As 2012 comes to a close, I look at the performance of my Alpha Trapper and Beta Blocker models with mixed feelings.
Heading into the final week of the year, the performance of both models relative to the S&P 500 has lagged slightly for the year. On one hand, both models from the outset have aimed for absolute rather than relative returns, so it should not be a huge surprise that they are less likely to outperform when a broad index like the S&P 500 has a strong year (barring any possible year-end fiscal-cliff market collapse). And both models have achieved positive performance, so there’s that to celebrate. On the other hand, I can see a few decisions that, if made differently, would have allowed better performance.
One is that I became enthusiastic about Best Buy (BBY) too early, when buyout speculation had just begun and poor results were still to-be-reported. I remain a holder now, as I think the $11-12 range give a good risk/reward opportunity moving forward, but in retrospect it was a mistake to buy in at the $17-20 range.
Another mistake was that I was a bit too pessimistic in my expectations for the U.S. economy and stock market for 2012. While growth was not stellar, I expected it to be even slower, with a high risk of global problems pushing us back into recession. Since the economy did plod along without disaster, and the Fed cranked up the stimulus, the market surprised me somewhat with its gains, and even more so with its lack of volatility.
Heading into 2013, I am making a few resolutions. The first is to renew my focus on ETF opportunities, following through on macro-level predictions and aggressively seeking the shorting opportunities often found in leveraged and futures-based funds.
Secondly, I will strive to be more discerning about taking new positions in individual stocks. I intend to be more careful and less likely to do so, though I can’t rule out individual stocks completely, as I will still keep my eyes open for the perfect opportunity.
I am not overhauling my strategy though, because I think many of the problems that we mostly avoided in 2012 have been postponed, rather than resolved. We face a confluence of factors that should have a negative influence, including difficult budget choices needed in the U.S., even worse budget problems in Europe and Japan, and faltering economies all over the globe.
One bright spot seems to be with U.S. energy. Increased natural gas and oil production should help our trade balance, and other advances in technology and productivity could also help counteract the negative forces.
My best guess for the year is that the global economy will do very poorly (recessions and depressions galore), and the U.S. will do less poorly (either a mild recession or sub-2% growth).
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Any index comparisons provided in the blog are for informational purposes only and should not be used as the basis for making an investment decision. There are significant differences between client accounts and the indices referenced including, but not limited to, risk profile, liquidity, volatility and asset composition. The S&P 500 is an index of 500 stocks chosen for market size, liquidity and industry, among other factors.
Certain 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. The manager believes 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.
The investments discussed are held in client accounts as of 11/30/12. 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 investment decisions we make in the future will be profitable.