LONG & SHORT PORTFOLIO
03/28/17
I will be updating the short portfolio at the market close Friday, March 31, 2017 and re-balancing the long and short portfolios . I will be publishing the list of short stocks Friday morning.
SHORT PORTFOLIO
SHORT PORTFOLIO
02/23/17
I will be updating the short portfolio at the market close Friday, February 24, 2017. I will be publishing the list of short stocks Friday morning.
SHORT PORTFOLIO
01/64/17
I will be updating the short portfolio at the market close Friday, January 27, 2017. I will be publishing the list of short stocks Friday morning.
LONG & SHORT PORTFOLIO
12/28/16
I will be updating the short portfolio at the market close Friday, December 30, 2016 and re-balancing the long and short portfolios . I will be publishing the list of short stocks Friday morning.
SHORT PORTFOLIO
11/24/16
I will be updating the short portfolio at the market close Friday, December 2, 2016. I will be publishing the list of short stocks Friday morning.
SHORT PORTFOLIO
10/27/16
I will be updating the short portfolio at the market close Friday, October 28, 2016. I will be publishing the list of short stocks Friday morning.
SHORT PORTFOLIO
09/29/16
I will be updating the short portfolio at the market close Friday, September 30, 2016. I will be publishing the list of short stocks Friday morning.
SHORT PORTFOLIO
09/01/16
I will be updating the short portfolio at the market close Friday, September 2, 2016. I will be publishing the list of short stocks Friday morning.
SHORT PORTFOLIO
07/28/16
I will be updating the short portfolio at the market close Friday, July 29, 2016. I will be publishing the list of short stocks Friday morning.
SHORT PORTFOLIO
SHORT PORTFOLIO
06/30/16
I will be updating the short portfolio at the market close Friday, July 1, 2016. I will be publishing the list of short stocks Friday morning.
SHORT PORTFOLIO
05/25/16
I will be updating the short portfolio at the market close Friday, May 27, 2016. I will be publishing the list of short stocks Friday morning.
LONG & SHORT PORTFOLIO
04/26/16
For various reasons I will be dropping the long stock portfolio and going back to the S&P 500 SPY ETF only. In looking at the current long stocks, while they have performed well they still have not produced much of an excess return. Also, I believe they will be highly vulnerable in a bear market. Given the risk involved versus the potential returns I think it best to simply go with the S&P SPY ETF.
I will be updating the short portfolio at the market close Friday, April 29, 2016. I will be publishing the list of short stocks Friday morning.
SHORT PORTFOLIO
04/07/16
I will be updating the short portfolio at the market close Friday, April 8, 2016. I will be publishing the list of short stocks Friday morning.
LONG & SHORT PORTFOLIO
03/30/16
I will be updating the long and short portfolios at the market close Friday, April 1st 2016. I will be publishing the list of long and short stocks Friday morning.
I will also be rebalancing the long and short portfolios. After analyzing the last three years of returns of the short portfolio I have come to the conclusion that the net exposure that should give me the smallest amount of drawdown is 70%. Since my goal is to not lose money the ratio of long to short portfolios that produces the least drawdown would seem to be the optimal strategy. Also, in down-markets it appears I have a tendency to produce a positive return and of course the goal in down-markets is to break-even which indicates I should increase the net exposure.
I would like to mention (for the umpteenth time) that changes to the net exposure have absolutely nothing to do with market timing. Quite frankly I expect that we are at the beginnings of a cyclical bear market that will see a 50% drawdown at the minimum and a drawdown of over 70% plus is not out of the question. Therefore, it would seem the last thing I would want to do is increase the net exposure. I am doing this because that is what my risk management process says I should do.
LONG & SHORT PORTFOLIO
02/25/16
I will be updating the long and short portfolios at the market close Friday, February 26th, 2016. I will be publishing the list of long and short stocks Friday morning.
NET EXPOSURE INCREASE
02/11/16
While I believe we are at the beginning of a major cyclical bear market I am raising the net exposure from 40% to 60%. as of the market close tomorrow, Friday, February 12th. I know this is counterintuitive but nonetheless it is the right thing to do. This is based not on my believe of what I expect the market to do but is based solely on process (see Hedge Strategy).
LONG & SHORT PORTFOLIO
01/28/16
I will be updating the long and short portfolios at the market close Friday, January 29th, 2016. I will be publishing the list of long and short stocks Friday morning.
LONG & SHORT PORTFOLIO
12/30/15
I will be updating the long and short portfolios at the market close Friday, December 31st 2015. I will be publishing the list of long and short stocks Friday morning.
LONG PORTFOLIO
SHORT PORTFOLIO
12/17/15
I will be updating the short portfolio at the market close Friday, December 18, 2015. The only change is the removal of Sun Edison. I will be publishing the January short portfolio on December 31st.
LONG & SHORT PORTFOLIO
11/25/15
I will be updating the long and short portfolios at the market close Friday, November 27th 2015. I will be publishing the list of long and short stocks Friday morning.
LONG PORTFOLIO
10/22/15
I have decided to do a combination of the S&P 500 SPY ETF and individual long stocks for the long portfolio. I figure I might as well make the change sooner than later so I will be updating the long portfolio a week early at the market close this Friday, October 23rd. I will be publishing the list of long stocks Friday morning. I plan to update the short portfolio next week on Friday the 30th as per my usual schedule.
LONG & SHORT PORTFOLIO
09/30/15
I will be updating the long and short portfolios at the market close Friday, October 2nd 2015. I will be publishing the list of long and short stocks Friday morning.
LONG & SHORT PORTFOLIO
08/24/15
I will be updating the long and short portfolios at the market close Friday, August 28th 2015. I will be publishing the list of long and short stocks Friday morning.
CAPTURE RATIO STRATEGY
08/18/15
After waiting 3 years I have finally decided to publish the Capture Ratio Strategy web page.and charts.
LONG & SHORT PORTFOLIO
07/29/15
I will be updating the long and short portfolios at the market close Friday, July 31st 2015. I will be publishing the list of long and short stocks Friday morning.
BACK ON LINE
07/03/15
At the end of May while updating the portfolios I had trouble uploading the files to the server. After a dozen calls to tech support by myself and my web site consultant we finally gave up and decided to find a new web site service provider. Unfortunately by this time I had left the country for vacation and was not able to do anything until I got back. Between migrating the web site and then having to update my web design software it was Monday of this week before my web site consultant was able to get me reconnected to the new server. I have just finished updating all the pages and am now ready to get everything back on line.
While this has been a total pain, the good news is it has forced me to finally give up my 11 year old Dreamweaver 2004 and go to a cloud based Dreamweaver program which I can now use anywhere in the world.
Please note that there has been a delay in updating the Portfolios due to the site administrator being overseas. In addition, we have also been experiencing server difficulties. We expect the Portfolios to be updated sometime during the end of June.
LONG & SHORT PORTFOLIO
05/28/15
I will be updating the short portfolio at the market close Friday, May 29th 2015. I will also be bringing back the long stock portfolio. The long stock portfolio will be 100% of fund equity and the short portfolio will remain at 60% of fund equity. I will be publishing the list of long and short stocks Friday morning.
SHORT PORTFOLIO
04/30/15
I will be updating the short portfolio at the market close Friday, May 1st 2015. I will be publishing the list of short stocks Friday morning.
LONG & SHORT PORTFOLIO
03/26/15
I will be updating the short portfolio at the market close Friday, March 27th, 2015. I will be publishing the list of short stocks Friday morning.
II will also be re-balancing the long and short portfolios. The long portfolio will be 100% of fund equity and the short portfolio will be 60% of fund equity for a net exposure of 40%, a gross exposure of 160% and a ratio of long portfolio to short portfolio of 1.67 to 1.
SHORT PORTFOLIO
02/26/15
I will be updating the short portfolio at the market close Friday, February 26, 2015. I will be publishing the list of short stocks Friday morning.
SHORT PORTFOLIO
01/28/15
I will be updating the short portfolio at the market close Friday, January 30, 2015. I will be publishing the list of short stocks Friday morning.
LONG & SHORT PORTFOLIO
12/30/14
I will be updating the short portfolio at the market close Friday, January 2, 2015. I will be publishing the list of short stocks Friday morning.
II will also be re-balancing the long and short portfolios. The long portfolio will be 100% of fund equity and the short portfolio will be 60% of fund equity for a net exposure of 40%, a gross exposure of 160% and a ratio of long portfolio to short portfolio of 1.67 to 1.
GROSS RETURNS
12/21/14
Starting on Friday, December 26th, I am adding the gross fund's returns to the quarterly performance chart. The gross returns are the fund's returns before deducting the 20% performance fee and the 1.75% asset fee (whichever is greater of the two) which are deducted from the NAV returns.
SHORT PORTFOLIO
11/26/14
I will be updating the short portfolio at the market close Friday, November 28, 2014. I will be publishing the list of short stocks Friday morning.
SHORT PORTFOLIO
10/29/14
I will be updating the short portfolio at the market close Friday, October 31, 2014. I will be publishing the list of short stocks Friday morning.
LONG & SHORT PORTFOLIO
09/21/14
I will be updating the short portfolio at the market close Friday, September 26, 2014. I will be publishing the list of short stocks Friday morning.
Because I believe the up-capture ratio is a bit to high I will be increasing the short portfolio which will decrease the net exposure and will decrease the long/short taro. The long portfolio will be 100% of fund equity and the short portfolio will be 60% of fund equity for a net exposure of 40%, a gross exposure of 160% and a ratio of long portfolio to short portfolio of 1.67 to 1.
SHORT PORTFOLIO
08/28/14
I will be updating the short portfolio at the market close Friday, August 29, 2014. I will be publishing the list of short stocks Friday morning. The long portfolio will be 100% of fund equity and the short portfolio will be 35% of fund equity for a net exposure of 65% and a gross exposure of 135%.
SHORT PORTFOLIO
07/31/14
I will be updating the short portfolio at the market close Friday, August 1, 2014. I will be publishing the list of short stocks Friday morning. The long portfolio will be 100% of fund equity and the short portfolio will be 35% of fund equity for a net exposure of 65% and a gross exposure of 135%.
LONG AND SHORT PORTFOLIOS
06/29/14
I will be rebalancing the long and short portfolios at the market close, Monday, June 30, 2014. I have again decided to go back to the SPDR S&P 500 ETF (SPY) for the long portfolio. I have decided what I need is a major market correction to stress test the long stock portfolio. Until that happens it is probably best to stay with SPDR S&P 500 ETF (SPY). The stocks in the short portfolio remain the same as the June 27th portfolio.
LONG AND SHORT PORTFOLIO
06/26/14
I will be updating the short portfolio at the market close Friday, June 27, 2014. I will also be bringing back the long stock portfolio. I will be publishing the list of long and short stocks Friday morning.
SHORT PORTFOLIO
05/15/14
I will be updating the short portfolio at the market close Friday, May 16, 2014. I will be publishing the list of short stocks Friday morning.
LONG AND SHORT PORTFOLIO
05/09/14
While the market has not gone down very much this week, the Hedge Synergy NAV has risen quite a bit. Because the goal is to try to break-even in a falling market it appears that the net exposure needs to be increased to reduce the up-capture of the inverse return of the S&P 500. Therefore I will be reducing the short portfolio to 35% of fund equity as of the market close today. The gross exposure will be 135% and the net exposure will increase to 65% from its current 40%.
I would like to emphasize that this is not being done to "time" the market. I personally believe that the market is extremely overpriced and is due for a very large fall (though I have no idea when that might happen). Therefore my increasing the net exposure is based solely on mitigating risk which is caused by the high up-capture of the inverse return of the S&P 500.
SHORT PORTFOLIO
04/24/14
The short portfolio will remain the same as last week so there will be no update posting tomorrow.
SHORT PORTFOLIO
04/17/14
The short portfolio will remain the same as last week so there will be no update posting tomorrow.
LONG & SHORT PORTFOLIOS
03/31/14
I will be re-balancing and updating the long and short portfolios at the market close Monday, March 31st. The long portfolio will be100% of fund equity and the short portfolio will be 60% of fund equity. This makes the net exposure of the fund 40% and the gross exposure 160%.
I am also replacing the ProShares Ultra S&P 500 ETF with the SPDR S&P 500 ETF (SPY) .
LONG PORTFOLIO
02/13/14
I am not totally satisfied with the long stock portfolio so I have decided to go back to 100% ProShares Ultra S&P 500 ETF for the long portfolio . Because the long portfolio is now leveraged 2 to 1 I need to change the ratio of the long and short portfolio. The long portfolio will be 60% of fund equity and the short portfolio will be 80% of fund equity.
Since the SSO ETF has a built-in leverage of 2 to 1 the long exposure of the SSO ETF is twice the percentage of fund equity invested in the SSO ETF which means the SSO ETF has a 120% exposure to the market. This makes the net exposure of the fund 40% and the gross exposure 200%.
LONG & SHORT PORTFOLIOS
01//03/14
Due to a software glitch yesterday I will probably have to update the long and short portfolios either after the close of the market today or tomorrow morning.
LONG & SHORT PORTFOLIOS
12/31/13
I will be re-balancing the long and short portfolios at the market close Tuesday, December 31st. The long stocks and short stocks for the remainder of the first week of the year are the same as the long stocks and short stocks on December 31st.
Based on the performance of the 2013 yearly stock chart (see Performance Charts) the projected NAV had a monthly up-capture ratio exceeding 100%. The problem is, the most prudent thing to do is to try to have a monthly up-capture ratio that is less than 100%.
If the market continues up, the up-market capture ratio can be reduced by decreasing the long portfolio and increasing the short portfolio. If on the other hand the market heads down then decreasing the long portfolio and increasing the short portfolio will help towards trying to break even in a down-market. I would like to emphasize that this has nothing to do with market "timing". This is being done solely to adjust for excess risk due to the up-capture ratio being to high.
Because of this, the short stock portfolio is being adjusted to 90% of fund equity, the long stock portfolio is being adjusted to 30% of fund equity and the ProShares Ultra S&P 500 ETF (SSO) is being adjusted to 30% of fund equity. Since the SSO ETF has a built-in leverage of 2 to 1 the long exposure of the SSO ETF is twice the percentage of fund equity invested in the SSO ETF. This gives the SSO ETF 60% exposure and with the 30% exposure of the long stock portfolio the total exposure of the long portfolio will be 90%. This makes the net exposure of the fund 0% and the gross exposure 180%.
LONG & SHORT PORTFOLIOS
9//28/13
I will be updated the long and short portfolio at the market close Monday, September 30th. I will be publishing the list of long and short stocks Monday morning, September 30th. The short stock portfolio will be 80% of equity and the long portfolio will be 80% of equity making gross exposure 160% and net exposure 0%
LONG PORTFOLIO
8/29/13
I will be bringing back the long stock portfolio as of 8/30/2013. I will also continue using the ProShares Ultra S&P500 ETF (SSO). I intend to have half of the long portfolio invested in long stocks and half of the long portfolio invested in the SSO ETF.
LONG & SHORT PORTFOLIO
6/26/13
I will be updated the short portfolio at the market close Friday, June 28th. I will also be replacing the iShares S&P 500 ETF (SPY) with ProShares Ultra S&P500 (SSO). The short stock portfolio will be 80% of equity and the long portfolio will be 80% of equity making gross exposure 160% and net exposure 0%. I will be publishing the list of short stocks Friday morning, June 28th.
SHORT PORTFOLIO
6/21/13
I just published this week's updated short portfolio. Since I was having so much trouble with the WiFi during my Alaskan Cruise on the Grand Princess I wasn't able to update the web site last week except for publishing last week's updated short portfolio which finally got uploaded when I got back on Wednesday. I will be updating the web site with the last two weeks performance either this evening or Saturday morning.
SHORT PORTFOLIO
6/17/13
While I was able to download my data on Friday and I was able to put the short portfolio together over the week-end, the satellite connection at "dial-up" speeds is driving me crazy. What should take minutes is taking hours. I am just going to wait until I get back on Wednesday to upload the web site.
SHORT PORTFOLIO
6/13/13
I am on a cruise to Alaska. While it looks like I will be able to update my data tomorrow, I will probably be the end of the week-end before I can publish the new short portfolio and update the web site. The WiFi connection is by satellite and is extremely tenuous.
LONG & SHORT PORTFOLIOS
3/27/13
I will be updated the short portfolio at the market close Thursday, March 28th. I will be publishing the list of short stocks Thursday morning, March 28th. The short portfolio will be adjusted to 50% of fund equity.
I will also be replacing the asset long portfolio with the iShares S&P 500 ETF (SPY). The long portfolio will be 100% of fund equity.
LONG & SHORT PORTFOLIOS
12/30/2012
I will be updated the short portfolio at the market close Monday, December 31st. I will be publishing the list of short stocks Monday morning, December 31st.
I will be adjusting the long portfolio allocations to bring the percentages back to 10% for gold and bonds and 26.67% for commodities, real estate and stocks.
SHORT PORTFOLIO
12/11/2012
I will be updated the short portfolio at the market close Tuesday, December 11th. I will be publishing the list of short stocks this morning, Tuesday, December 11th.
SHORT PORTFOLIO
11/29/2012
I will be updated the short portfolio at the market close Friday, November 30th. I will be publishing the list of short stocks Friday morning, November 30th.
SHORT PORTFOLIO
11/22/2012
I will be updated the short portfolio at the market close Friday, November 23rd. I will be publishing the list of short stocks Friday morning, November 23rd.
LONG AND SHORT PORTFOLIOS
11/09/2012
I will be updated the long and short portfolios at the market close Friday, November 9th. I will be publishing the list of short stocks this morning, Friday, November 9th. I should point out that when I refer to morning I mean morning Pacific Time.
I will also be adjusting the asset allocation of the long portfolio to 10% for gold and bonds and 26.67% for commodities, real estate and stocks. The reason for this is because in a down market the best strategy is to break-even. When I say break-even I am not just talking about trying not to lose money but also trying not to make a positive return. Basically the goal is to try to achieve a 0% monthly down capture ratio. If a long/short hedge fund manager makes a positive return in a down market it means they are taking on too much risk. The solution is to reduce risk by trying to reduce the positive return. Hopefully, by underweighting gold and bonds and overweighting commodities, real estate and stocks I can accomplish this.
SHORT PORTFOLIO
11/02/2012
I will be updated the short portfolio at the market close Friday, November 2nd. I will be publishing the list of short stocks this morning, Friday, November 2nd.
SHORT PORTFOLIO
10/25/2012
I will be updating the short portfolio at the market close on Friday, October 26th. I will be publishing the list of short stocks Friday morning, October 26th. I will also be re-allocating the long portfolio and weighting all five assets equally.
EXPONENTIAL P/E
10/13/2012
I have updated the exponential P/E value.
SHORT PORTFOLIO
10/10/2012
I will be updating the short portfolio at the market close on Friday, October 12th. I will be publishing the list of short stocks Friday morning, October 12th.
LONG AND SHORT PORTFOLIOS
09/26/2012
At the close of the market on Friday, September 28th, I will be updating the short portfolio and will be re-balancing the long and short portfolios. I will be publishing the list of short stocks Friday morning, September 28th. The allocation of the long portfolio will also be adjusted to 10% for gold and bonds and 26.67% for commodities, stocks and real estate.
I will be staying at 100% net exposure with the longs at 130% of equity and the shorts at 30% of equity for a ratio of long portfolio to short portfolio of 4.34 to 1.
SHORT PORTFOLIO
09/13/2012
I will be updating the short portfolio at the market close on Friday, September 14th. I will be publishing the list of short stocks Friday morning, September 14th. I will also be re-allocating the long portfolio and weighting all five assets equally.
SHORT PORTFOLIO
09/06/2012
I will be updating the short portfolio at the market close on Friday, September 7th. I will be publishing the list of short stocks Friday morning, September 7th.
SHORT PORTFOLIO
08/30/2012
I will be updating the short portfolio at the market close on Friday, August 31th. I will be publishing the list of short stocks Friday morning, August 31th.
SHORT PORTFOLIO
08/08/2012
I will be updating the short portfolio at the market close on Friday, August 10th. I will be publishing the list of short stocks Friday morning, August 10th.
SHORT PORTFOLIO
07/26/2012
I will be updating the short portfolio at the market close on Friday, July 27th. I will be publishing the list of short stocks Friday morning, July 27th.
SHORT PORTFOLIO
07/12/2012
I will be updating the short portfolio at the market close on Friday, July 13th. I will be publishing the list of short stocks Friday morning, July 13th.
LONG AND SHORT PORTFOLIOS
06/27/2012
At the close of the market on Friday, June 29, I will be updating the short portfolio and will be re-balancing the long and short portfolios. I am going to 100% net exposure with the longs at 130% of equity and the shorts at 30% of equity for a ratio of long portfolio to short portfolio of 4.34 to 1.
I am not doing this because I expect the start of a new bull market. Quite the contrary. I believe we are still in a secular bear market and I would not be surprised to see the exponential P/E going to 10 with the S&P 500 at around 500.
The reason for the change is because I have become convinced that the best strategy for a long/short equity hedge fund is to try to simply break-even in down months and to capture as much upside as possible in up months. I believe that given the current conditions, a ratio of the long portfolio to the short portfolio of 4.34 to 1 should hopefully accomplish this.
I will admit that given my believe that the market is going down (a long way down) I want to stay at 80% long and 80% short with 0% net exposure but sometimes it is better to go with what you need and not what you want.
There are two other changes. The first is basically a technicality. Since the DB Commodity Index Tracking Fund already contains 8% gold, this overweights gold in the long portfolio. I will be increasing the percentage allocation of the DB Commodity Index Tracking Fund so the 92% of the commodity ETF that represents commodities other than gold will equal the percentage allocated to commodities. The gold ETF will be reduced by the percentage increase of the commodity ETF so that the gold share of the commodity ETF and the gold ETF equal the asset allocation for gold.
The second change is that I will only be re-balancing the long portfolio asset allocations once a quarter.
LONG AND SHORT PORTFOLIOS
06/06/2012
I will be updating the short portfolio at the market close on Friday, June 8th and re-balancing the long portfolio. I will be publishing the list of short stocks Friday morning, June 8th.
LONG AND SHORT PORTFOLIOS
05/23/2012
I will be updating the short portfolio at the market close on Friday, May 25th and re-balancing the long portfolio. I will be publishing the list of short stocks Friday morning, May 25th.
LONG AND SHORT PORTFOLIOS
05/10/2012
I will be updating the short portfolio at the market close on Friday, May 11th and re-balancing the long portfolio. I will be publishing the list of short stocks Friday morning, May 11th.
LONG AND SHORT PORTFOLIOS
04/26/2012
I will be updating the short portfolio at the market close on Friday, April 27th and re-balancing the long portfolio. I will be publishing the list of short stocks Friday morning, April 27th.
VIOLATING THE RULES
04/20/2012
For the last few years I have been removing biotechnology from my stock selections. When I radically revamped my short stock selection process at the beginning of the month I decided, what the heck, I'll add the biotechnology stocks back in.
There was a reason I deleted biotechnology in the past, the black swan syndrome of the unexpected happening. While it can happen to any stock it seems that biotechnology is more highly prone to it. Anyway, in the future — no more biotech. Thank God for 50 short stock diversification.
LONG AND SHORT PORTFOLIOS
04/10/2012
I will be updating the short portfolios at the market close on Friday, April 13th. I will be publishing the list of short stocks Friday morning, April 13th.
Also, I will be adding additional stock ETF's but the overall percentage of the stock sector will remain 20% of the balance of the long portfolio. The list will be published Friday morning.
FIVE ASSET PORTFOLIO
04/05/2012
To say that my long portfolio stock selection process has been rather dismal would be an understatement. Quite by accident, while casting around for ideas to improve the situation, I came across a book about the Ivy Portfolio which is a portfolio idea suggested by Mebane T. Faber and Eric W. Richardson (The Ivy Portfolio). I started playing around with the idea, concentrating on constructing a global portfolio of major assets. I ended up with a list consisting of commodities, gold, real estate, stocks and bonds.
LONG AND SHORT PORTFOLIOS
03/29/2012
I will be updating the long and short portfolios at the market close on Friday, March 30th. I will be publishing the list of long and short stocks Friday morning, March 30th.
The long and short portfolio will be re-balanced as of the close on Friday with the long portfolio at 80% of equity and the short portfolio at 80% of equity for a net exposure of 0% and a gross exposure of 160%.
LONG AND SHORT PORTFOLIOS
03/22/2012
I will be updating the long and short portfolios at the market close on Friday, March 23rd. I will be publishing the list of long and short stocks Friday morning, March 23rd.
LONG AND SHORT PORTFOLIOS
03/15/2012
I will be updating the long and short portfolios at the market close on Friday, March 16th. I will be publishing the list of long and short stocks Friday morning, March 16th.
LONG AND SHORT PORTFOLIOS
03/08/2012
I will be updating the long and short portfolios at the market close on Friday, March 9th. I will be publishing the list of long and short stocks Friday morning, March 9th.
LONG AND SHORT PORTFOLIOS
02/29/2012
I will be updating the long and short portfolios at the market close on Friday, March 2nd. I will be publishing the list of long and short stocks Friday morning, March 2nd.
LONG AND SHORT PORTFOLIOS
02/15/2012
I will be updating the long and short portfolios at the market close on Friday, February 17th. I will be publishing the list of long and short stocks Friday morning, February 17th.
LONG AND SHORT PORTFOLIOS
02/02/2012
I will be updating the long and short portfolios at the market close on Friday, February 3rd. I will be publishing the list of long and short stocks Friday morning, February 3rd.
LONG AND SHORT PORTFOLIOS
01/25/2012
I will be updating the long and short portfolios at the market close on Friday, January 27th. I will be publishing the list of long and short stocks Friday morning, January 27th.
LONG AND SHORT PORTFOLIOS
01/19/2012
I will be updating the long and short portfolios at the market close on Friday, January 20th. I will be publishing the list of long and short stocks Friday morning, January 20th.
LONG AND SHORT PORTFOLIOS
01/10/2012
I will be updating the long and short portfolios at the market close on Friday, January 13th. I will be publishing the list of long and short stocks Friday morning — January 13th.
EXPONENTIAL TREND LINE UPDATE
12/31/2011
I have updated the exponential trend line using earnings through September 2011 and the current consumer price index.
LONG AND SHORT PORTFOLIOS
12/29/2011
I will be re-balancing the long and short portfolios as of the market close on Friday, December 30th. The long portfolio will be 100% of equity and the short portfolio will be 60% of equity for a net exposure of 40% and a gross exposure of 160% with a long to short ratio of 1.67 to 1.
LONG AND SHORT PORTFOLIOS
12/25/2011
I will be updating the long and short portfolios at the market close on Friday, December 30th. I will be publishing the list of long and short stocks Friday morning — December 30th.
LONG AND SHORT PORTFOLIOS
12/13/2011
I will be updating the long and short portfolios at the market close on Friday, December 16th. I will be publishing the list of long and short stocks Friday morning — December 16th.
LONG AND SHORT PORTFOLIOS
11/27/2011
I will be updating the long and short portfolios at the market close on Friday, December 2nd. I will be publishing the list of long and short stocks Friday morning — December 2nd.
LONG AND SHORT PORTFOLIOS
11/14/2011
I will be updating the long and short portfolios at the market close on Friday, November 18th. I will be publishing the list of long and short stocks Friday morning — November 18th.
LONG AND SHORT PORTFOLIOS
11/2/2011
I will be updating the long and short portfolios at the market close on Friday, November 4th. I will be publishing the list of long and short stocks Friday morning — November 4th.
LONG AND SHORT PORTFOLIOS
10/29/2011
While I may regret this, I believe the extraordinary jump in the market was due to extreme short covering. As the market digests what was and what was not accomplished at the EU Summit and reality slowly seeps into the collective conscience, I believe this advance will not stand. Therefore, I am not changing anything at the moment.
LONG AND SHORT PORTFOLIOS
10/27/2011
I will be re-balancing the long and short portfolios as of the market close on Friday, October 28st. The long portfolio will be 130% of equity and the short portfolio will be 30% of equity for a net exposure of 100% and a gross exposure of 160% with a long to short ratio of 4.34 to 1.
LONG AND SHORT PORTFOLIOS
10/19/2011
I will be updating and re-balancing the long and short portfolios as of the market close on Friday, October 21st. The long portfolio will be 110% of equity and the short portfolio will be 50% of equity for a net exposure of 60% and a gross exposure of 160% with a long to short ratio of 2.2 to 1. I will be publishing the list of long and short stocks Friday morning - October 21st.
EXPONENTIAL TREND LINE UPDATE
10/16/2011
I have updated the exponential trend line using the most recent reported earnings and the current consumer price index.
LONG AND SHORT PORTFOLIOS
10/05/2011
I will be updating the long and short portfolios at the market close on Friday, October 7th. I will be publishing the list of long and short stocks Friday morning — October 7th.
LONG AND SHORT PORTFOLIOS
09/23/2011
I will be updating and re-balancing the long and short portfolios as of the market close on Friday, September 30th. The long portfolio will be 100% of equity and the short portfolio will be 60% of equity for a net exposure of 40% and a gross exposure of 160% with a long to short ratio of 1.67 to 1. I will be publishing the list of long and short stocks Friday morning - September 30th.
LONG AND SHORT PORTFOLIOS
09/06/2011
I will be updating the long and short portfolios at the market close on Friday, September 9th. I will be publishing the list of long and short stocks Friday morning - September 9th.
LONG AND SHORT PORTFOLIOS
08/24/2011
I will be updating the long and short portfolios at the market close on Friday, August 26th. I will be publishing the list of long and short stocks Friday morning - August 26th.
LONG AND SHORT PORTFOLIOS
08/08/2011
I will be updating the long and short portfolios at the market close on Friday, August 12. I will be publishing the list of long and short stocks Friday morning - August 12th.
LONG AND SHORT PORTFOLIOS
07/25/2011
I will be updating the long and short portfolios at the market close on Friday, July 29th. I will be publishing the list of long and short stocks Friday morning - July 29th.
LONG AND SHORT PORTFOLIOS
07/10/2011
I will be updating the long and short portfolios at the market close on Friday, July 15th. I will be publishing the list of long and short stocks Friday morning - July 15th.
LONG AND SHORT PORTFOLIOS
06/26/2011
I will be re-balancing the long and short portfolios as of the market close on Thursday, June 30th. I will be adjusting the long portfolio to 80% of equity and the short portfolio to 80% of equity for a net exposure of 0% and a gross exposure of 160% with a long to short ratio of 1 to 1. I will be publishing the list of long and short stocks Thursday morning - June 30th.
LONG AND SHORT PORTFOLIOS
06/09/2011
I will be updating the long and short portfolios at the market close on Friday, June 10th. I will be publishing the list of long and short stocks Friday morning - June 10th.
LONG AND SHORT PORTFOLIOS
05/26/2011
I will be updating the long and short portfolios at the market close on Friday, May 27th. I will be publishing the list of long and short stocks Friday morning - May 27th.
LONG AND SHORT PORTFOLIOS
05/09/2011
I will be updating the long and short portfolios at the market close on Friday, May 13th. I will be publishing the list of long and short stocks Friday morning - May 13th.
LONG AND SHORT PORTFOLIOS - REDUX
05/01/2011
I post the long and short portfolios prior to the close so that my stock selection results can be duplicated by anyone following this web site. I am making an exception with the current portfolios this week. While I have already posted the Friday portfolio updates, after analyzing the stock selection process I have utilized over the last several weeks I believe I have found a flaw in my strategy. I have come to the realization that if you apply objective standards for subjective reasons you have taken a step down a very slippery slope. To paraphrase James Carville “It’s the base rate, stupid”.
I have decided to re-do the portfolios. While this will result in violating my rule of posting before the close, since this is Sunday, at least the new portfolios are being posted prior to the market opening on Monday morning.
LONG AND SHORT PORTFOLIOS
04/26/2011
I will be updating the long and short portfolios at the market close on Friday, April 29th. I will be publishing the list of long and short stocks Friday morning - April 29th.
LONG AND SHORT PORTFOLIOS
04/11/2011
I will be updating the long and short portfolios at the market close on Friday, April 15th. I will be publishing the list of long and short stocks Friday morning - April 15th.
EXPONENTIAL P/E
04/09/2011
The exponential P/E trend line has been updated using the S&P 500 earnings for the last quarter of 2010 and adjusted using the current CPI.
LONG AND SHORT PORTFOLIOS
03/30/2011
Since I have been going back and forth between a 1.5 to 1 long to short ratio and a 2 to 1 long to short ratio, I believe the best thing is to leave well enough alone and stay with the current long to short ratio of 1.78 to 1 with the long portfolio at 85% of equity and the short portfolio at 40% of equity. If the market goes up or if the market goes down, it seems like the most defensive action to take at this time. Basically, if you don't know what to do, don't change anything.
LONG AND SHORT PORTFOLIOS
03/28/2011
I will be re-balancing the long and short portfolios as of the market close on Thursday, March 31st. I will be adjusting the long portfolio to 75% of equity and the short portfolio to 50% of equity for a net exposure of 25% and a gross exposure of 125% with a long to short ratio of 1.5 to 1. I will be publishing the list of long and short stocks Thursday morning - March 31st.
LONG AND SHORT PORTFOLIOS
03/24/2011
I will be updating the long and short portfolios at the market close on Friday, March 25th. I will be publishing the list of long and short stocks Friday morning - March 25th.
LONG AND SHORT PORTFOLIOS
03/09/2011
I will be updating the long and short portfolios at the market close on Friday, March 11th. I will be publishing the list of long and short stocks Friday morning - March 11th.
LONG AND SHORT PORTFOLIOS
02/20/2011
I will be updating the long and short portfolios at the market close on Friday, February 25th. I will be publishing the list of long and short stocks Friday morning - February 25th.
LONG AND SHORT PORTFOLIOS
02/06/2011
I will be updating the long and short portfolios at the market close on Friday, February 11th. I will be publishing the list of long and short stocks Friday morning - February 11th.
LONG AND SHORT PORTFOLIOS
01/27/2011
I will be updating the long and short portfolios at the market close on Friday, January 28th. I will be publishing the list of long and short stocks Friday morning - January 28th.
LONG AND SHORT PORTFOLIOS
01/13/2011
I will be updating the long and short portfolios at the market close on Friday, January 14th. I will be publishing the list of long and short stocks Friday morning - January 14th.
NEW PORTFOLIO MANAGEMENT STRATEGY
12/30/2010
I plan to start a new portfolio management strategy when I re-balance the long and short portfolios at the market close on Friday, December 31st. I intend to use a gross exposure of 125% and will be re-balancing the long portfolio and short portfolio based on 10 week rolling returns of the 10 week moving averages of the long portfolio and short portfolio. As of the market close on Friday, December 31st the long portfolio will be adjusted to 80% of equity and the short portfolio will be adjusted to 45% of equity for a net exposure of 35% and a ratio of the long portfolio to the short portfolio of 1.78 to 1.
LONG AND SHORT PORTFOLIOS
12/26/2010
I will be updating the long and short portfolios at the market close on Friday, December 31st. I will be publishing the list of long and short stocks Friday morning - December 31st.
LONG AND SHORT PORTFOLIOS
12/15/2010
I will be updating the long and short portfolios at the market close on Friday, December 17th. I will be publishing the list of long and short stocks Friday morning - December 17th.
LONG AND SHORT PORTFOLIOS
12/02/2010
I will be updating the long and short portfolios at the market close on Friday, December 3rd. I will be publishing the list of long and short stocks Friday morning - December 3rd.
LONG AND SHORT PORTFOLIOS
11/16/2010
I will be updating the long and short portfolios at the market close on Friday, November 19th. I will be publishing the list of long and short stocks Friday morning - November 19th.
EXPONENTIAL P/E
11/06/2010
I updated the exponential P/E trend line this morning. The exponential earnings increased approximately $0.28 as of Friday, November 5th to $50.14.
LONG AND SHORT PORTFOLIOS
11/03/2010
I will be updating the long and short portfolios at the market close on Friday, November 5th. I will be publishing the list of long and short stocks Friday morning - November 5th.
LONG AND SHORT PORTFOLIOS
10/19/2010
I will be updating and re- balancing the long and short portfolios at the market close on Friday, October 22nd. I will be publishing the list of long and short stocks Friday morning - October 22nd.
LONG AND SHORT PORTFOLIOS
09/22/2010
I will be updating and re- balancing the long and short portfolios on the last day of the quarter at the market close, Thursday, September 30th. I will be publishing the list of long and short stocks Thursday morning - September 30th.
LONG AND SHORT PORTFOLIOS
09/08/2010
I will be updating the long and short portfolios as of the market close, Friday, September 10th. I will be publishing the list of long and short stocks Friday morning.
LONG AND SHORT PORTFOLIOS
07/29/2010
Normally I update the portfolios every two weeks which means I would be updating the portfolios tomorrow, July 30th. Since I will be going on vacation from August 5th to 23rd I will be updating the portfolios on August 6th and August 27th. This is because I have a very hard time getting a Wi-Fi signal at the resort I will be staying at from Saturday August 7th to Saturday August 21st. Since I will be in South Tahoe from Thursday the 5th to Saturday the 7th and I can get decent Wi-Fi reception at that time, I will be able to update on Friday the 6th. The next Friday I will have the time and Wi-Fi access will be Friday the 21st. This will mean the current portfolios will be three weeks long and the next set of portfolios will also be three weeks long.
LONG AND SHORT PORTFOLIOS
07/12/2010
I will be updating and re-balancing the long and short portfolios as of the market close, Friday, July 16th. I will be publishing the list of long and short stocks Friday morning.
LONG AND SHORT PORTFOLIOS
06/25/2010
I will be updating and re-balancing the long and short portfolios as of the market close, Wednesday, June 30th. I will be publishing the list of long and short stocks Wednesday morning.
LONG & SHORT PORTFOLIOS
06/10/2010
I will be updating the long and short portfolios as of the market close on Friday, June 11th. I will be publishing the list of long and short stocks Friday morning.
EXPONENTIAL P/E
05/29/2010
I have just completed the quarterly update of the exponential P/E.
LONG & SHORT PORTFOLIOS
05/25/2010
I will be updating the long and short portfolios as of the market close on Friday, May 28th. I will be publishing the list of long and short stocks Friday morning.
LITTLE ROCK
05/23/2010
I found a Wi-Fi connection at the Little Rock Airport and I am finally able to update the web site for Friday, May 21st.
LONG & SHORT PORTFOLIO UPDATE
05/11/2010
I am leaving tomorrow for the Midwest due to a family emergency. I plan to update the long and short portfolios Friday the 14th but there may be a delay in posting due to my schedule.
LONG AND SHORT PORTFOLIOS
04/09/2010
I will be updating the long and short portfolios as of the market close on Friday, April 16th. I will be publishing the list of long and short stocks Friday morning.
LONG STOCK PORTFOLIO
03/29/2010
I will be changing the long/short portfolio ratio to 1 to 1 as of Wednesday, March 31st. The long and short portfolios will both be 80% of equity for a net exposure of 0% and a gross exposure of 160%. I also intend to bring back the long stock portfolio. Both the long and short stock portfolios will be published Wednesday morning with their starting prices based on their Wednesday closing prices.
SHORT PORTFOLIOS
03/26/2010
Since it is the end of the quarter I will be updating the short portfolio and re-balancing the short and long portfolios as of the market close on Wednesday, March 31. I will be publishing the list of short stocks Wednesday morning.
SHORT PORTFOLIOS
03/09/2010
I will be updating the short portfolio as of the market close on Friday, March 12. I will be publishing the list of short stocks Friday morning.
SHORT PORTFOLIOS
02/23/2010
I will be updating the short portfolio as of the market close on Friday, February 26th. I will be publishing the list of short stocks Friday morning.
SHORT PORTFOLIOS
02/13/2010
While updating the exponential earnings graphs I realized that I had made a mistake in the last two quarterly updates. I had not brought the ending date forward and therefore had not incorporated the earnings for those two quarterly periods. Normally this would not have been much of a problem but given the fact that the market experienced an extraordinary drop in earnings during those time periods the calculated exponential P/E was overstated by approximately $1.50.
SHORT PORTFOLIOS
02/11/2010
I will be updating the short portfolio as of the market close on Friday, February 12th. I will be publishing the list of short stocks Friday morning.
SHORT PORTFOLIOS
01/28/2010
I will be adjusting the long/short portfolio ratio to 2 to 1 on Friday, January 29th. The long portfolio will remain invested in the Vanguard 500 index fund and will be 80% of equity and the short stock portfolio will be 40% of equity.
SHORT PORTFOLIOS
01/24/2010
I will be updating the short portfolio as of the market close on Friday, January 29th. I will be publishing the list of short stocks Friday morning.
SHORT PORTFOLIOS
01/12/2010
I will be updating the short portfolio as of the market close on Friday, January 15th. I will be publishing the list of short stocks Friday morning.
SHORT PORTFOLIOS
12/30/09
I will be updating and re-balancing the long and short portfolios as of the market close on Thursday, December 31st. I will be publishing the list of short stocks Thursday morning.
SHORT PORTFOLIOS
12/12/09
I will be updating the short portfolio as of the market close on Friday, December 18th. I will be publishing the list of short stocks Friday morning.
THANKSGIVING
11/27/09
Due to the Thanksgiving holiday and the fact that a quarterly period has approximately 13 weeks that does not divide evenly into two week periods, I will be updating the short portfolio as of the market close on Friday, December 4th. I will be publishing the list of short stocks that Friday morning.
SHORT PORTFOLIOS
11/11/09
I will be updating the short portfolio as of the market close on Friday, November 13th. I will be publishing the list of short stocks Friday morning.
WEB SITE UPDATE
10/29/09
I have updated the web site. Basically I have removed all the rules concerning portfolio ratios and leverage. This is not because I have suddenly abandoned all discipline but because I have come to the conclusion that portfolio ratios and leverage levels should be flexible and follow general guidelines based on the current condition of the market and not a set of rigid pre-determined formulas.
SHORT PORTFOLIOS
10/27/09
I will be updating the short portfolio as of the market close on Friday, October 30th. I will be publishing the list of short stocks Friday morning.
SHORT PORTFOLIOS
10/15/09
I will be updating the short portfolio as of the market close on Friday, October 16th. I will be publishing the list of short stocks Friday morning.
SHORT PORTFOLIOS
09/29/09
I will be updating and re-balancing the long and short portfolios as of the market close on Wednesday September 30th. Due to the uncertainty of when the current rally will end I have decided the prudent and conservative thing to do is to bring back the Vanguard 500 index fund for the long portfolio. I will be publishing the list of short stocks Wednesday morning.
SHORT PORTFOLIOS
09/10/09
I will be updating the short portfolio as of the market close on Friday, September 11th and will also be bringing back the long stock portfolio. I will be publishing the list of long and short stocks Friday morning.
VACATION
08/16/09
Getting Wi-Fi access has been a bit problematic. I have decided to leave the short portfolio alone for the time being. I will probably not update it until Friday, August 28th. The August 14th web site update will not be up on the server until Monday, August 17th when I go down to South Lake Tahoe.
SHORT PORTFOLIOS
08/08/09
I will be on vacation until August 24th. I might not be able to update the web site next week-end do to not being able to access a Wi-Fi connection. I will probably not update the short portfolio stocks but I will rebalance the short portfolio as of next Friday, August 15th.
SHORT PORTFOLIOS
07/28/09
I will be updating the short portfolio as of the market close on Friday, July 31st and will be publishing the list of short stocks Friday morning.
UPLOAD PROBLEMS
07/26/09
I have had a problem uploading the web site but the last two weeks are finally on line.
SHORT PORTFOLIOS
07/16/09
I will be updating the short portfolio as of the market close on Friday, July 17th and will be publishing the list of short stocks Friday morning.
SHORT & LONG PORTFOLIOS
06/27/09
I will be updating and re-balancing the short and long portfolios as of the market close on Tuesday, June 30th and will be publishing the list of short stocks Tuesday morning.
SHORT PORTFOLIOS
06/11/09
I will be updating the short portfolio as of the market close on Friday, June 11th and will be publishing the list of short stocks Friday morning.
LONG AND SHORT PORTFOLIOS
05/29/09
I intend to update and rebalance the virtual Hedge Synergy Fund's long and short portfolios as of the May 29th, 2009 market close. I plan to use a 3 to 1 ratio with the long portfolio at 75% of equity and the short portfolio at 25% of equity and a 100% gross exposure. It will take a bit of time to update the Excel spreadsheets and the web site.
SHORT PORTFOLIOS
05/28/09
I will be updating the short portfolio as of the market close on Friday, May 29th and will be publishing the list of short stocks Friday morning.
SHORT PORTFOLIOS
05/14/09
I will be updating the short portfolio as of the market close on Friday, May 15th and will be publishing the list of short stocks Friday morning.
SHORT PORTFOLIOS
04/29/09
I will be updating the short portfolio as of the market close on Friday, May 1st and will be publishing the list of short stocks Friday morning.
SHORT STOCK PORTFOLIO
04/08/09
The next short stock portfolio update should be April 17th but since I will be out of town from the 16th to the 26th I will be updating the short portfolio as of the market close on Friday, April 10th and will be publishing the list of short stocks Friday morning. The next update of the short stock portfolio will be May 1st.
NEW COMPUTER
04/03/09
My old computer has been giving me problems for the last couple of months so I bought a new computer on Monday and have been loading all my software and data over the last few days. The timing couldn't be worse since it is the beginning of the quarter which requires a lot of Excel spreadsheet work and web site updating. I hope to have everything updated by the end of the week-end.
SHORT & LONG PORTFOLIOS
03/30/09
I will be updating and re-balancing the short and long portfolios as of the market close on Tuesday, March 31st and will be publishing the list of short stocks Tuesday morning.
INCREASING EXPOSURE
03/12/09
I believe it is time to increase the virtual Hedge Synergy Fund exposure to 80% net exposure / 200% gross exposure (2.33 to 1 ratio). I will be making the adjustment as of the close of the market, Friday, March 13th. It will take a few days to update the web site.
While I am not trying to call the bottom I do believe the market is going to bounce around a bit and perhaps have a rally sooner or later. Since a 40% net exposure has a slight negative correlation to the market, a bear market rally will result in a loss which would have to be made up by betting that the market will head back down again.
If the market does make new lows then obviously a 40% net exposure would result in a slightly higher return than an 80% net exposure but the cost of getting there could result in a large drawdown if there is a significant bear rally. As the reader is probably aware, to offset a given percentage loss, one has to make a larger percentage gain. At the moment I am more concerned with preserving the gains I have racked up during this bear market than striving to achieve more positive down market returns.
An 80% net exposure in a rising market should result in the NAV showing a positive gain, albeit a gain that is less than the market. In a falling market the NAV will probably show a loss but it still should outperform relative to the S&P 500.
While it gives me a great deal of satisfaction to make positive returns when the market heads down, it does cause a bit of pain to lose money when the market rises. Given that the bear market is now approaching its later stages, I would be just as happy to make a small gain when the market rises and to know I have lost less than everyone else when the market falls. The time for being bold is past, now is the time for being prudent.
NOTE: My timing was impeccable, it was the execution that was wanting — the leverage was too high and the long/short portfolio ratio was too low.
SHORT STOCK PORTFOLIO
03/06/09
I will be updating the short portfolio as of the market close on Friday, March 13th and will be publishing the list of short stocks Friday morning.
SHORT STOCK PORTFOLIO
02/23/09
I will be updating the short portfolio as of the market close on Friday, February 27th and will be publishing the list of short stocks Friday morning.
SHORT STOCK PORTFOLIO
02/10/09
I will be updating the short portfolio as of the market close on Friday, February 13th and will be publishing the list of short stocks Friday morning.
SHORT STOCK PORTFOLIO
01/28/09
I will be updating the short portfolio as of the market close on Friday, January 30th and will be publishing the list of short stocks Friday morning.
SHORT STOCK PORTFOLIO
01/05/09
I will be updating the short portfolio as of the market close on Tuesday, January 6th and will be publishing the list of short stocks Tuesday morning.
SHORT STOCK PORTFOLIO
12/28/08
I will be updating the short portfolio as of the market close on Wednesday, December 31st and will be publishing the list of short stocks Wednesday morning.
SHORT STOCK PORTFOLIO
12/08/08
I will be updating the short portfolio as of the market close on Friday, December 12th and will be publishing the list of short stocks Friday morning.
SHORT STOCK PORTFOLIO
11/26/08
I was planning to update the short portfolio Friday, December 5th but due to the extreme volatility of the last few days I believe it might be prudent to update it as of the market close Friday, November 28th. I will publishing the list of short stocks Friday morning.
SHORT STOCK PORTFOLIO
11/18/08
I will be updating the short portfolio as of the market close on Friday, November 21st and will be publishing the list of short stocks Friday morning.
SHORT STOCK PORTFOLIO
11/02/08
I will be updating it as of the market close on Friday, November 7th and will be publishing the list of short stocks Friday morning.
SHORT STOCK PORTFOLIO
10/16/08
I will be updating it as of the market close tomorrow, Friday, October 17th.
UPDATE
09/30/08
Normally I would update and re-balance the portfolios today since this is the last day of the quarter. Given the SEC ban on shorting financial stocks I plan to wait until Thursday to see if the ban will expire. Whether it expires or not I will update and re-balance the long and short portfolios on Friday.
SHORT PORTFOLIO
08/29/08
Since the short portfolio was last updated just two weeks ago on 8/15/08 I have decided to wait until Friday September 5th to update it again.
HUMBLE PIE
07/18/08
The current extreme volatility has caused me to look back to the beginning of this experiment and to think about what I had originally set out to achieve with my investment strategy. My first objective was to try to outperform the S&P 500 in a bull market and the second was not losing money in a bear market.
I believe I have lost sight of the latter objective due to my taking outsize risks in order to try to obtain large positive returns in a bear market. What I should be striving for is simply not losing money in a bear market and if I happen to make a small positive return then so much the better.
In analyzing the situation, I believe that a long portfolio of stocks in a bear market will more than likely produce a negative return. While the long stock portfolio will probably produce a negative return it still may be possible for the long stock portfolio to outperform the S&P 500.
Even if a long portfolio of stocks can, over the long run, outperform the S&P 500 in a bear market it more than likely will do so with extreme volatility. I have come to the conclusion that it is probably better to forego striving for a few more percentage points of return rather than suffer large pendulum swings of gains and losses in trying to achieve that extra bit of return.
Having two uncorrelated and volatile portfolios vis-à-vis the S&P 500 in a bear market can lead to three different scenarios: both being positive thus achieving a high return, one being positive and the other negative leading to a hedged return or both being negative leading to a large negative return.
I must admit the idea of simply using the Vanguard 500 index fund for the long portfolio during a bear market is starting to make more and more sense. By using the Vanguard 500 index fund for the long portfolio, one is then using only a single partially correlated portfolio — the short stock portfolio.
If the S&P 500 is going down the short stock portfolio is more than likely going down. If the S&P 500 is going up then the short stock portfolio is more than likely going up. I am not saying they will always be traveling together but there is a very high probability that they will do so most of the time. The only major variable then is which one is going up or down faster and how much of a differential in the two rates of return.
Therefore, as of 7/18/08, I will be closing out the current long stock portfolio and going long the Vanguard 500 index fund. My expectation is that this should reduce volatility and hopefully produce a modest positive absolute return.
STOP LOSS
07/09/08
Recently I spent several weeks analyzing stop loss limits on quarterly portfolios which were constructed using my current investment strategy and utilizing the three and half years worth of stock data I had accumulated since I began this project (I download and save over 120 pieces of financial data on 3,000+ stocks on the last day of each quarter which gives me a contemporaneous snap shot of historical financial data on a quarterly basis). I found had I used stop loss limits I would have had a lower rate of return due to the lost opportunity cost of the stocks that rebounded being greater than the projected savings from the stocks that continued to lose money. This was not just due to the fact we were in a bull market during most of that time since the same results applied to both the long and short portfolios. Of course, because I update stocks quarterly I have the advantage of being able to use the last day of the quarter for comparison purposes which might make other studies of the subject a little more problematic since one needs a definitive ending date to play the “what-if” game.
While I do not use stop loss limits on individual stocks I did believe in applying the stop loss concept to the returns of the long portfolio, short portfolio and the NAV. With the NAV down I seriously considered closing out the long portfolio. I then decided to go back to the data I used to analyze stop loss limits on individual stocks. I applied the same stop loss limits to the individual portfolios. In three and half years the two worse cases were when the NAV was down 14.73% but ended the quarter down 12.14% and the other was when the NAV was down over 16.97% but ended the quarter down 2.95%.
While I find this hard to say, I now believe the best course of action during a quarterly period is let what ever happens, happen. Any stocks showing a loss can be replaced at the end of the quarter. While this can lead to a certain amount of volatility, I believe using stop loss limits creates too great a drag on the overall rate of return.
CORRECTION
07/04/08
Having been under my high water mark for a little more than a year I resorted to an easy formula to calculate fund fees, .375% times investor equity. When the NAV finally broke through and set a new high though I overlooked changing back to a 20% performance fee on the excess over the high water mark. Therefore while the virtual Hedge Synergy Fund gross return for the six week period from May 16 to June 30 is 27.13% the NAV is actually 22.77%.
You may have noticed that the long portfolio is not doing very well. While I am not interested in the performance of individual stocks I am interested in the overall performance of the long/short portfolios and the NAV. Since the short portfolio is doing OK and is helping absorb some of the long portfolio loss I will let the long portfolio go as long as I believe it is prudent. If the situation continues to deteriorate then I will update the long portfolio. While it is important not to wait too long it is also equally important not too panic too soon. A conundrum inside a contradiction.
DIVERSIFICATION
06/30/08
In a little over 6 weeks (May 16, 2008 to June 30, 2008) the virtual Hedge Synergy Fund NAV gained 27.13%. While I am pleased with the return I am not very happy with the volatility. I believe that more diversification is required to try to reduce volatility and risk. Therefore, starting with Portfolio 17, I am increasing the number of stocks in the long portfolio and short portfolio from 25 stocks in each portfolio to 50 stocks in each. All stocks are equally weighted with each representing 2% of portfolio value.
Because of this I will need to expand the number of potential stock candidates by lowering the market capitalization threshold to $770 million. This threshold will vary in the future depending on the increase or decrease of the market’s total capitalization.
CHANGES
05/16/08
I have decided to make some very major changes in the Virtual Hedge Synergy Fund. Since last summer it has been rather apparent that I have been experiencing a great deal of volatility. I had hoped that I could reduce volatility by using a series of time-blended portfolios. Unfortunately it has not worked out that way.
Therefore, instead of utilizing 8 two year portfolios selected quarterly, I plan to use a single long portfolio and a single short portfolio each consisting of 25 stocks which will be updated on a quarterly basis. Any stocks experiencing large losses will be replaced.
One other change is to concentrate on larger cap stocks. The minimum market capitalization for the long stocks will be four billion dollars and the minimum for the short stocks will be two billion dollars.
While I am publishing the new portfolios immediately, it will take a while to update the various articles on the web site to reflect the new investment changes.
