Being Accountable - Part 2

by Wayne Ferbert on March 11th, 2013

So, last week we started our process of reviewing our 2012 investment calls and seeing how we did. We covered all of the calls we made on our blog and on TV/radio thru the first half of 2012.
 
Now, its time to see how we did on calls we made in the 2nd half of 2012. Some of the calls may have happened late enough in 2012 that it is too soon to come to a conclusion. We are two months in to 2013, however, so most of them should have an early read on success or failure of the pick.
 
If you remember Part 1, we made a lot more profitable calls than negative ones – in particular, many core calls that beat the market. We also made a lot more calls in general in the first half of 2012. The second half of 2012 did not have us making nearly as many individual investment calls as we did in the first half of 2012.
 
Mostly, we thought the market was getting top heavy and not providing as many good opportunities to out-perform with the APPROPRIATE margin of error. But we still made a healthy number of calls. And we did well again – though hedging continued to be a useless practice since mid-2012 as the market run has been steady since mid-November.
 
But we are never going to regret being hedged. We hedge to defend against the unforeseen event/bear market. We sleep better at night being hedged. We know hedging will only pay off every 3-5 years, on average. But when it does pay off, it provides portfolio protection that others wish they had – in spades!
We were pessimistic about the 2nd half of 2012 but by the end of the year, the market was starting its rally that it is still in.
 
The 2nd half was still a winner for us – we just didn’t have as many individual stock trades work out as well as the 1st half of 2012. That’s never been our forte anyhow. Our sector rotation, market longs, international rotation, and credit spreads all drove market beating performance. That, along with hedging is the core of what we do. The hedging didn’t work out – but the alpha from rotation and credit spreads helped to pay of the hedges and leave some excess alpha.
 
To wrap up the 2nd half of the year, here are some other calls that we can’t call Good or Bad:
 
  • Calling the top on UGA was wrong – but we thought it was a 2-3 month trade. If you held on for 2 months, you were given the chance to exit at small profit. But that would have been a tough trade to hold on.
  •  We liked a trade on Apple on Aug 16th using options that reached its max price in Apple within 1 month. Had you closed it, it was a great trade. But we recommended using the February calls. Had you held this spread until February, it was the complete opposite loser. But your losses would have stopped at $600 so, all in all, we will call this a push.
  • Pair trading Monsanto vs. General Mills. While this trade gave you a chance to make a significant profit in late December without a large divergence prior to that, that would have been a long time to hold it – and within 2 months of the December Divergence, the trade was back to even.
  • Too early to call: post election call to rotate some money from US winners in to emerging markets, developed international markets, and China. This worked for 2 months but now lags the US markets in some cases. This is more of a 6-12 month call so let’s see how the markets progress.
 



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1 Comments

Mark - March 11th, 2013 at 2:39 PM
Very hard to read this on your background

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