Thinking Through My Next GARP Portfolio

I’m thinking about allocating 75% of my assets in the next GARP portfolio and using 25% for tactical situations, such as Exodus OS signals — which by the way nailed 2016 in the few times made available — performing at a 92% clip.

Here is the performance data of all Hybrid oversold signals from Exodus in 2016. It’s worth noting, there hasn’t been a signal since late June.

The reason why my GARP portfolio did so well, higher by more than 25% for 2016, is because I built the second half portfolio to do well under a Trump win — the ultimate black swan event.

Here is my current portfolio, which is due to be replaced by year end.

My 2017 portfolio is going to be hard to construct. On one hand, I don’t want to get exposed to an overheated market — heading into a retarded Fed and Chinese trade war. There is a better than average chance that anyone buying in size now will be sorely disappointed in early 2017. On the other, I have to recognize some hard facts, such as a very bullish yield curve, strong dollar, strong consumer sentiment, strong oil price, strong QE support in Europe, strong possibility of fiscal stimulus, strong possibility of regulatory reform and a feel good atmosphere in America not seen since Reagan — thanks to the election of Trump.

Plus, the portfolio is designed for minimal churn, with only two updates per annum. In other words, I need to nail it.

Thinking out loud, I’m fairly certain that the fate of the market will revolve around the dollar. If the dollar weakens, that means a dovish Fed, weaker than expected economy and strong gold. Crude is rigged, so I won’t even guess what happens there.

Should the dollar rally more, both bonds and gold will trade down. American real estate will continue to outperform on the high end and stocks will follow the path of least resistance. Notice how I won’t concede to higher equities due to the nonsensical nature of stocks trading up all the while exporters get hit by the dollar rising. Plus, I am not sure about China. Their FX is a ticking time bomb waiting to explode. When CNY breaks 7 to the upside v the dollar, all hell is expected to break loose.

To simply allocate into a portfolio of 15 stocks, across different industries, for the explicit purposes of finding growth at a reasonable price isn’t exactly easy — especially when stocks are already high priced at 18x earnings.

If a trade war with China occurs, companies focused on domestic trade will thrive, which is why the small caps led the market this year — higher by 20%.

Rising bond yields will crush utilities and REITs in 2017 — especially if the 10yr breaks 3%.

Lots of things to consider.