05/28/2012 Planned Rotation; DD for SAI

Condition	Bear Market
S&P Target	1240
Small Portfolio	IAU & XLF	5.01%
Hedge	XLU	-4.18%
Position	Date	Return	Days	Call
GCI	7/14/2011	-1.67%	319	Hold
CSGS	10/3/2011	29.59%	238	Hold
NLY	10/25/2011	9.01%	216	Hold
DD	10/27/2011	7.65%	214	Hold
KBR	10/27/2011	-9.95%	214	Hold
VG	10/27/2011	-48.33%	214	Buy
TTM	11/30/2011	42.50%	180	Hold
BT	1/4/2012	3.46%	145	Hold
PDLI	3/7/2012	6.40%	82	Hold
CLF	3/19/2012	-29.53%	70	Hold
S&P	Annualized	-2.05%
Small Portfolio	Annualized	5.04%
Mousetrap	Annualized	6.71%
Hedged	Annualized	2.50%

PLANNED ROTATION: sell DD and buy SAI.

I’ve been sick all week, so I have some catching up to do on the state of the world.

A couple of short notes on the model, though.

This week will reach the end of the Beta test, and with a year of live testing I have a good idea of the correct rotation rate.  Accordingly, I have DD up on the chopping block tomorrow morning.  If SAI gaps lower than DD, I’ll rotate.  If not, not (i.e. the rotations are not that urgent, and I’ll average about 1 a month on the current readings of the model).

It’s worth noting that the Small Portfolio would be outperforming the other options if I had not been hedging it with IAU (gold).  I’m considering simply holding one or two sectors and calling it a day.  No use being too clever when simple works better.  I’ll do a bit of tinkering to make sure that’s the best route, and the Small Portfolio will likely have a slight change starting next week.

In any case, it’s been an okay year in a time that value investing has taken a huge hit.  Greenblatt’s portfolio on Validea is down by double digits, and my technical filters have added about 20% of value over using Greenblatt alone. 

My goal for this test was to see if I could take advantage of BOTH Greenblatt AND my technicals by outperforming  the S&P by more than each alone.  Unfortunately, Greenblatt’s “Magic Formula” had one of its worst years on record and there is no way to quantify the original purpose of the test.  While I have indeed added value with my model, I have no idea how I would have done if Greenblatt had had a good year.

Next year, perhaps.  But my goal going forward will be to find better fundamentals to use.  Greenblatt was just a placeholder for the first year.

Onward and upward.

But first… time for another dose of cough medicine…

Tim

Some interesting links:

http://www.theatlanticwire.com/business/2012/05/behold-power-superstar-investor/52490/

http://www.slate.com/articles/health_and_science/new_scientist/2012/05/risk_intelligence_how_gamblers_and_weather_forecasters_assess_probabilities_.html

http://www.projectionpoint.com/