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The Market That Keeps On Giving

Last year you could throw darts at the Wall Street Journal and come up with a good portfolio. This past quarter has been different. Solid gains in the first two months mostly melted away in March. My portfolio did about as well as the S&P 500: up about 2% for the quarter.

Of course we are (still) overdue for a correction of 10% or more. Despite the past month's disappointments, none of my indicators is flashing amber. It reminds me of the old saying about how 'the stock market climbs a wall of worry'. A lot of investors got burned pretty badly a couple of times in the previous decade. Many are still sitting out this rally, despite the string of new highs. I think that's a mistake.

There were a lot of productivity gains in the past decade that don't seem reflected in current stock prices. A more business-friendly administration could unlock a lot of capital that's now on the sidelines. And banks have tons of money to lend when anybody feels brave enough to want it. Plus investors are still way underweight in stocks. Those look like favorable intermediate-term prospects to me. Of course nobody can predict the next few months!

I'm not writing this blog in the hope it will make me rich or famous. I need the discipline of accurately figuring how well my strategy is working. When I lag the market, I need to be able to explain why. If listening in is helpful to you, all the better.

My TWO SMALL STOCKS did well this quarter:

  • Axion Power (AXPW) finally got out from under its latest round of equity financing and is up 63% for the quarter. Management is looking primarily to a couple of potential sources of revenue going forward: alternative energy generators that need storage and smoothing facilities, and heavy truck conversions by their strategic partner ePower Systems. Other applications in transportation seem to be hanging fire but still have formidable potential markets.

  • Aberdeen International (OTCPK:AABVF) benefited from a rebound in gold prices and gained 18%. They are very much an inflation hedge.

  • Both these penny stocks are highly speculative so buyer beware!

I've begin to experiment with a SECTOR ROTATION method:

  • XLB purchased in January is up 4%

  • XLU purchased in February is up 9%

  • XLE purchased in March is up 2%

  • XLP was just acquired

  • You can see an interesting tendency for big money to rotate into defensive sectors as the market softened this quarter.

  • Overall I have to admit to some satisfaction with these results.

Several funds were SOLD this quarter:

  • Ariel returned 32% over the 14 months I held it

  • BMO Midcap was held 7 months and returned only 9%

  • Oakmark Global was held 11 months and returned 24%

  • Oakmark International Small Cap returned only 3% over three months

  • Wells Fargo Special Mid-Cap returned 25% over 11 months

  • Skyline Special Equities was held 9 months and returned 28%

  • All these funds lost momentum prior to my selling them

  • Above returns include distributions.

Funds HELD during the quarter did better:

  • Dodge & Cox Stock up 3%

  • Hodges Fund up 6%

  • Powershares Buyback Achievers (ETF) gained 2%

  • T Rowe Price Capital Appreciation gained 3%

  • Sound Shore gained 4%

  • T Rowe Price Health Sciences gained 6% despite the downdraft in March

And some funds were ACQUIRED:

  • Dodge & Cox Global just bought

  • Fidelity OTC was bought at the beginning of March and has dropped 5%

  • Guggenheim Pure Growth also bought in early March is down 4%

  • Janus Contrarian has gained 5% over two months

Obviously this amount of trading would be irresponsible in smaller accounts that lack the tax-sheltered status of my SEP/IRA. Normally I lag a roaring bull market like this one, but make up for it by ducking and running when stocks tank.

Let's hope the recent soft spot is just one more pothole on the road to this mother-of-all delayed recoveries!