Performance Tracking September 2016


For calculation methodology see earlier post

I caught an error in the DGI return calculation for August and corrected it here. August returns of passive/active/overall were not impacted.

Passive Portfolio

Continue to outperform vs. essentially flat for the benchmark. PMs proved an additional source of return this month contrary to last. Within the traditional equity slice_and_dice, both international and emerging outperformed. Lackluster results from $AGG continue to justify putting most of fixed income in stable value. There were no portfolio changes other than regular HSA and 401K contributions.

Active Portfolio

There are more activities to report here. The DGI portfolio had another weak month. Declines in the likes of Wells Fargo and Nike were insufficiently offset by advances in old tech. I took the opportunity to add to Wells, Nike and Exxon. I also sold puts in Nike and United Technology. These transactions capture the core of what I try to do in my DGI portfolio: add to names I’ve picked out on weakness. With dozens of candidates sufficient weakness occurs much more frequently than in an index.

I closed out profitable trading positions in Credit Suisse ($CS) and Fibria Celulose ($FBR, a Brazilian pulp maker). Both were small positions entered in July when market volatility was low and I couldn’t find any decent option selling opportunities. CS was a bet that the fall-out from Deutsche would be limited and I was able to close just before the latest flare-up. FBR as on the thesis that the conclusion of Rio Olympics would weaken the Real (true). The amount of profit wasn’t much higher than a typical successful option trade by design and I’m not particularly eager to do similar trades again.

One losing position was Novo Nordisk ($NVO) options. It was sized incorrectly (too large a position as I was trying something fancy) from the beginning. About the only good thing I can say about that trade was that I cut loss correctly. NVO continued to drop after my exit but that wasn’t consequential to whether the exit was good or not. Other sources of losses in the active portfolio included my company stock which is my single largest position (other than funds). It has done very well over the years and I have a plan to reduce. Additional losses were from my big chunk of muni closed-end funds.

Plan and Forecast

Unlike the prevailing pessimism I see a likely year-end rally followed by a correction in Q1’17. I can afford to engage in this kind of speculation since there’s little I can do to act on that opinion. My forecast model is calling for a normal level of market exposure. I’m staying close to fully invested and my “tracking error” will be mainly driven by sector allocation and stock selection.

The correction in the PM sector has a 50/50 chance of being completed – yes, I’m aware of the (lack of) information content in this statement. I’ve completed whatever tweaking on the periphery which mostly consisted of keeping the same dollar exposure but increasing leverage to gold price. Now I sit and wait.

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