Originally published on Aug. 11, 2014
As per 1 August our portfolio declined by 9.74% for the week versus 2.7% for the S&P 500. This has prompted us to make changes to the portfolio and the following position changes are noted:
- Genworth Financial (NYSE:GNW) hit its stop loss and was sold from the hypothetical model portfolio at a price of 12.80/stock on Friday.
- Boston Scientific (NYSE:BSX) has fallen below our relative strength threshold level and was sold at 12.48/stock.
This means that for this week ending 8 August our portfolio declined by 6.24% while the broader market gained 0.3% to end at 1931.59. Currently the portfolio looks as follows:
There is a net cash position of $171,260.48. We may add 2 positions to the portfolio in the coming week and the blog will be updated if and when these positions have been bought.
Our model portfolio is up 6.58% for the year which is a marginal outperformance of the broader market which is up 6.37%.
The market has corrected. We ponder if this correction has now concluded? Consider:
We have used the multiple moving averages previously in other posts and find it to be very informative. The red longer term averages are representative of the longer term investor, whilst the blue averages are representative of the shorter term speculator. It seems that the blue averages have constricted and fallen as the speculator has taken his or her money off the proverbial table, whilst the longer term investor remains steadfast and is responding to the improving economic fundamentals.
Let us consider the indicator below the S&P500 index chart. Since the beginning of the year, every time the indicator has dropped below its lower Bollinger band into an oversold reading it has represented a good buying opportunity. If this hypothesis holds true, now is a good time for us to be buyers into a sustained longer term uptrend. The question is if the latest oversold reading has yielded the next "higher trough?" We think the market is indeed heading higher.
Our thinking is that we are in the midst of a bull market - to be clear, the improved earnings stage of the bull run. This is the calmest and most predictable of the 3 stages of a bull market. The data is reflective of our thinking.
There have been 6 months of at least 200,000 jobs created. This means that unemployment is down and is now considered at a healthy level.
Moreover, unemployment claims have dropped remarkably since the recession and are at pre-crisis levels:
There is no doubt that the slack we constantly hear about is being absorbed into the economy with inflation edging up:
We are comfortable with this level at just over 2%. There will come a time when inflation will rise to levels where the Fed's accommodating policies will need to be reversed. We are not there yet. Fed polices as they stand are accommodating to more gains in the market although we note that there has been some noise and dissent. We continue to listen with interest.
Last but not least, GDP in the second quarter grew in excess of forecast levels by some margin and was 4%. In other words the economy is growing at a a faster rate that even the pros think. Until proven otherwise, we continue to be long in this environment.