3/8/2015 When "normal" is a pain in the butt

Sector Model	XLU	-6.81%
Full Model	Date	Return	Days
ESI	8/4/2014	-47.80%	216
UVV	12/2/2014	22.44%	96
JOY	12/8/2014	-23.66%	90
RS	12/11/2014	-5.69%	87
GNW	1/20/2015	5.07%	47
AGCO	1/23/2015	10.21%	44
ALB	2/10/2015	5.16%	26
ISBC	2/17/2015	-2.91%	19
MPEL	2/25/2015	-8.01%	11
SSYS	3/3/2015	-0.89%	5
(Since 5/31/2011)
S&P	Annualized	12.13%
Sector Model	Annualized	22.10%
Full Model	Annualized	20.00%
S&P	Total	53.97%
Sector Model	Total	112.28%
Full Model	Total	98.86%
Sector Model	Advantage	9.97%
Full Model	Advantage	7.87%
	Previous	2015
S&P	53.06%	0.60%
Sector Model	122.60%	-4.64%
Full Model	101.13%	-1.13%

 

What do you do when you’re wrong?

Do you pretend you are right or do you look at what is wrong so that you can fix it?

My wife is a doctor and has this problem when she is sick.  She refuses to admit that she is sick and doesn’t slow down enough to get well.

In terms of stock investing that means recording your wins and your losses, and analyzing the difference between them.

That kind of analysis also keeps you on track when something seems wrong and may not be.

ESI was wrong, and I embedded that lesson into the fundamental parameters of the full model.

What about XLU?

To answer that, here is a chart for the Sector Model since Steve Cohen launched a fund that followed it:

I warned for most of last year that the 30% returns were an aberration; and that at some point the model would revert back to its benchmark.

It has now done so.

In other words, the model is behaving as expected.  Sometimes it will be above the benchmark and sometimes below, but as long as it tracks that benchmark it will be behaving normally.

No matter how annoying “normal” can sometimes be.

Tim