How are my Investments doing… 12/14/13

The markets have been roaring upwards throughout this year. Or have they?

I took a look at the performance from May 2013 through December 2013 and observed the following:

+ While the markets (SPY) in the US have gone up 6.7% since May 2013; and International markets (VEU) up 1.9%, \

- Bond funds (TLT) have gone down -13.1% and real estate funds (IYR)  down -18.7%. Commodity funds (DBC) has gone down as well -2.3%

- And Gold funds down over -10%… 

- If one followed a diversified route for managing one’s money, then this period showed a reduction in portfolio equity by -3%.!! That certainly feels bad.

The individual investor then turns to his portfolio manager and asks “How can you be managing my money so poorly? Every day I see the markets making new highs but my account is going down? On top of that I am paying you commissions”. What is the answer to that?

The real answer is that we cannot predict which sector is going to go up too well. I try to do that with my monthly 401K momentum investment strategy; but we cannot know in May, that we need to put all our money into SPY as it will do the best. Using the Ivy Portfolio diversified tactical asset type strategy that I have written about earlier, I can manage my losses by getting out of funds such as bond funds and real estate funds when technical analysis gives us down signals. Even then, the signals typically lag and all losses are not avoidable, just as all gains cannot be captured either. The main value is however in getting a steadier performance in the long run with minimal loss years. Patience – the one word most investors are unable to follow.

What should I do if I want larger gains? The only answer to trying for larger gains involves taking more risk. I can take a basket of stocks and trade them long and short (using put options or vertical option spreads) so that we are market neutral… meaning we can make money going up or down. Even then it is not a free ride as we are open to being whipped more often and any one stock can drop large. Also, quarterly performance reporting can be volatile and can constitute a significant gain or loss for any stock. One approach would be to participate fully in both directions and let the chips fall where they may. In a long only strategy, if a stock does not move up significantly, then the trader looking to make a killing going long, gets killed instead. The past may have shown a huge climb up; but the future behavior over a quarter or a year could be a slow ride sideways or down. In short, there is no free ride and one has to be patient waiting to ride that horse up when the stock performs well. Patience… stay consistent with the strategies and follow them for years.

			Index Performance by Sector								Diversified
	SPY	SPY %	TLT Bond	BOND %	IYR Real Est	RE%	Commodities	DBC%	Intl VEU	INTL%	Strategy
May-13	166.30		116.17		73.61		26.08		47.82		85.996
8/18/2013	165.83	-0.3%	102.55	-13.3%	61.24	-20.2%	26.43	1.3%	46.93	-1.9%	80.596	-6.7%
9/29/2013	168.90	1.5%	106	-9.6%	64.44	-14.2%	25.87	-0.8%	48.91	2.2%	82.824	-3.8%
12/7/2013	180.94	8.1%	102.92	-12.9%	63.4	-16.1%	25.74	-1.3%	49.73	3.8%	84.546	-1.7%
12/12/2013	178.30	6.7%	102.71	-13.1%	62.01	-18.7%	25.49	-2.3%	48.77	1.9%	83.456	-3.0%

Also note the down signal on the Dow Jones 30 (DIA)..