After a rough end to October on Monday, the market flat-lined the rest of the week. Our models varied in their performance:
Before I briefly describe how we performed in the models over the past four days, please refer to the more extensive performance discussion for the month of October that I shared on November 1st. Each of the models remains ahead of their respective benchmarks so far in Q4.
Top 20 started the month with a very modest decline of .27%, while the S&P 500 increased 0.04%. CG/B had a more challenging few days, falling .73% compared to a .03% increase in the stock/bond index. We had one stock decline significantly after disappointing with its outlook for its fiscal 2012 and accounting for most of the underperformance. Finally, Sector Selector ETF continues to recover, rising 0.17% in November so far compared to the 0.04% increase in the S&P 500.
Market Outlook
I have increased my optimism regarding the coming year or so and am forecasting a rally to 1600 on the S&P 500. Implicit in this forecast is my expectation that we can rally to about 1400 by year-end. You can link to my recent article (see below) for my rationale.
While my outlook is bullish, do keep in mind that I was overly optimistic this year. Further, while my outlook does influence security selection for Top 20 as well as the other models and equity exposure for CG/B and SSETF, it's not my primary focus. Picking good stocks is what I expect will ultimately help the performance of Top 20 and CG/B, while rotating between certain sectors and other segmentations of the market will prove to be the most likely driver of performance for SSETF.
Articles
- Bullish on the Market - Seeking Alpha
- Food Stocks - TradeKing
Final Thoughts
Earnings season is mostly over, though we have a few more companies that have quarters that ended in October reporting over the next few weeks. We had a few companies in Top 20 that disappointed, many that were fine and not enough that wowed me. As I look at the portfolio, I find several very disappointing performers still. While I feel like a lot of the pruning that we have done has been helpful (like TECUA, for one), there is, unfortunately, more to do. Our very smallest position (the biotech) is definitely on the launch pad, but we have a few others I am considering as well. If it starts with a "D", it is very cheap and oversold, making the timing a bit more challenging. I have identified several potential replacements.
It's easiest to eliminate the "pain" of a troubled position by just selling it, but that's not always the best plan of action. I give a lot of thought to the timing of the buys for our models, and I give as much to the timing of sells. I am frustrated that I have had so many "problems" with which to contend this year, feeling at times like a triage nurse. We got it right on TECUA, MFLX (could have done better maybe) and SKX. Rest assured, though, I don't marry our stocks, and I don't trade "cost". Porfolio management is a continuous process, and my goal is to have a portfolio that can beat the market over the next year. It doesn't beat it every day, week, month or even quarter, and not every security works (that's why it's the Top 20 and not the Top 1). So, this is a long way of saying that we have some trades to do over the next few weeks.
Alan Brochstein
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