Sunday, November 29, 2009

A note from Steve re: 2010

I want to express how enthused I am for 2010!

As you may be aware, 2009 has been a challenging year for the Strategic Growth Model portfolio, this being the first year it has underperformed the broad market since inception. And it is NO real comfort that other hedge fund managers with a similar investment style have produced underwhelming results this year.

It's important to know that ANY systematic approach will have periods where it is in-synch with the market, and periods where it is out-of-phase. The MOST important thing is to keep our losses small during periods where the system is out-of-phase. In fact, I view THAT as our main accomplishment for 2009.

To this regard, the model portfolio is within 10% of its all-time-high made earlier this year, while the broad market remains more than 30% off its all-time-high made in Oct. 2007. For investors with a long-term horizon such as me and hopefully you, the model portfolio has performed very well over the market's full-cycle. THAT is our unswerving goal.

There are a host of reasons why the system has been out-of-phase, and I have appropriately adapted the system to better accommodate the once-in-a-generation conditions of this year should we ever see them again. (Hope NOT)

Over the past couple of weeks you may have noticed that the model portfolio is again holding its full complement of 10 stocks.

What's encouraging to ME is what I see under the hood, where the model's highest performing screens are again producing some high quality growth stocks for our portfolio. This gives me encouragement that the model portfolio may be entering another period of OVER performance, during what happens to be the strongest six months of the seasonal cycle.

I appreciate your continued patience and confidence. Please be assured that you are on the receiving end of my very BEST work. All of our liquid assets are invested alongside yours as we continue on this journey together.

Best wishes to you and your family for the holiday season and here's to a profitable 2010!

Returns for week ending 11/27/09

Model portfolio, hypothetical returns for past…
1 week: +0.7%

Value of $10,000 invested at inception in 2003: $56,278

Sunday, November 22, 2009


Returns for week ending 11/20/09

Model portfolio, hypothetical returns for past…
1 week: -0.7%

Value of $10,000 invested at inception in 2003: $55,899

Monday, November 16, 2009


Returns for week ending 11/13/09

Model portfolio, hypothetical returns for past…
1 week: +0.54%

Value of $10,000 invested at inception in 2003: $56,316

Sunday, November 8, 2009


Returns for week ending 11/6/09

Model portfolio, hypothetical returns for past…
1 week: +2.25%

Value of $10,000 invested at inception in 2003: $56,089

Sunday, November 1, 2009


Returns for week ending 10/30/09

Model portfolio, hypothetical returns for past…
1 week: -3.0% (S&P500 declined -4.1%)

Value of $10,000 invested at inception in 2003: $54,853

This was an unusually tough week for growth stocks and the indices. Fortunately, our portfolio's losses were buffered somewhat by the large amount of cash being held, and the portfolio's partial hedge against the broad market.

The model portfolio has been "out-of-phase" with the market for several months now, since the March lows. This is reflected in the smaller than normal number of stocks that are passing the model's screens, and the higher than normal amount of cash being held in our portfolio.

For what it is worth, I am reading that other hedge fund managers managing with a similar long/short style are experiencing the same dynamic. Fortunately this dynamic represents the exception since the market doesn't normally decline 55% in a panic driven cascading failure such as we saw last year.

In hindsight, the nature of a snap back rally following a generational decline doesn't favor high quality growth stocks and therefore our stocks didn't outperform the market off the bottom. Unfortunately I don't have the luxury of selecting a strategy in hindsight and so will continue to allocate our capital in accordance with our long-term statistical edge.

The good news is that the model portfolio has retained a large portion of its bear market gains, while the broad market remains significantly below its 2007 peak. It's a good reminder that there will be periods where the model is out-of-phase, and the best we can hope for during these periods is to protect our capital and accumulated gains, which the model portfolio has done.

Many mutual fund managers are reporting significant gains in 2009, but upon closer inspection it is clear that they have not come close to regaining the investor money they lost during 2007-08. It is amusing to see fund marketers hype their short term results now as though their 3 and 5 year returns no longer matter. They really have NO shame!

Fortunately, this endeavor is a marathon and not a sprint. During times like this patience can be a virtue.