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December 22 Portfolio Recap

2011 has seen one of the most volatile stock markets in history. To date, there have been 94 trading days resulting in a daily gain or loss of more than 1.0% from the previous trading day. Additionally, 2011 has produced 21 days of losses of 2.0% or more.

If there were ever a model year for "sell in May and go away", then 2011 was it. Had investors sold at the close on the last day of May and bought back into the market prior to the close on September 2nd, losses of 12.7% could have been avoided.

Unfortunately, I failed to take my own advice and went away without selling in May. My portfolio peaked on exactly May 31, 2011. What happened next was not pretty. From June 1st through August 10th, the portfolio fell by 16.6%.

Whether it was the debt cieling debacle or the European crisis, the last 6 - 7 months has been challenging to say the least. In the end, I have managed to claw back to a 2% gain through December 21st, outpacing the market slightly.

As we have approached year-end, I have been aggressively selling losers to offset trading gains recorded earlier in the year. In addition, to achieve greater tax efficiency going forward, I have repositioned the portfolio for lower yeild and greater dividend growth. I will be less active in capturing dividends in 2012 and more active adding to core positions on weakness. Currently the portfolio yields 6.84%, down from 8%+ through most of the year.

As we enter 2012, I expect more of the same; essentially a repeat of 2011. We may see seasonal strength in the first quarter, however the European debt crisis still looms. Expect increased volatility as we head into election season. We will have to pay close attention to the power struggle in Washington as the market's performance will be linked to the election outcomes.

Barring the unforseen (like the unforseen staying in hiding is even a possibility), I see the S&P testing the 1,440 level during 2012 and finding support around 1,260. Should the global political/economic picture take a turn for the worse, I see us bouncing between 1,330 and 1,080.

Overall Sentiment:  Cautious.
Portfolio Yield: 6.84%
Projection: Seasonal bullishness. S&P to 1,440 in next 12 months. Risk to 1,080.

Top 5 Positions:

  1. iShares High Yield Corporate Bond (NYSEARCA:HYG)- 11.7%
  2. SPDR Barclays Capital High Yield Bond (NYSEARCA:JNK)- 8.4%
  3. iShares S&P U.S. Preferred Stock Index (NYSEARCA:PFF)- 7.28%
  4. New York Community Bank (NYB)- 5.55%
  5. Annaly Capital (NYSE:NLY)- 5.01%
Stocks: HYG, JNK, PFF, NYCB, NLY, BWP, AAPL, STJ, TGP, T, OHI, MSFT, WBA, PEP, FTR