07/04/2014 Good Enough is Good Enough

Style Model	Large Value
Sector Model	XLF	1.32%
Large Portfolio	Date	Return	Days
BX	4/14/2014	13.31%	81
TIVO	4/23/2014	9.69%	72
SHOO	4/28/2014	-1.52%	67
PWR	5/12/2014	5.72%	53
JRN	5/19/2014	14.78%	46
PM	5/27/2014	0.02%	38
SR	6/2/2014	12.92%	32
CFI	6/9/2014	1.01%	25
FRAN	6/16/2014	4.35%	18
ESI	6/30/2014	0.84%	4
(Since 5/31/2011)
S&P	Annualized	13.41%
Sector Model	Annualized	27.09%
Large Portfolio	Annualized	27.65%

 

Rotation: selling JRN; buying NUS (Nu Skin Enterprises).

 

This is an investment I didn’t even know was public, and never expected to pop up on the model.

The story here is that a critical investigation in China slapped the company with a small fine and an educational compliance requirement for its sales managers. Sales took a temporary drop in expectation of something far worse.

Hence, the price should recover.

JRN has been in full momentum mode and the price should continue to climb for a while longer, but the model can’t measure momentum well, and so we part company here.

Mean reversion investors try to buy lower than they sell.

Momentum investors try to sell higher than they buy.

Although those look like two sides of the same coin, they are different in practice.  A mean reversion investor may sell to a momentum investor just as the stock is really taking off. If both investors know what they are doing, they can both profit. There’s nothing wrong with momentum investing if you are good at it. And there’s nothing right with mean reversion investing if you are bad at it. It’s not the type of investing, but the talent.

I have no talent – which is why I use models. Speaking of which…

The Sector Model switched to XLF with good timing, stepping out of XLU just before that sector started to fall again:

 

Returns for the year are well above both the S&P and my personal benchmark.

That’s good enough.

 

Enjoy the long weekend and be thankful for self-government. Winston Churchill once accused us Americans of always doing the right thing -- after we have tried everything else... He may have been right, but the freedom to make mistakes may be the greatest freedom of all.

Tim