Another Portfolio Update
The last month of volatility coupled with my first trial-by-fire as an “investor” was admittedly disappointing. Portfolio A, which admittedly trades on a rather risky strategy, coughed up its 2007 gains and as announced in the last portfolio update, I sold most of the positions and repositioned the portfolio to hopefully weather the current storm. I remain invested in COSI and QID under the belief that, long-term, COSI is quite undervalued and not far from posting its first profitable quarter and that, short term to medium term, the NASDAQ should have room to fall 8 to 10% allowing me to capitalize with a leveraged inverse QQQQ fund. The hedge seems to have worked rather well as Portfolio A has held its ground through this volatile period in the market though with more liquidity, I do believe that there was money to be made buying and selling dips and runs over the last month. I’m participating in the CNBC million dollar challenge and the ability to buy and sell without commission has allowed me to mark almost a 10% profit over the last two weeks which I believe would match well if I was able to actively manage a portfolio where commission could be brought to about less than .5% of each position. But, alas, I don’t have that kind of money to work with and, thusly, I believe that the best course of action is to do my best to hedge out volatility until the market establishes a clear trend and hopefully set up my individual positions to make money given the term I am willing to hold each of them.
In the heat of trying to lock in gains and continue to catch opportunities in the market, I have been forced to trade a bit more than I expected in Portfolio B. I sold the GLD position quickly after realizing that commodities, especially gold, seem to have latched onto a strong correlation with the stock market as a whole and as such did not provide the defensive diversity that I wanted in the portfolio. Attempting to hedge, I bought SKF (a double inverse financial services industry fund). Unfortunately, it is just too volatile for the strategy employed on Portfolio B. After much thought and a pledge to “get back to basics” if you will, I’ve decided to position the portfolio to the letter of my original intent. To find strong brands with good value and time into them for maximum return.
As such, I remain content with the position in Southwest (LUV). The technicals bother me as the stock has now dropped to near its 52-week low marking what is to me a red-flag area. I am hoping to see this stock turn around soon or at least begin establishing a better flat trend as opposed to the clearly downward one it has entered. It has not hit my traditional 8% stop loss as of yet and so I do not feel that I am breaking any of my basic tenets by continuing to hold the stock. The company’s hedging has long been a strength and the $50 per barrel hedge of 2007 fuel needs is starting to look mighty good with the current Middle East tensions. Is Southwest as sexy as it used to be? Yes and no. It is still probably the best managed and most well run company in the airline industry though it’s competitive advantage may be eroding. That being said, the industry as a whole seems poised to rebound this year as long as consumer spending on flying holds up (see AMR’s recent success and Delta’s emergence from bankruptcy) and a rising tide carries all ships even one who’s edges might be softening. While Southwest’s growth may be in question, it’s profitability is most definitely not and it’s price is just too depressed both fundamentally (low P/E relative to historic levels) and from a technical standpoint (10% below 200-day moving average).
The new position I have taken is J Crew Group (JCG). With some great leadership in place and praise for its inspired clothing lines, the stock earned 71 cents a share last quarter over a loss of 36 cents a share the same quarter the year before. RSI, MACD, and OBV were strong after the report and the stock went on a mini-run before stalling due to pressure from the market in general and some questions about retail as a whole. Unless we go into an all out recession, I don’t believe subprime pressures will affect J Crew given that it targets a more premium market and as a result I do believe that it fundamentally can continue its strong showing which will hopefully be reflected in its stock price. While it’s not depressed, there is value here and hopefully a quick run to a 52-week high.
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