Saturday, October 26, 2013

10/26/2013 BOO!


Sector Model
XLK
4.00%
Large Portfolio
Date
Return
Days
ABX
4/11/2013
-16.57%
198
TTM
5/6/2013
16.60%
173
QCOM
9/3/2013
3.00%
53
NEM
9/30/2013
-0.54%
26
BCR
10/4/2013
17.28%
22
BAX
10/7/2013
0.74%
19
BDX
10/11/2013
4.34%
15
DECK
10/15/2013
13.79%
11
ED
10/18/2013
3.24%
8
ISRG
10/21/2013
-1.96%
5
(Since 5/31/2011)
S&P
Annualized
11.81%
Sector Model
Annualized
24.56%
Large Portfolio
Annualized
32.59%

Rotation: selling TTM; buying EW (Edwards Lifesciences).

It’s been a good week, and the year to date return on the full model is now 34.46%, against the S&P’s 23.39%.  Not super-impressive, but still a good number.   DECK had a comforting gain on Friday.

Of special note is the fact that Edwards Lifesciences is now the FIFTH stock in the same industry.  The hiccups with Obamacare have created an opportunity cluster I could have never predicted.

Keep in mind that news is noise.  The Affordable Healthcare Act is problematic, but not the apocalypse.  People adjust.  Doctors are being driven out of private practice and into corporate groups.  But they still have school debts to pay off and will struggle through.  It isn’t going to be defunded by Cruz and it isn’t going to go away because of a bad website.  NEITHER is it going to avoid delays because of Reid.  The news is noise.  The partisans are noise.

The only thing that matters is the ratio of price to fundamental value.  Occasionally the noise will create a bargain.

EW is a bargain.

Among all of the stocks I survey, the only stock that’s BETTER valued is ISRG, which we picked up last week.

I was intrigued by the Nobel Prizes given to Fama and Shiller.  Fama believes in an efficient market and Shiller believes the opposite.  Some people who manage other people’s money like to convince individuals that there are no true bargains out there and that the market is magically and instantaneously right.  Then they charge their clients money to try to track an index that the clients could do for themselves by simply parking everything into SPY.  Shiller is often quoted by people who try to time the next three months of market investments based on a Cyclically Adjusted PE Ratio that’s really only useful for a ten year holding period.

People who make money don’t measure the “market.”  They measure “stocks” within that market to look for bargains.

So, good for Fama and Shiller.  They are both extremely helpful in scaring my competition into dumping stocks at the bottom.

They get a cash prize, and I get low lying fruit for as long as folks think of a “stock market” instead of a “market of stocks.”

I wish them both a long and prosperous future.

But we know better.  It’s Halloween, and Fama and Shiller are scaring the hell out of people.

All we have to do is pick up the candy everyone drops in their terror.

Tim

 

6 comments:

  1. EW is quite a better bargain now. Should the negative momentum be a consideration for either opting for another stock or timing the trade swap?

    ReplyDelete
  2. Not in this case. I measure momentum for the entire industry, rather than a single stock. Of the trades in that industry I'm still up. I was lucky getting into EW because I had such a sharp drop before I got in. I'm personally doing about 5% better on that stock than what I'm reporting on the model.

    I'm more concerned about the gold mining stocks.

    ReplyDelete
  3. Makes sense. Gold mining indeed looks pressured now (ABX,NEM) but I assume that negative momentum is only a consideration in your revised model to null entry into new positions, but not to force exit from existing positions?

    ReplyDelete
  4. Correct.

    The Sector model is designed to move in real time, but the full model holds stocks until they reach a fundamental exit point. On those occasions that stocks like ABX get sucked into a hole, the strategy is to give the fundamentals a chance to pull it back out.

    ReplyDelete
  5. Alas, since fundamentals are typically reported "late", the price action must be saying something that's not reflected yet. As the saying goes - it's either a problem or an opportunity.

    ReplyDelete
  6. The technical configuration of that industry is still in the buy zone, and XLB incorporates it as well. These things tend to recover right when all hope seems to be lost ;-).

    ReplyDelete