Have anyone of you guys seen the Wolf of the Wall Street. Nice movie and nice year to realease it too. Just a fun fact for the market geeks and the movie buffs – 1997 was the year last roamed by the Wolf of the Wall Street, Jordan Belfort and 1997 was the last year when we saw a 30% returns.
One of my friends told me that he really doesnt want to let go of the year 2013. Yep, it’s been a phenomenal year. The $SPX, the reprsentative of the the broad market, gained 29.6%. as mentioned earlier, it was it’s best annual gain since 1997. Nasdaq gained 38% and the blue chips, Dow Jones Industrial Average, bagged 26.5%. We will discuss about the intricate details in the coming posts, some of which might spook you, some might startle you and some might make you rethink the 2014 invesment strategies.
So let’s delve into returns my portfolio generated. Following are the returns generated in real accounts, no paper money, Sire!
The account in interactivebrokers –
This account has companies such as Priceline (PCLN), Chipotle Mexican Gril (CMG), Apple (AAPL), Gilead Sciences (GILD), etc.
Following is the returns of account where I hold Micheal Kors (KORS), Celgene (CELG), Bank Of America (BAC), etc.
Lastly, the returns from the 401K account which in addtions to the mututal funds such as FSCSX, has Facebook (FB), Continental Resources (CLR), Green Mountain Coffee (GMCR), etc.
This is, in a nutshell, the returns I generated over last year.
If you look at the half-hourly chart of S & P 500 for last few weeks you will observe a lot of indecision. This can stem from a market that is awaiting a jobs report or the one that has rallied almost 25% since October bottom but bumping into some bad data or a market that is just waiting for earnings to come out. This is a typical sideways movement that needs just one or two catalysts to either jump up or break down.
Till Friday morning, we were all hunky dory – raising toast to the best quarter since 1998.
But by now, you guys must have heard, read and pondered about the jobs report that came out on Friday morning. Entire market was expecting creation of 205000 jobs with lowest estimate being 193K but to everyone’s disappointment the number came in at 120000. This is exactly the catalyst that I mentioned above. Following is the S & P 500 futures –
Going Forward –
The question is where are we heading from here. Let’s look at the slightly bigger picture –
We will definitely get temporary support at 1375-1370. But that floor might not last long if Alcoa comes out with bad numbers on Tuesday after close. I personally expect the floor to crack on Monday itself. This market might turn into a sideways market or 5-7% correction if this is just one-off jobs miss and not a trend.
The real correction will start if –
We get more of such job reports.
The companies fail to meet Q1 numbers.
Manufacturing margins start contracting.
The inventories start piling up.
Europe’s problem resurfaces.
Israel goes after Iran.
All these events individually have the capability of turning a flat market in to an intermediate/full blown correction. A correction that can go beyond 12-15% – That’s spooky.
In terms of technicals if we fail to hold on to 1336, we are looking at lower lows and lower highs. This means that we are in correction. The breakouts will fail, the industrial sector & commodities will sink and we will stare at repeat of 2011.
There is a stark resemblance between job numbers & rally at the beginning of 2011 and the similar macro economic data points in 2012. All of them fizzled out, making 2011 one of the worst trading year in last 20 years. In case 2012 tries to follow the suit of 2011, I suggest that please sit on the sidelines unless you are nimble (like really really nimble) or you are willing to take 15-20% loss or you want to buy stocks such as QCOM,APA, EMC, etc for long-term. The top traders have always said that it’s good to sit out when market goes sideways and hop in when the direction is confirmed.
This is the kind of summer where I would use the old adage -“Sell in Summer and go away”.
Question is why side ways and why not a full fledged correction?
Never underestimate the Printing Press. One off job report might not bring back QE3 from dead but few of such reports will definitely get Feds going.
Lastly what do we do with current portfolio?
Just as not all fingers are alike similarly different kinds of stock in a portfolio deserve different treatment.
Reduce all the momo stocks such as LULU, ALLT, SCSS, TPX, HLF, ULTA, CLR, ALXN, etc to 1/3 of original position. A risk averse investor might sell all. The reason is the panic grips the owners of such stocks with higher multiples faster than does the rest of the market. Just a reminder, small cap stocks corrects more than larger cap stocks during a correction.
Stick with oldies such as HAL, APA, STX, WDC, PG, COV,etc unless the fundamentals show a major shift such as margins contraction trend,etc. Some of them have already seen fair share of correction.
To defend your portfolio you can buy long term US treasury bonds such as BLV, TLT, etc. They tend to be haven during such corrections.
A very active trader might try putting in shorts such as SH, HDGE, RWM, etc.
Keep an eye on the leaders of this bull and see how they perform during the correction. By leaders I mean – AAPL, ISRG, CMG, SCSS, ULTA, LULU, TSCO, FFIV, etc.
Start running scans to look for stocks with excellent fundamentals that are holding up well. They might be the future leaders.
Lastly add to your existing value positions or buy new ones (after fishing for course) after market has gone corrected by 10%. But remember an oversold market can become more oversold!
Again, In case 2012 tries to follow the suit of 2011, I would suggest that please sit on the sidelines unless you are nimble (like really really nimble) or you are willing to take 15-20% loss or you want to buy stocks such as QCOM,APA, EMC, etc for long-term.
I believe that capital preserved is the capital created for future investment opportunities.
If you are really, really lost, I will talk more about correction, handling of stocks during corrections and going short later on in the week.
It’s time for numbers. We are going to look at 2012 Quarter 1 Performance. Following are the some standard model portfolios from here, that are generally used as benchmark.
I have three stock accounts, two of them are leveraged –
Interactive Brokers – In this account I own High growth stocks.
Stocks that I own here are – FFIV, AAPL, PCLN, SCSS, SXCI, CLR, RHT and URI.
TD AMeritrade – I own mid term to long term stocks such as STX, HLF, WDC, ALLT, WLL and GNC in this account. Intial idea was to have this as long term only account but cash crunch in the other account (IB) forced me to use this expensive account. I also own some funds such as YACKX, GHAAX, PRPFX and HSCSX. I think if the fees and interest of this account were same as IB (above), the performance would have been a tad better. This is also a leveraged account.
Lastly, let’s look at Fidelity – I own long term stocks here such as F, QCOM and APA. I own some funds as well such as FSCRX and FAGIX in this account. I might add some more APA once it crosses 105$. This will do better once Ford and APA start moving in right direction.
Overall all the above mentioned accounts have in combination generated returns of 27-30% in first quarter. It seems that I have done pretty well and I hope to continue such performance in future.