Portfolio 02/25/13: Cordial Market Behavior

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Since 2009, my performance has been quite interesting.  It seems that, for the most part, I struggle trying to trade what appear to be the “easiest” markets.

I had trouble with the QE2 rally in late 2010.  I watched in disbelief as stocks levitated in the early parts of 2012, unable to enter positions due to a lack of time and an inability to properly pick my spots.  Since the start of 2013, my performance has been on display for the entire world to see, and I have come up light once again.

Yesterday’s egregious losses have reduced my portfolio to essentially break-even for the year.  I was legging into positions in anticipation of an extended bull run in stocks.  Now, I am not going off the deep end and proclaiming an end to this euphoria we have witnessed so far in 2013, but suffice it to say that I have played it wrong so far.

My mistake has been/is being overly patient and risk-conscious in my position sizing.  When EVERYTHING is going up, I need to have the confidence to step on the gas and pour everything I have into every trade.

We have seen this happen time and time again in the QE era.  Stocks go up for weeks on end and every single time I am sitting there wondering how the hell I missed out on the fun.  Unless you are placing money in stocks and looking to collect yield and reinvest over many many years, there is little room for patience in this market.

Most of my carefully constructed positions have been reduced to nothing (i.e., break even), do I sack up and reload here in the face of heightened volatility?  It’s one thing to get burned while pushing the limits and have the market reject your ideas.  In those situations I feel like I get what I deserve.  It is another matter entirely when exhibiting patience and proper position sizing only to have them thrown back in my face with just as much prejudice.  The upside doesn’t outweigh the down…and that is problematic.

The one comfort that I can take away from these recent developments is that my trading and decision making somehow improves dramatically when volatility spikes. May-August 2010, August-September 2011, and June-July 2012 were, by FAR, my most productive periods of trading in the QE era.  I am by no means a “bear-shitter”, but I welcome a little black smoke and shards of metal in the air.

One final note, you may have noticed that my volume-pocket analysis has diminished in recent days.  I am still continually updating my list of stocks, but no matter what your method of analysis is, nothing can trump the behavior of the general market.  There is no “holy grail” of analysis.  We all have our preferred methodologies, but the market is going to do what it wants to do, and the vast majority of stocks are going to follow that pattern.

Now that I have built a small audience of readers, I feel it is a bit disingenuous to continually present intermediate-term trade ideas to you in the face of heightened volatility.  Instead of looking for volume-pocket trades, I am looking to get ultra-defensive, raise cash and wait for the market to show it’s hand.

If this is a brief respite on the march to S&P 2000, we will see things firm up and break out to new highs in the coming weeks, and we will be prepared for that.  If this is the start of a more extended correction, we will be prepared for that as well.

As for my portfolio, I made the following transactions immediately before the close yesterday:

  • Sold half of my ALJ position at 19.03 (from 20.55).
  • Sold a little more than half of my remaining CBI position at 52.04 (from 50.85).
  • Sold all of my remaining shares of ESV at 58.64 (from 63.64).

All in all, quite the sucky day:

2013-02-25perf

2013-02-25

-EM

 

One Response to “Portfolio 02/25/13: Cordial Market Behavior”

  1. Good insight, I can relate.

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