Dear Mr. Market:
Let’s begin by letting you know that the MPG Core Tactical portfolio has taken the lead over the passively managed indexed approach of the 60/40 Benchmark portfolio!
We fully realize that with investing you can “live and die by the sword” and banging your chest about performance can eventually lead to this deadly truth…or death. That being said, we are actually doing such to prove a point. As early in the year as it is, we have one stock that is a huge “stinker” in the portfolio and a couple that are knocking the cover off the ball. Many advisors drool at the opportunity to show you their homeruns but quickly skip over their strikeouts. Spring is in the air and so are some baseball euphemisms but let’s get into what is working for our portfolios and what is not:
First and foremost you should take a look at our overall portfolio mix which we have updated as of this writing on March 3,2014.
What adjustments did we make?
Aside from some most welcomed dividends that hit the cash account on 2/3/14 from our core bond holdings (LQD, BND, MBB, and JNK), we made the following trades:
2/13/14: Bought 61 shares of IVV (S&P 500 Index)
Sold 317.25481 shares of BND (Vanguard Total Bond Index)
Bought 480 more shares of CLNE @ $9.60 (Clean Energy Fuels Corp.) after it got pounded.
Bought an opening position in Monitise (MONIF) with 8,709 shares @ $1.15
2/14/14: For Valentine’s Day we celebrated with more dividends from our small investment in PCY (PowerShares Emerging Markets Sovereign Debt ETF)
2/25/14: As bad as they were not too long ago, we took advantage of the run-up in REIT’s and sold 49 shares of VNQ (Vanguard REIT ETF)
2/26/14: Some of those proceeds were reallocated into Gold. WHAT?!? Gold? Isn’t that something we’ve avoided for years? Yes indeed…and if you’re curious what we said about gold when it was at all-time highs and everyone wanted it…but we didn’t …Click here! If you want to see what we said most recently…click and read here. We don’t have a crystal ball but we’ll remind you when the herd is running in the wrong direction…it might be time to run where it’s not popular.
As for the standard and passively managed 60/40 Benchmark we made the monthly and automated adjustment to the allocation. Bonds did well while stocks suffered in February so here is what happened to get the allocation back in line:
2/3/14: Sold 49 shares of BND (Vanguard Total Bond Index)
Bought 22.6207386 of IVV (S&P 500 Index)
We began this monthly update by alluding to having one position that truly stunk up a portfolio. The reality behind stock picking is
just that; over time you will inevitably have a few picks that can potentially triple in value (or more) in a short period of time and others that can be a drag on your short-term performance. In order to “lead by example” we actually averaged down on Clean Energy Fuels (CLNE) due to our opinion that the company still has long-term promise in being a transformative and leading company in their industry space. Conversely, Tesla (TSLA) is up +37.87% since we took a nibble at it and Monitise (MONIF) is up another +13.80% since our purchase.
Where are we going from here?
We barely got the stock market correction that we hoped for in February. Initially the month opened up like any long-term, savvy, or wise investor might hope for. (We actually needed a real correction to go higher over the long-term). February started the first few days of the month and sported its worst showing since 1933!
As of the time of this writing the world and its worries have once again changed in an instant. No sooner than we were celebrating gold medals during the recent Winter Olympics in Sochi, Russia are we now grinding our teeth over the crisis in the Ukraine.
Speaking of gold, allow us to once again mention that we finally have opened a position in the yellow metal. You can ask us for for more detail on this new development but let’s just say it’s not due to the traditional play of an “inflation hedge”. For those that truly study their textbooks you will undoubtedly learn that gold has been falsely presented to you as such. Gold, in fact, has NOT earned its crown as an inflation hedge. There was just one past decade when gold outpaced inflation yet the media and “expert” financial heads have hooked everyone to believe there is a factual correlation. A postage stamp cost $0.15 and today a stamp costs $0.49. In 1980 gold was $850/oz. and gas was $1.25/gallon. Today gold is $1645.24/oz. and gas is $3.50/gallon. Gas has nearly tripled. Gold has doubled. The costs (and traditional example of inflation) have far outpaced those of gold. Buy gold when nobody wants it…(psstt…that is now)
From an overall asset allocation standpoint we believe you should be nimble right now. We are selectively buying on overall market dips and weighting towards International and Emerging Markets. This portfolio decision may underperform in the short-term while most of the “smart” money is doing the opposite. (Remember folks…Most of the “experts” only tell you how well they did if it happened…and in this case many are chasing returns in obvious and already well performing asset classes) Overall, we think that there is far more value overseas than there is domestically and that a fairly sizeable change in asset class leadership is about to occur.
One asset class that deserves a little bit of love is bonds! Of course… the “writing is on the wall” that eventually rates will increase and bonds will continue to suffer. Why did the traditional 60/40 portfolio do fairly well last month? Well…it’s due to bonds. Never completely abandon an asset class when it’s part of your well designed, disciplined, and strategic asset allocation. Bonds did exceptionally well and during most stock market downturns you can expect similar results.
We are still fairly defensive and slightly underweight equities. Should we get a more accentuated correction you will be sure to see us enact on our “shopping list” of stocks and asset classes that will outperform but for now we’re very comfortable being light and defensive.
See you next month and hopefully your portfolio has done as well or better than the results of the MPG Core Tactical model we showed you above!
Dear Mr. Market: 