I have a confession...
Intellectually, I understand that performance ebbs and flows. I know that I can't "bat 1000", but I still don't like to stall the way both models had done to start the year. Sure, I can put the lag into context, as we knocked the cover off the ball in 2009 and 2010. I also have been very upfront about setting expectations - it won't be as easy going forward. A lot of the success has come from our ability to find mispriced securities, and it's getting harder. Quite simply, there aren't as many and they aren't as mispriced. Despite my disappointment with the start of the year, I am glad to say that I didn't let it influence my decision-making. Three things you can count on: I will stick to my processes, work hard and keep my emotions in check.
As you look below, you will see nothing but green. I can't promise it will stay this way, but I think it will. 7 weeks into the year, we are keeping up with a torrid market in the Conservative Growth/Balanced model and earning our keep now with the Top 20:
Top 20 was lagging by 0.5% a week ago, so it was a very strong week. The model returned 2.77%, while the S&P 500 jumped a nice 1.11%. Big picture, small stocks have come roaring back. The Russell 2000 index is now up 6.64%, just slightly behind the S&P 500. While this is just one factor among many that affect performance, the early weakness this year in small stocks was a big headwind. The R2000 is up 6.94% in February, while the S&P 500 is up "just" 4.59%. Our week was helped by 4 stocks increasing by more than 5%. Interestingly, they included our two largest positions and two others that are above average. That's the way it is SUPPOSED to work! Next week is busy, with 2 of our holdings reporting as well as 20% of my 100-stock Watchlist.
CG/B, which also has two names reporting next week, moved from being down 0.76% a week ago to being slightly ahead now. For the week, its value increased 1.72%, while its benchmark (60% stocks and 40% bonds) rose 0.87%. Bonds had a nice week, though they lagged stocks. Our performance was driven by three stocks in particular. Encouragingly, these are all names to which we have added over the past 19 days.
Brief Market Update
I don't have a lot new to say on the market, which confounds everyone. I will say this - it's getting crazy. For example, of the 100 stocks I follow most closely, 10 are already up 20% YTD (Sorry, I haven't nailed too many of these - just two). Only 2 are down 10% or more. The market has a lot of extended stocks, but it's not particularly overbought, at least the way I look at it. All of this tells me that we could see some consolidation ahead. I am thinking in mid-March. I don't expect a pullback of more than 10% for the whole year, so this potential consolidation might be an opportunity for us to rotate a little. For CG/B, which is about making money but keeping it too, we should expect to see some trims in the coming weeks. In fact, I have a couple in mind for next week already, so stay tuned.
Published Articles
I published several articles this week:
For TradeKing, I shared a screen of potential breakouts (4 names in our models made the cut)
For Seeking Alpha, I published four notes:
MoneyShow - Las Vegas
I mentioned last week that I am taking it to the road. I will be presenting in May in Las Vegas and in August in San Francisco. I have never been to a MoneyShow before, but I have heard that they are well-attended and highly informative. If you happen to be in Las Vegas or San Francisco, I would appreciate the opportunity to say hello, whether you attend the event or not. For those interested, I have chosen a topic and have an assigned time on May 11th in Las Vegas. Click HERE for more info...
New Service
In case you didn't see the announcement, I am planning on launching a private blog soon. I have already received firm interest from a few and several other possible subscribers. My goal is to provide a higher level of service to active traders or long-term investors who have needs that go beyond replicating our two models. What will make it work for those types of folks is the timeliness and quality of the information - always from the view of a full-time professional. A lot of the focus will be on stocks that I closely follow, but I expect to have lots of other timely ideas. This may surprise some of our readers, but model subscribers are getting only a small portion of what I do! Additionally, blog subscribers will have the opportunity to get their questions answered (though on the blog). The price will be $100 per month, with no long-term commitment. The more people we get involved, the more time and effort I will be able to put into it, so get involved! Feel free to email me or even to call me if you would like to discuss this exciting new service.
Have a nice long weekend!
Alan Brochstein
Portfolio Manager, www.InvestByModel.com