Returns for the week ending 10/31/08
Strategic Growth Model (SGM) Portfolio, past…
1 week: -6.6%
26 weeks: +21.9%
52 weeks: +21.8%
Value of $10,000 invested at inception: $51,688
SGM portfolio is on a SELL signal, NEXT week’s holdings:
1/2 of funds in RWM
1/2 of funds in CASH
Friday, October 31, 2008
Saturday, October 25, 2008
Saturday, October 18, 2008
Sunday, October 12, 2008
Worst (Best) Week Ever
click to enlarge graph
I watched last week - and I suspect I was not alone - with shock and awe as the stock market all but disappeared into the greatest sinkhole of investment history.
The S&P 500 index was off 18% for the week, 43% for the 12 months. The Dow Jones lost 18% over five trading sessions, swelling its 12 month loss to 39.4%. Not in the 112 year history of the Dow Jones has there been a greater point or percentage loss in a single week.
On the other hand, the Strategic Growth Model (SGM) portfolio held up well under the severe stress of last week. The portfolio gained 8.8% because of its defensive stance. Due to poor market conditions, the SGM portfolio has been on a SELL signal since September 5th.
The above chart shows the performance of the SGM portfolio compared to the market benchmark since the beginning of October, 2007. The S&P 500 index has declined -44.3% while the model portfolio has returned +44.0%
The SGM portfolio has thus generated over +85% in excess returns over the past 12 months, with a maximum equity drawdown of -11.2%. This is an exceptional reward / risk in extremely difficult times.
Saturday, October 11, 2008
Worst 12 Months Ever
click to enlarge chart
This marks the one-year anniversary of the current correction. The Dow put in its record high of 14,164.53 back on October 9, 2007. This week, the Dow closed at 8,579.19 -- down 39.4% from its one year old peak. For some perspective on the magnitude of the current decline, the chart illustrates how the Dow performed during the first year of all major corrections since 1900. As the chart illustrates, the first year of the current correction has been more severe than the first year of any correction since 1900 -- and that includes the correction that began in 1929.
The Great Bear Market Plunge of 2008
click to enlarge chart
The chart shows how various benchmarks and asset classes have fared over the past week and past 52 weeks of the Bear Market. You will note that the only sectors to show gains are Gold and $USD (cash). There has been virtually no safe haven in this Bear Market.
This Bear Market is not typical. It is ravenous for capital. This downturn is not solely due to the natural ebb and flow of the business cycle and earnings. This Bear is due to misjudging of risk and the resultant systemic failure of our financial system.
The global financial system is being forced to rapidly de-leverage. We are now witnessing a negative feedback loop. This cycle is operating in reverse from normal, producing a cascading failure that is destroying the global capital base at a furious pace.
Less capital means a destruction of demand for all assets which leads to deflation. The global asset bubble has burst. Asset deflation has now manifested itself as the GREAT BEAR MARKET PLUNGE of 2008.
For the past several years, "buy and hold" has not been a profitable strategy. As of this week, we have now seen the last 5 years of gains wiped out on the major indices. Even worse, if you had bought the S&P 500 index 10 years ago, you would be faced with a negative 11% total return.
About the SGM Market Timing Model
The Strategic Growth Model (SGM) uses a Thrust / Trend Model (T/TM) for determining market conditions. This data-driven model has proved to enhance the SGM's returns during favorable market conditions and defend its capital during unfavorable market conditions. It does not depend on my subjective interpretation of data or my prediction of market trend.
The model recognizes that market tops and bottoms form differently, and different tools must be used to identify each one. For example, with stock indexes, bottoms are most often characterized by sharp, spiky formations resulting from rapid reversals in trend ("V" bottoms), whereas, tops are generally rounded and take longer to complete than bottoms.
The other important concept behind the timing model is that the closer an indicator is to raw price movement, the better it is likely to perform. Indicators derived from breadth, volume, and sentiment are useful for confirming price movement and analyzing market condition, but we buy and profit from price movement, so our decision tools should be as closely connected to price movement as possible.
The timing model has a specific component based on market internals for detecting bottoms and generating BUY signals, and another component for detecting tops and generating SELL or NEUTRAL signals. There is also a long-term component, which determines whether the timing signal indicating poor market conditions should be SELL or NEUTRAL.
This timing model has proved to be superior to one dimensional trend following systems, which can produce significant whipsaw losses leading to frustration and loss of confidence in what would otherwise be a profitable system.
The model recognizes that market tops and bottoms form differently, and different tools must be used to identify each one. For example, with stock indexes, bottoms are most often characterized by sharp, spiky formations resulting from rapid reversals in trend ("V" bottoms), whereas, tops are generally rounded and take longer to complete than bottoms.
The other important concept behind the timing model is that the closer an indicator is to raw price movement, the better it is likely to perform. Indicators derived from breadth, volume, and sentiment are useful for confirming price movement and analyzing market condition, but we buy and profit from price movement, so our decision tools should be as closely connected to price movement as possible.
The timing model has a specific component based on market internals for detecting bottoms and generating BUY signals, and another component for detecting tops and generating SELL or NEUTRAL signals. There is also a long-term component, which determines whether the timing signal indicating poor market conditions should be SELL or NEUTRAL.
This timing model has proved to be superior to one dimensional trend following systems, which can produce significant whipsaw losses leading to frustration and loss of confidence in what would otherwise be a profitable system.
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