The Race is On

November 19, 2014

As of today, with the Dow and S&P 500 making new highs almost every day, its no surprise that the December 30, 2011 VTI  “buy” signal is looking good as we head toward month end.

Nevertheless, I wanted  to see how my selected sub-sectors are holding up versus the widely acknowledged market performance benchmark….SPY.

Here is the result ( since November 3 )

SPY ….  1.87%,    Momentum Stocks  ( such as AAPL, TSLA, BIDU, NTES, AOL  etc. )….  3.99%,  //  Smart ETFs  (  such as PKW, MOAT, SYLD  etc. )….   1.58%,

Smart Equities    (   such as CVS, SNE,UNH, BX, TWX etc.  )…   1.65%,   //  Dividend ETFs  (  such as VNQ, XLU, VYM  etc. )…..  0.70%

Energy ETFs        (  such as VDE   )….  -0.23%,   // Sector ETFs   (   such as DXJ, FBT, XLV etc. )….   0.52%


The average gain of  all  sub-sectors versus SPY is 1.37% versus SPY’s 1.87%.  I didn’t say this would be easy !

In terms of intellectual effort versus financial reward,  MOMENTUM equities are the only sub-sector outperforming SPY.  But, these same equities will most likely outpace the market to the downside when the market turns.  The missing consideration here is high anxiety.  If I had all my liquid net worth in these stocks I would be a nervous wreck.   The key to surviving here is to be very, very nimble and have a trailing trigger on the whole portfolio.  Maybe I can do that.  Worth considering expanding my allocation from 3.3% of  my liquid assets to 10%. Before I do anything, it would pay me to direct some effort toward establishing and testing this escape route.

SPY is outperforming everything else,  and standing behind it is my back tested VTI escape methodology.  That is why my SPY allocation is 58% of my liquid assets.

Performance aside, what I find rewarding about following these sub-sectors is that it is enabling me to have a better understanding of the downstream impact of a strong dollar and a better sense of where the arriving overseas money wants to go.

Considering the strong dollar and its impact on hard assets (  including oil ),  and our 10 year Treasury Note yield, I am better at appreciating what is driving equities beyond earnings yield.  I am becoming more and more convinced that the real equity drivers are a combination of rising earnings, sustainable and defensible profit margins, no to low debt,  increasing cash flow per share by virtue of buybacks and finally…dividends.  Believe be, if you can isolate equities by these criteria you have a fighting chance to outperform SPY over the long haul.

But, all bets are off when the market turns and the ride is temporarily over.  Then, the only rational reaction is to point your surfboard toward shore and leave the water as quickly as your plan allows.

Richard Maurice Gore


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