Avoiding Risk is Not the Same as Calling a Top

We have noted in our Weekly Ranking Update that our models are increasingly supporting the theory that technology stocks, particularly semiconductors, may be big movers this year as the number of “high-quality” tech stocks as we define them have exploded from just a few from about 2 months ago to more 20 today.  In this regard, reality is following the theoretical so far with a 16.6% MTD average gain of the six semiconductor stocks held in our model portfolio.

Separately, as we mentioned yesterday, on average over time we have found that closing our high-turnover long model portfolio positions once they reach a certain level improves the overall risk-adjusted return.  The idea is to only keep exposure to the market for the minimum amount of time necessary to avoid volatility and unforeseen risk. (Academics argue that it pays to be fully invested at all times because some of the best gains in any given year occur in just a few days.  That may be true for their models, but not for ours.)

Our theoretical Core Long Model Portfolio (no portfolio targets) was up another 0.52% on Thursday Feb 17 bringing the MTD return to 8.46%.  Meanwhile the theoretical Opportunistic Long Model (portfolio targets) stayed at 7.38% (assuming 100% cash since the close of Feb 14 has that effect).  The S&P 500 is up 4.14% for the MTD.  These are simple returns — no compounding — and these theoretical returns assume no costs.  The 100% cash position is not a market top call; in that strategy, we simply remove ourselves from the market once we reach a target any given month.