Q1 Curious Investments Update
It seems these Curious Investments updates have been coming on a funny schedule. Sometimes, monthly, sometimes quarterly. I apologize. I do do my best to give regular updates on my portfolios to provide transparency and hopefully provide some lessons from my investing successes and failures.
Overview
The last quarter was tough. After a pretty good run at the end of 2007, my portfolios have quickly coughed gains up here in Q1 2008. As have the major market indexes. Here’s a quick run down of the market and my portfolios’ performance over the last three months.
| Q1 2008 Index Performance | ||||
| January | February | March | Q1 | |
| DJIA | -4.63% | -3.04% | -0.03% | -7.55% |
| NASDAQ | -9.90% | -4.95% | 0.34% | -14.07% |
| SP500 | -6.11% | -3.48% | -0.60% | -9.92% |
| Q1 2008 Portfolio Performance | ||||
| January | February | March | Q1 | |
| Portfolio A – Active Trading | -13.75% | -9.65% | -10.35% | -30.14% |
| Portfolio B – Investing | -8.56% | -5.84% | 1.17% | -12.89% |
| CIEIS – Equity Income | 1.22% | -9.84% | 0.16% | -8.60% |
Portfolio A Review
As we began the new year, I went off on a ski trip during my winter break. Little did I know, that week would mark the beginning of the worst draw down I’ve ever faced in my portfolios. Upon coming home, I was clinging to meager gains in the range of 15% on my positions in Apple and, though, I still had some a pretty nice gain of 23% in Google. For a 4 month trade, that’s pretty damn good and I should have been smart and taken my money off the table. Why didn’t I? Well, let’s see where I went wrong.
Stunned upon coming home from my ski trip in early-January to find my stocks down 10-15% from their highs. I wanted to exercise caution and not let me emotions get the best of me. My general philosophy is never to sell into a sell-off. Clearly, I will have to revise this philosophy as Google and Apple proved that a bounce (even a dead-cat bounce) is not a foregone conclusion in all market climates. Looking in January, Google and Apple both suffered nearly unrelenting selling pressure which resulted in my portfolio losing a large portion of its value mostly due to these two stocks.
In the case of Google, I was clearly just greedy. Google offered two huge sell points in December above $700, the stock was struggling to reclaim its all-time high and each successive bounce was followed by deteriorating RSI and buying volume. This should have been a screaming warning signal, but I was blinded by the potential 40% gain I had in Google. Apple was a little harder to diagnose. The stock managed to break through resistance of its previous high and reach a new all-time high just at the end of December. RSI had not broken down, but was not seriously bullish and buying volume was waning. The only significant sell signal came on the near 10% gap down in early January where the stock struggled to find footing for a few days before officially beginning sell-off. To tell you the truth, I’m not sure that my previous experience would have prepared me to act on the Apple sell-off, but looking back at Google’s chart, I know I made a significant error in judgment in my near term analysis likely because I fell in love with Google as an investment and was not rationally analyzing its near-term price action.
These two stocks are now languishing – Apple near where I purchased and Google trading at a 10% loss. The good news is that despite the fact that I purchased these two stocks as trading positions, they remain strong investments on a longer time horizon. Furthermore, it seems that Apple is about to begin on a few legs of retracement. (More on this in a future post.) The bad news, I am to some degree constrained in these positions for the time being and unless I find an absolutely can’t miss opportunity, I will be holding these positions for quite some time.
Humana’s stock performed admirably during first few weeks of the market mania caused by the credit crunch. In fact, it outperformed any reasonable expectation that I had for the stock as a defensive trade. After popping then languishing after a very nice earnings report in early November, the stock zoomed to $88 by mid-January and held decent gains into February. Here, my recent strategy of waiting for a bounceback after a stock hits a 52-week high before selling ended up coming back to bite me. News about health care and an operational blunder by Humana resulted in a huge loss. I had no choice but to cut and run with a 36% loss on the position. While I had no way of timing out at $88, the gap down after hitting its 52-week high should have clued me in to sell when I had a $10 gain at $79.
Finally, the original intention of the allocation I put in Humana was to be used as an active trading position. A cash position I could swing in week to two week trades in hopes of capturing moves in the market. With the sale of Humana, I’m recommitted to this and have entered a short term trade in Centex (CTX). I bought the stock on a break out at the beginning of last week, after which the stock pulled back in quite an orderly manner while maintaining strength above its 9-day moving average and never triggering material changes in its RSI and MACD. The position remains open and would seem to be healthy for the time being. Unlike, the Humana trade, I intend to watch this position carefully and have set my profit taking level at $29-$30.
Finally, China Mobile. This stock fell precipitously after breaking $100. It seems to have entered a intermediate to long-term base and could possibly have completed its leg down with a 30% correction and swift retracement to near the $80 mark. As I mentioned a week ago, I am worried about this stock as it did not seem to be able to hold strong at $70, but the recent run has me hopeful that the stock may be back on solid footing. I’m watching carefully at important resistance points – first at $80, next at the 23.6% retracement level ($85.28). If we are beginning a new leg up, then it would seem that my decision to hold CHL through the recent market storm would be equivalent to that of going to cash during a period when good trades were few and far between. Could I have more effectively timed out in October or November? Possibly, but given the way the markets have performed since then, I am skeptical as to what kinds of returns plays during that time would have yielded. I’m within a month of this position qualifying as a long-term capital gain, so that will also have to factor into any decision to sell.
More on Portfolio B and the Curious Investments Equity Income Strategy tomorrow.
If you enjoyed this post, please consider to leave a comment or subscribe to the feed and get future articles delivered to your feed reader.
