On January 31, 2013, S&P 500 component stock Constellation Brands Inc. (STZ) fell hard on heavy volume and broke multiple support levels when the US government sought to block an important acquisition. See chart below.
Since our computer programs continue monitoring price movements of all stocks, the panic selling of this drunken stock caught the attention of the programs behind Equity Timing model. Because Equity Timing is a collection of objective computer programs without the idea of human panic emotion, the system was triggered when it saw the STZ valuation had become deeply mis-priced. It simply analyzed existing positions in the account, and sold a few higher valuation stocks to raise money to pick up STZ in early February at a fire-sale price in our estimation.
Similar to many other mis-pricing opportunities we have observed, this mis-pricing opportunity only lasted a few days, and the Equity Timing algorithm sold it a few days later when suddenly investors fall in love with it again on Valentine Day, the day an announcement opening the door for the acquisition was released.
STZ opportunity knocks probably once in many years, but there are thousands of stocks in the market, and our Equity Timing model is waiting there to catch other opportunities when they knock.
Disclaimer
Opening accounts of Analytic Investment Management LLC’s models through Covestor is not personalized investment advice, and Analytic Investment Management LLC does not take Covestor clients’ personal financial needs into consideration. Investing in the financial markets involves risk, including the risk of principal loss. Don’t invest with money you can’t afford to lose. Information in this report is in no way intended as personalized investment advice and should not be interpreted as such. Past performance is not necessarily indicative of future results. Performance results do not take into account any tax consequences. Equity Timing and Focus models are concentrated portfolios with less than 20 positions. Concentrated portfolios carry significantly more risk than diversified portfolios and may not be suitable for every investor.
The investments discussed are held in client accounts as of February 14, 2013. 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.
