By the very nature of this Sustained Momentum model, there’s trading volatility at the edges of the portfolio. This model is based on a stock market ‘game’ portfolio that I have been monitoring for several years. Within this portfolio are 40-50 stocks at all times—these are stocks that I have selected as believing they have the best long-term potential for price appreciation.
This model takes that fantasy portfolio and invests the top 10 of those holdings. Thus as stocks under the 10 outperform, they move up the list and if the top ten underperform they fall off the list. Volatility resides in the 9th and 10th positions, as stocks in the 11th and 12th and lower challenge these holdings for inclusion. A very big horse race indeed!
One of the changes I have self-imposed (with prodding from my Covestor mentors!) is to reduce some of the trading volatility by adjusting holdings at most once/week. Otherwise stocks may be sold and rebought daily as performance varies.
During the month of September I moved in and out of Holgic (HOLX), selling that holding as the month closed. Johnson Controls (JCI) was purchased and then sold during the month of September. Morningstar (MORN) was sold and repurchased during the month, Meridian Bioscience (VIVO) was initially sold and ended up as a holding by the end of the month.
These sales are not capricious or arbitrary. The sales and purchases are simply dictated by the performance of the stocks themselves.
At the end of the month, the ten holdings were: Apple (AAPL), Amazon (AMZN), Disney (DIS), Nordstrom (JWN), Morningstar (MORN), Microsoft (MSFT) PetSmart (PETM), ResMed (RMD), Meridian Bioscience (VIVO) and Valeant Pharma (VRX).
The ten stocks following this list included Hologic (HOLX), Johnson Controls (JCI), Colgate (CL), McDonald’s (MCD), IBM (IBM), Dolby (DLB), Ford (F), Allergan (AGN), Abbott (ABT) , and Esterline (ESL).
There is no doubt that the upcoming weeks and months will be challenging for me, as they will be for every investor. There will be questions of what to own, what to sell and when to do it. I will remain invested throughout this period, although I do now have about 20% in cash in this model, with the top 10 holdings as described. I am hopeful that this steadiness at the rudder shall improve the performance of the portfolio as I let each holding demonstrate its fitness to be included each day.
Some of the investments discussed are held in client accounts as of September 30, 2012. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or that investment decisions we make in the future will be profitable.
Some investments discussed in this presentation are for illustrative purposes only and there is no assurance that the adviser will make any investments with the same or similar characteristics as any investments presented. The investments are presented for discussion purposes only and are not a reliable indicator of the performance or investment profile of any composite or client account. Further, the reader should not assume that any investments identified were or will be profitable or that any investment recommendations or that investment decisions made by model managers in the future will be profitable.
Certain of the information contained in this presentation is based upon forward-looking statements, information and opinions, including descriptions of anticipated market changes and expectations of future activity. We believe that such statements, information, and opinions are based upon reasonable estimates and assumptions. However, forward-looking statements, information and opinions are inherently uncertain and actual events or results may differ materially from those reflected in the forward-looking statements. Therefore, undue reliance should not be placed on such forward-looking statements, information and opinions.