03.01.08 February Model Portfolio Results

FEBRUARY RESULTS:
.
The model portfolios all beat the major market averages in February, and two of them are even in the green for the year, no small feat in this market. I was surprised because there were some days this month, yesterday for example, where it seems that everything was taken out behind the barn and shot. Here are the year-to-date numbers and their comparisons to the broader market averages:
.
NoTouch Port: +1.2%. After being down -1.8% at the end of January, the NoTouch rebounded as it was intended to do. The best performer was gold fund TGLDX, which is now up over 8% for the year. The worst are the energy mutual fund ICENX and global stock fund OAKGX. The NoTouch is designed to be 'set it and forget it'. It has a history of outperforming the markets in bad times, but I was still surprised it made it into the green for the year, although it has never had a losing year since its inception.
.
OOPs Port: -0.5%. The OOPs rebounded somewhat in February, as it had been down -2.1% at the end of January, but is still down year to date due to the poor performance of OAKGX. Half of one percent is probably not bad in this market, but all minus performances are disappointing.
.
Dividend Port: +3.4%. This fund has been a surprise. It has far surpassed the markets to date. At the same time, it has been more volatile than I expected. 5 of the 10 stocks are up 8% or more ytd, while 3 are down over 10% ytd. The overall positive performance of the component stocks was assisted by another $66.66 in dividends in February, bringing the year's cash dividend total to $107.70. I still expect to make a couple of changes to the port going forward. I'm not convinced that, with the bear market upon us, that infrastructure buildout will continue enough to help MIC, and if commercial real estate joins its subprime brethren, PLD will be hurt. As it is, both those stocks are down over 10% for the year, so it may already be happening. If I make changes, will list it here in advance.
.
.
Market Averages Year to Date:
Dow Jones Industrial: -7.5%.
S&P 500: -9.4%.
Nasdaq Composite: -14.4%.
Wilshire 5000: -9.2%.
.
Almost every day on our favorite financial channel, I hear pundits pounding the table and shouting for all to hear that energy and commodity stocks are in a bubble. One day this week, the expert guest even went so far as to say that not only were the energy and commodity sectors in a bubble and totally overbought, but that every other sector of the market was attractive - and there seems to be no end of their bottom picking those tech and financial stocks. Their fingers should be getting pretty smelly by now.
.
I still think the permabulls cannot have it both ways. There is a fundamental demand change in the energy and commodity sectors due to the rise of China and India in particular, and several other nations in general. Increasing demand for resources that can't be put into production on a moment's notice is bullish. If the economy goes into the dumper, then those stocks will, too, no doubt. But if things are starting to look up, as the permabulls suggest every day, then those stocks should also continue to do well, especially with our powers-that-be deliberately sacrificing the dollar upon their altars. I'm not saying that there won't be pullbacks in energy and commodity stocks. Stocks in those sectors can take some stomach churning drops. I know, since I am overweighted in them in my real life accounts and have been for the past few years.
.
I hesitate to say this because it seems every time I do it means that I am getting over confident and my accounts are getting ready to get smacked down, but my real life accounts are doing quite a bit better than the model portfolios listed above. I don't trade nearly as often as I once did. (I once gave up a day turn job for a midnight job so that I could have my days free for market watching and daytrading. It was a valuable experience, but not profitable. I found out pretty quickly that day trading was not my style.) My winning percentages on individual trades aren't as good as they once were. But the bottom line is better, and that is what counts.
.
In addition to the overall experience I've gained over the years, I think two things (besides the Lord) helped change my style and bring it more into line with my nature. I run two mutual funds on the Marketocracy website, one long account and one short account, where all the positions have to be shorts. Both have done well, much better than what I had been doing in my real life trading. I came to realize that I have always been able to pick good stocks, but I was cashing out of positions much too quickly. By being so quick to take the money off the table, I was making a lot of little profits. I was paying out extra commissions and slippage in order to cash in a lot of little profits, and keeping myself from enjoying some potentially monster runs. A cardinal rule of trading is to cut your losers and let your winners run. It goes against our instincts and is a primary reason most traders lose.
.
I don't keep a close eye on the Marketocracy accounts. Sometimes I don't check on them for weeks at a time since they are not real money accounts. When I do check on them, Marketocracy lists my stocks by their overall percentage return. For the most part, all I do is weed the garden. That is, I get rid of the bottom two or three stocks in the fund, the ones that haven't performed as I thought they would, and replace them. And that has worked wonders. Marketocracy has been a valuable learning tool for me. I recommend it.
.
The other thing that changed my style was dividend and royalty payments. Years ago I never paid attention to them or appreciated them. I was only interested in the gains from changes in the stock's price. Then one day to my surprise I saw some Cross Timbers Royalty (symbol CRT) sitting in one of my accounts. At first I thought it was a mistake because I had never heard of it. (Back then I wasn't reading through all the material I could find on my positions, either - another bad habit.) It turned out that CRT was a spinoff from XTO to its shareholders. CRT pays a monthly royalty payment. I almost sold the CRT but decided to keep it since it was free to me and with the little bit I had it didn't seem worthwhile to pay the commission to cash out of it.
.
After several months, I noticed that those monthly royalty payments were adding up. A smarter fellow would have noticed it much sooner, I'm sure. I finally bought some for an IRA account, and have had it ever since. For the past couple of years, since I still have a real life job, I have taken the monthly royalty payments in the form of more shares through dividend reinvestment. The results have given me a sincere appreciation for dividends.
.
Since then XTO has also spun off shares of HGT to shareholders. I loaded up on more of it, along with SJT and PWE. I still don't like it when those stocks get hurt, and they do sometimes, but those monthly royalty payments make the bad times bearable and the good times very good. My basic strategy to keep me from bailing on those stocks (and my long-term core positions in XTO and SU), is to buy some DUG as a short term trading hedge when the energy sector takes one of its periodic drubbings. So far, so good.
.
I wouldn't be surprised to get another bear market rally soon, but this is still very much a bear market until the bulls can prove otherwise. I am just hoping that this doesn't turn out to be the mother of all bear markets, and I think there is more than a long shot chance that it is. My strategy has been to keep my long positions, but instead of keeping cash on hand, I have added market shorts as a hedge against my longs. My theory is that my individual stocks are stronger than the overall market, so on good days they will generally go up more than my market shorts go down. And on bad days, I expect that my individual picks will go down less than the market shorts will go up. So far, so good. It has worked for the most part. I had a bad day yesterday, but not nearly as bad as I would have had if I had only long positions and cash. Every one of my long stocks were down yesterday. But my ETF market shorts were all up and lessened the blow.
.
Nothing written here is to be taken as trading advice. I am not qualified to give that advice to anyone. You are responsible for your own decisions, and if you need someone to advise you, you are advised to get professional help, lol. The three model portfolios are strictly for fun, though the NoTouch Portfolio was originally intended to help some friends. As for anything I say about my own trading, sometimes I feel as if I have over the years made every mistake that a trader can possibly make. But that's not true because just when I think it is true, I make another new mistake. I'm the type that mistrusts most of the information that I read regarding trading. I have lots of bumps, bruises and scars to show from years of trying to learn what works for me and what does not. I don't mind sharing that information. Trading is not rocket science.