Sector Model
|
XLB
|
-0.72%
|
|
Large Portfolio
|
Date
|
Return
|
Days
|
CAJ
|
9/25/2012
|
-5.00%
|
263
|
BOKF
|
2/4/2013
|
13.03%
|
131
|
SWM
|
2/12/2013
|
40.58%
|
123
|
MWW
|
4/11/2013
|
19.87%
|
65
|
ABX
|
4/11/2013
|
-19.42%
|
65
|
TPX
|
4/22/2013
|
-4.26%
|
54
|
TTM
|
5/6/2013
|
-4.77%
|
40
|
DLB
|
5/13/2013
|
-1.63%
|
33
|
GMCR
|
5/24/2013
|
7.47%
|
22
|
MATW
|
6/6/2013
|
0.29%
|
9
|
S&P
|
Annualized
|
9.75%
|
|
Sector Model
|
Annualized
|
24.11%
|
|
Large Portfolio
|
Annualized
|
30.81%
|
Rotation: selling MWW; buying OKE.
This will be the fifth time trading OKE, and it’s a bit of a
wild card. Of the first four trades, two
were profits and two were losses.
The market itself is a bit of a wild card, to be
honest. A look at the market news
stories these last few weeks has been a tug of war between euphoria and
despair. Hussman is calling a market top
for the bazillionth time, while Dr. Doom Roubini is bullish.
This is not a normal market.
Never before has technology been coupled with artificial
intelligence. Robots are not just
machines, but something else entirely. And
we are not only competing with them for our jobs, but in our investment
decisions as well. Think technology squared.
Added to that we have a dysfunctional political environment and a
central bank trying experiments never ventured in this country’s history.
Blissfully unaware of all these massive exceptions from the
rule, the market moves, as always, in its natural logistical curves:
The basic idea is that the market is always after some kind
of moving target, and each day, week, month, year, it randomly moves up or down
based on two percentage factors: 1) its current position and 2) the position of
that moving target. It may not HIT that
target, but it always has one in mind.
For instance (using a simpler method to approximate the idea), the
current target is likely in the 2050 range on the S&P, around the beginning
of 2015:
On this chart I plotted a linear regression for the entire
1950-present period, and another from the March 2009 low-present, and extended
both lines forward. They cross around 2050
by the end of January 2015.
That’s where the market THINKS it is going.
And the market THINKS it would be natural and normal to get
there – regardless of how unnatural and abnormal the true economy is.
Keep in mind that no technical trick can plot an exact date
or price of where the market WILL be – only where the market THINKS it will be.
Now look at that chart a bit closer:
Notice that the further apart the two regression lines are,
the greater the size of the cycles. As
the two linear regressions fall closer together, the size of the market swings
subsides.
But here’s the caveat: if the market truly belonged where it
THINKS it belongs, we’d ultimately subside into zero volatility in a single
straight line.
And we all know that will never happen.
There is a long term standard deviation of the market, and
the less it deviates in the short term, the more it will deviate in the future
to make up for it. What’s happening is
that as investors get more and more fixated on where the market THINKS it is
going, the more they ignore other reasons for it to be a different value
altogether. This is a natural filter we
have that is well documented:
In investment terms, the more convinced you are, the less
likely you are to be right.
What the market lacks – what most investors lack – is Risk
Intelligence.
There’s a good test to measure your “Risk Intelligence”
here:
Incidentally, this cockiness caveat is the reason women tend
to do better than men in the market. All
that testosterone gives you just enough confidence to hang yourself.
Happy Father’s Day, all you horrid investors!
I have more to write, but it will have to wait. For the next few weeks I’ll be editing my
book into a kindle format, in addition to the existing hardback and Accordance
module formats:
We’re currently updating the text to the newest (28th)
edition of the Nestle Aland, just released.
For those who have the hardback copy, we’ll provide a short PDF insert
of the minor changes to the text (about two pages). The kindle and Accordance packages will be
fully updated to the handful of changes in the Catholic Epistles.
Until then – don’t get too cocky out there. Your own certainty is your worst liability.
Relax. Sit back. Read a book.
Read mine! That should keep you
occupied for a spell J
Tim
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