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...
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...
PORTFOLIO UPDATE: DEEP COVER
During the trading day, I tweeted the following: After this addition, the portfolios now have a full sized hedge in place with TZA. The reversal that occurred today shifted my short-term trend indicator to sell territory, causing the addition in TZA to take place. This will likely be an intermediate-term position in the portfolios into April-May time period should the markets travel down the path I am suspecting. That path is one that sees a 5-7 percent correction in the S&P 500 from recent highs. Just enough to get investors on their heels again before a strong second half of the year kicks in. In any case, as I discussed over the weekend, the most that the bulls may have to look forward to is a choppy, sideways market over the next few months. That is the BEST case scenario. With this addition of TZA, the hedging in the portfolios is finished. I may trim back one or two under-performing long positions over the next few weeks. March will be a time to reevaluate any new long exposure I am willing to take. It is a market that deserves a neutral stance, at best, for the foreseeable future. That is how I see it and that is how I am playing it. As of the close 50% long in WMIH, SPNS, PRXI, MITL, UPIP. 25% long TZA. 25%...
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,...
PORTFOLIO UPDATE: HEDGES ARE CALLING
Shortly after the market close, I tweeted the following: I will have a full analysis of this decision in a post to come shortly. Coming into today, the portfolios were sitting at roughly 85% long with 15% in cash. The 15% was put to work in TZA, bringing long exposure down to 70%. Since I don't use margin, this is as exposed to TZA as I will get unless I begin trimming back positions, which I am not close to doing here. My maximum TZA exposure goes as high as 25% of total portfolio, if need be. Following this trade, the portfolio consists of WMIH, SPNS, PRXI, MITL, UPIP and...
PORTFOLIO UPDATE: HAMMERTIME
During the trading day, I tweeted the following: The research report for MITL can be found here. This is a small position, meaning that it constitutes less than 10% of the portfolios. In addition to MITL I have been accumulating a small position in nano-cap penny stock with a market cap under $25 million. It hardly has any volume during the trading day, with some days finishing at not a single share traded at all. For that reason, I won't be publishing a research report on the stock. It is simply too illiquid. I will, however, be posting the symbol in my January month end summary to investors in order to stick to the record of transparency I have established on this website. With these new additions the portfolios are right above the 85% net long mark. The remainder sits in cash, for the time being. Current positions: WMIH, SPNS, MITL, PRXI and...
PORTFOLIO UPDATE: ALWAYS LOOKING STEPS AHEAD
During the trading day, I tweeted the following: The liquidation of PXLW has nothing to do with the fundamentals of the company and everything to do with the lack of performance out of the name since I initiated the position in early August. My system for adding to and liquidating positions is based strictly on price performance. I hardly ever average down. I only average up. As the old saying goes: losers add to losers. A core concept that will make you a better investor the sooner you grasp onto it. I think it is important for me to attempt to demonstrate how I am thinking about the construction of the portfolio at this exact juncture in order to understand my decision making here. I am right at the 75% invested of equity mark. By next week, I may take that back up to between 90 to 100 percent invested in some new names. The month of January has brought with it a slight drawdown of a little less than 2% for the portfolios. Those of you who have been following along know that I have a number of risk cushions in place that serve to smooth out my equity curve for my own sanity and for the comfort of my investors. While I believe in my ideas wholeheartedly due to the research and understanding behind each one of them, I also believe in the fact that downside momentum in the market has a way of making even the best ideas turn into chopped liver. Each one of my risk cushions acts as a preventive barrier that keeps the portfolios from giving back an amount of equity that will cause me to take excessive risk in order to make up for the shortfall. I don't ever want to be in a position where the portfolio determines my course of action. Every step is pre-planned well in advance. As an example of pre-planning, the near 2% drawdown I am facing this month puts a halt on any new portfolio positions until the drawdown gets to the point of being less than 1%. At that point, I will consider taking on new positions. The reason for this precautionary measure is due to the fact that I have another risk cushion at the 5% drawdown mark for the month. If, during any single month, the portfolios lose 5%, I cut exposure in half. This is, by the way, supplementary to my trend indicators which are a means of cushioning general market risk. If I am 300 basis points away from the 5% drawdown point (where I am now), it makes no sense...
PORTFOLIO UPDATE: TRIMMING THE FUZZ
During the trading day, I tweeted the following: The last time I started the process of paring back my risk from a 100% invested position was on October 1st, 2012. At the time I had a very clear understanding of the risks the market faced. I made no qualms about expressing those fears to the chagrin of many readers who thought I was turning bearish way too early. Fast forward just 3 months and I'm caught in the middle of fuzzy patch. Today's technical formation (I call it The Ron Jeremy) did absolutely nothing to absolve the fuzz. Gigantic bars on each and every important index. Runaway moves. Crashing volatility. I want to embrace it completely...but, I can't. I want to hate it totally...I can't do that either. It really is a fuzzy point in the market for me, which is why I continue eyeing the 75% invested level as my comfort zone for the time being. I could be putting cash back to work as early as next week. One thing today's rally certainly accomplished is keeping the odds of my moving to anything below 75% invested rather slim for the remainder of January. As of the close today, following today's act of trimming, portfolios look like this: WMIH, SPNS, PXLW, UPIP and...
PORTFOLIO UPDATE: ALMOST THERE
During the trading day, I tweeted the following: I'm not a big believer in diversification. Never have been. In today's environment there are simplified choices (read: ETFs) that will allow you to replicate the passive nature of a diversified portfolio without having to deal with the headache of managing 10, 15 or 40 positions. Additionally, I feel that diversifying your portfolio dilutes your best ideas in favor of weaker positions that end up compromising performance in exchange for the FEELING of safety. If you have a comprehensive, well thought out and preferably systematic means of controlling risk there is no reason whatsoever to diversify away from your 6-7 best ideas. If your best ideas suck, that is a function of your research. Diversification, in that case, will only prolong the inevitable. With that out of the way, I am near 95% invested spread out among 6 positions in the portfolio. I don't necessarily like to have more than 7 positions at once. This is perfect. Portfolio consists of WMIH, SPNS, UPIP, PXLW, PRXI and...
PORTFOLIO UPDATE: GIVE ME ALL YOU GOT
During the trading day, I tweeted the following: I want more exposure. Ideally, barring sudden and unexpected global catastrophe, I would like to be at 100% invested by the end of this week/beginning of next week. However, my desire does not aide in the proper opportunities presenting themselves. SPNS is now a large position and deservedly so. I went into brief detail regarding the latest developments with the investment in my November month end letter to investors here. WMIH has been a large position since I initiated in late July. In fact, the position in WMIH was increased in late October. Needless to say, following a 32% spike in WMIH thus far in December, portfolio performance has been outstanding. The remainder of the portfolio consists of PXLW, PRXI, UPIP and PTGI. This brings net exposure to 85% long, with a measly 15% still awaiting allocation. I would be happy to add to PXLW, PRXI, UPIP or PTGI. However, the names need to show and prove a little bit more before I make additions. That leaves me with no other option but to wait until opportunities become a bit more clear. I do believe in pushing the envelope, so to speak, with substantial up months, as a result of the flexibility the cushion in gains provide. A month of healthy gains is put to waste by the investor who attempts to protect those gains, as if it is the last time the market gods will smile upon them. Like anything else in the markets, you must utilize what you are given at that moment. Early gains during a month are a tool for aggression in the markets. Do not, however, confuse aggression with recklessness. Lots of casual and even professional investors make this mistake often, with less than desirable results. On the other hand, when an investor is getting wrecked by the markets, you cannot be too conservative. I NEVER get aggressive into losses. I simply continue getting smaller as the losses increase. If they surpass a certain predetermined threshold, I liquidate everything, essentially hitting the reset button. Real simple: Get aggressive when you are provided the comfort zone to do so. Get smaller when you have little room for error. That's all you are getting out of me...