04/26/2014 What are you doing???

Style Model	Mid Value
Sector Model	XLU	0.65%
Large Portfolio	Date	Return	Days
ABX	4/11/2013	-25.49%	380
NEM	9/30/2013	-4.06%	208
JOY	11/18/2013	7.00%	159
RS	2/10/2014	1.05%	75
CSCO	2/12/2014	2.13%	73
CBI	2/20/2014	0.01%	65
DUK	3/10/2014	5.62%	47
HFC	3/17/2014	4.26%	40
BX	4/14/2014	4.02%	12
TIVO	4/23/2014	-1.99%	3
(Since 5/31/2011)
S&P	Annualized	11.87%
Sector Model	Annualized	27.78%
Large Portfolio	Annualized	26.33%

 

Rotation: selling HFC; buying GCO (in the shoe industry).

We lived in Hendersonville Tennessee when I was five until I was ten.  The most fascinating thing about the place was how routine it was to see tornado weather.  My brother and I got so used to it that we’d rush outside to play a game with the wind:

The rule was simple – jump straight up in the air to see who got blown back the furthest.

You could spread out your jacket to catch the wind, but you had to jump STRAIGHT up without cheating.

My older brother usually won, but I loved the game anyway.

Mom also had a routine.  She’d crack open all the windows a little to let the air pressure adjust.  It would take her from room to room upstairs and downstairs.  She’d also shut all the cabinets and put away anything that could turn into flying debris.

It would take her a while before she realized something horrible…

Her two boys weren’t dutifully waiting in the little closet under the stairs.

In fact, they weren’t in the house at all!

She’d run upstairs again just to make sure, before rushing downstairs and out the back door, screaming at the top of her lungs, “What are you doing???”

We’d shrug our shoulders and laugh.  Game over.  Time to go cower until the coast was clear again.

The next day we’d review the damage while we rode the school bus.  I remember seeing one house without a roof, and a good while later I’d see a roof in a field without a house.

And we could always recognize the look in the sky when another tornado watch was coming our way.

Sometimes there was a dead calm in the gloom before the wind began to pick up.  And I even got to see a few funnels form in the distance before Mom ended our little game.

So, a little note on the recent performance of the model…

Keep in mind that both models are defensive in nature.  They do better in bearish conditions than they do in bullish ones.  Although they will outperform in a bull market, they do even better in a bear.

Nowhere is this more apparent than in the struggle the S&P has experienced so far this year:

 

The Sector Model is up 18.31% for the year.

The S&P is up 0.81% for the year.

That kind of outperformance usually happens before a correction.

Again, I don’t use timing indicators for my own models because 1) I’m a lousy timer and 2) my models do best in the worst of times.  So there are no changes I plan to make in my own investments.  I’m just noting it here because some folks do like to get a weather report on occasion and my rough little barometer is showing a low pressure system overhead.

With defensive models, good news for me isn’t so great for all those momentum traders out there.  I’d suggest taking stock in your stocks with a good hard look at the fundamentals you’re investing in.  If they can weather a storm, you should be fine.

If they can’t – what are you doing???

Tim