08/18/2013 Ask not what stocks can do for you; ask what you can do for stocks...

Sector Model	XLU & XLB	-0.97%
Style Model	Small Value
Large Portfolio	Date	Return	Days
CAJ	9/25/2012	-8.78%	327
ABX	4/11/2013	-20.12%	129
TTM	5/6/2013	-4.99%	104
DLB	5/13/2013	-5.25%	97
MATW	6/6/2013	3.28%	73
OKE	6/17/2013	13.90%	62
BTI	7/1/2013	3.42%	48
CLH	7/8/2013	1.67%	41
FAST	7/22/2013	-3.78%	27
VAR	8/2/2013	-2.02%	16
(Since 5/31/2011)
S&P	Annualized	9.82%
Sector Model	Annualized	23.25%
Large Portfolio	Annualized	28.54%

 

Rotation: selling MATW; buying OUTR.

This rotation marks the beginning of a new phase of the model that will allow it to emphasize the fundamentals of the companies to a greater degree: strong long term growth in cash flow, dividends, and sales; with a recent (atypical) earnings miss.

Basically you want to invest in a company that normally does better than it is doing now.  Most people in the market nowadays are traders instead of investors, and that leaves a good opportunity for us at a time a company most needs it.

That is, you are helping yourself by helping the company.

Traders are trying to take money from others.

Investors are trying to make money with others.

This is an important distinction, and it puts investing back into the real world: people usually pay you for something that you do on their behalf.  Stocks work the same way.  We provide liquidity, and companies do with it what they can.  If the company needs more money now than it usually does, then it is likely to give you more profit than it usually gives its investors.

Sometimes even a historically well-run company may not be able to recover.  But that’s THEIR job.  OUR job is to give them the best chance we can give them when they most need it, and THEIR job is to take advantage of that chance.

Of course, a bad company that always needs money is something to avoid.  And so, we should weed out those companies that normally do poorly, and find worthwhile companies that need a shot in the arm.

In other words, provide a service for those companies that deserve it.

If they don’t deserve it, you’ll lose.

But if they don’t need your money, you’ll also lose.  Giving money to companies that don’t need it isn't providing a service, and doesn’t deserve a reward.

Good companies need good investors.

Good investors need good companies.

The rest is just noise.

Tim

PS – those who are following the blog on a daily basis have seen a lot of whipsawing in the second position of the sector model.  XLB, XLK, and XLP are all neck and neck.  Since I’m following this model in a cash based account, I’m avoiding all the whipsaws by holding XLU by itself.