs for scraping your knee and sliced fruit when you need a snack. This is capital allocation where your capital is up for grabs the minute you place into the arena of the finance. There are no hugs here without a kick in the groin. And any sliced fruit you are offered will likely be laced with arsenic. The ability of the investor to accurately gauge and react to information is what creates the difference between success and failure. The information necessary to make the decision that sets you apart from the stampeding herd will always be abstract and imperfect in nature. It is conceptual rather than factual. And that is why so many who are successful in every other endeavor they have attempted fail so miserably in finance, trading, investing or whatever you choose to label it as. Wall Street is a consistent exercise of making decisions using abstract, imperfect information. There is nothing in the "real world" that prepares one for such...
PORTFOLIO UPDATE: SEARCHING FOR SUGAR MAN
If you haven't seen the documentary, "Searching For Sugar Man" it is well worth your time. Much like this bull market, it is the story of a highly-talented artist that went largely undiscovered for decades except among the people of South Africa who thought of him among the greatest singers of all time. While I am unsure of whether the people of South Africa are driving this rally, I am sure that this market is highly-talented. I am also sure that the potential of this market is largely undiscovered by investors. A statistic blew through my Twitter feed earlier today that went something like this: The Dow has not experienced 3 down days in a row for the past 100 days, which is an all-time record. I painstakingly went through the daily chart of the Dow to see where the 100 day mark started. December 31st is the date this 100 day period began. There is some important information coming so pay close attention to what I am about to say. First, let me remind you that I have been talking about the generational trajectory points on the Dow for years now. Ever since I started this website, a break of the generational trajectory points was what I said would lead to great things. There are countless examples on the website. Here is one from August 2, 2012, where I said the following: "The power of these generational trajectory points is clearly demonstrated here. As is the importance of a break above 13,500. A break that will usher in a brand new bull market lasting for years to come." The full article from August 2012 is here http://www.zenpenny.com/the-power-of-trajectory-points-starring-the-dow/ Now back to the 100 day thing. December 31st, 2012 is the date this 100 day period began, to repeat myself. On January 2nd, 2013 the Dow took out the first important generational trajectory. This was the one that originated at the 1932 lows. On January 17th, the Dow took out the generational trajectory that originated at the 1937 highs. What does all this have to do with the 100 day record we are in the midst of? The 100 days without more than two down days is a confirmation that the market recognizes the scope of what has occurred here in 2013. This is the beginning of an extended period of strength of US equities. By extended, I don't mean weeks or months. I mean years. I mean that this is 1982 or 1995 or 2002. The market is talking through its actions thus far in 2013. Nobody seems to care though. All that seems to occupy the minds of...
PORTFOLIO UPDATE: HOT IN HERE
During the trading day Friday, I tweeted the following: The research report titled, "Making The Case For Regional Banks: Starring SBCF and HMPR" will be posted to the site Monday morning. SBCF position was taken in the 2.10 range. HMPR position was taken in the 1.30 range. As of the close Friday, the portfolios are 85% long, with a 15% cash position. Current portfolio positions include: WMIH, IWSY, MITL, CIDM, HMPR, SBCF and JMBA Don't forget...all research reports since I began publishing them in January of 2012 can be found here. The "research" link provides a concise view of where I have been and where I am currently invested, along with detailed reports on all past and current...
PORTFOLIO UPDATE: DIVERSIFY THIS
During the trading day Friday, I tweeted the following: To take profits on SPNS was a difficult decision for me since I believe the company is in an early growth stage here, with upside possibility far in excess of where it is currently trading. I did want to free up capital, however, to take advantage of newer opportunities that present a more balance risk/reward trade off going forward. I am looking forward to buying it back at more advantageous prices in the months ahead. I have been adding to a couple of existing positions over the past couple of weeks, with an eye on those positions within the portfolio that offer a substantial cushion against risk in the event of a market pullback. Those additions will be detailed in the May monthly summary. What can easily be gleaned by the performance of the portfolios YTD is that they function completely independent of the market averages. There is little correlation to any specific benchmark, which has its advantages and its drawbacks. The drawbacks come when you have a runaway train for a bull market that is focused on mid to large cap names that have some measure of name investment recognition involved. The small-cap names that I follow have been reluctant to move unless fundamental developments that warrants an adjustment in valuation take place. This again firms my view that we are in an institutionally driven market advance that hasn't even come close to reaching the speculative proportions that signal a market top of any significance. With that said, I expect there to be a substantial "catch up" in the portfolio names as the second half of the year brings about positive fundamental developments as well as a more speculatively inclined investor. There continues to be an excess of cash in the portfolios relative to the 100% allocation towards equities my model says I should have here. Again, this excess of cash is a risk management decision as opposed to any bearish short, intermediate or long-term bearish opinion on the markets. As of the close today, the portfolios are 60% invested in WMIH, CIDM, JMBA, IWSY and MITL. The remaining 40% sits in cash for the time being. This 60/40 allocation has been in place for over a month now with some slight tweaking taking place to add or subtract exposure along the way. On another note, I am going to further tighten the parameters I use to determine whether a name should be included in the portfolios. In looking over my results over the past 18 months, I have noticed that my focus has been spread thin among 12-14...
LEAN BACK
Given my particular brand of market philosophy, exuberant bull markets (price, not sentiment wise) do not necessarily present a whole lot of opportunity. My best research and subsequent opportunity will come from more tame situations or even bear markets, where hopefully I will be wise enough to remain in cash long enough to have opportunities fall into my lap. There just isn't very much out there in terms of risk/reward opportunities where the risk is so well defined that I can put on a concentrated position that will make a real difference. Of course, I still have the tried and true portfolio holdings, some of which I have been involved with for nearly a year now. Even with these names, however, it is at a point where my performance thus far in 2013 doesn't warrant maintaining large positions. I am a staunch believer in portfolio performance dictating allocation. Growth in the portfolio determines growth in chutzpah. Deterioration in a portfolio demands deterioration in chutzpah. Swinging for the fences during a drawdown is the surest way possible of guaranteeing your eventual demise as an investor. The market will eventually get you if you don't check yourself. So I find myself in this weird place of not having new opportunities that are worth pursuing in small-cap land due to risk/reward being completely skewed towards risk. As well as a portfolio that is doing some reverting to the mean following the tremendous gains of 2012. With that said, my cash position now stands at 50% up from 40% reported in the last "Portfolio Update" on April 6th. All current holdings are small to mid-sized. Again, performance doesn't warrant taking on large positions at this juncture. With respect to the general market, I did say in the weekly review that a break of Friday's low on the Nasdaq had bearish consequences for the remainder of this week. I stand by that. Meaning that the recovery rally today will likely be sold for the remainder of this week. It will be much easier to assess the position to take into the end of April once this week is in the books. Back to twiddling my thumbs in anticipation of a time when they can be used for putting the cash in the portfolios back to work. Sitting tight....
PORTFOLIO UPDATE: IT’S LIKE THAT
During the trading day Friday, I tweeted the following: To be clear, this decision to reduce WMIH was a performance decision rather than anything having to do with my opinion about the market. All of my trend indicators remain bullish. I have very little reason to believe this uptrend is in the midst of turning into anything unfriendly during the weeks ahead. After experiencing a flat Q1 with respect to performance, it is obvious that the portfolios need to be rebalanced a bit in order to get performance back to where it should be at this stage of the year. Irrespective of my opinion of WMIH, the pullback has crossed my line in the sand for anything that warrants holding a large position in the name. For the time being, it will remain a mid-sized position. In the search for performance there are no attachments to any single idea. This is something that both retail and professional investors have a difficult time grasping. It may just be the most difficult emotional aspect of investing to overcome. When you put countless hours of research into an investment, there comes a certain attachment to an outcome that you, as an investor, become dependent on in order to validate your methodology. What way too many investors tend to do is put more credence into their research than what the market is telling them at that very moment. Furthermore, the ability to detach oneself from a single investment, instead choosing to make the decision that is best for the overall portfolio is extremely difficult. The making winning picks, doing research and taking small losses on insignificant position part is easy. It is the Wall Street version of popcorn and a movie. The difficult part is countering your own faith and conviction in any conceived predetermined outcome. You counter than conviction the moment you reduce or eliminate a position because your portfolio performance is sending you a different set of information than the Utopian scenario you had foreshadowed months ahead. No questions asked, you just do it. And that friendly friends is what creates long-term winning investors in the stock market. As of the close Friday, 60% long in SPNS, WMIH, JMBA, IWSY and MITL. 40% in...
PORTFOLIO UPDATE: A NEW POSITION
During the trading day Friday, I tweeted the following: JMBA position was taken in the 2.90 range. A small position, meaning that it represents less than 10% of the overall portfolios. I trimmed away from a few positions in order to keep overall allocation at 75%, with 25% in cash. JMBA is a position that I would be very comfortable making into a large allocation, meaning between 20-25 percent of the overall portfolios over...