Tuesday, October 29, 2013 | Issue #2153
A Near-Perfect Portfolio
Alexander Green, Chief Investment Strategist, The Oxford Club
| A Note From the Editorial Director: This week, a troubling email was sent to the Investment U Mailbag. In fact, it drove me to distraction. The author... well, read it for yourself:
"I lost a lot of money during the market crash of 2009, and after that I decided to join the Oxford Club. And I've done really well since then (thank you!), but now I'm worried about another crash. I mean, really worried. I'm thinking it's better to sell everything now and maybe wait a year or two, see if the world burns down. What do you think?"
What do we think? Selling it all to live under a rock is not The Oxford Club way. Instead, we find great companies to invest in for the long term, and use trailing stops to protect our principles and our profits. Alex explained how this works on May 20. But it covers such an important topic, it deserves to have the dust blown off.
- Andrew Snyder |
 Every once in a while, it behooves an investor to stop, take a look at his portfolio, and ask himself the late New York City Mayor Ed Koch's favorite question: How'm I doin'?
The answer can be instructive.
For instance, over the last five years the Dow has moved over 16,000 points. It's gone from a high of over 14,100 to a low of around 6,500 to a recent all-time high of more than 15,100.
That's a wild ride. How'd you handle it?
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Let's hope you didn't choose the worst option... which was panicking when things got tough, selling somewhere near the bottom and listening to some talking head who insisted the end was nigh.
It never pays to be an emotional investor rather than a rational one.
And if you were aided and abetted by a broker, financial advisor or newsletter editor who advised you this way, do yourself a favor and hand him his pink slip.
Standing Pat
A slightly better strategy than a full-on panic would have been to do nothing.
Inactivity doesn't require great brilliance but - with the market now near all-time highs - you can at least console yourself with Billy Shakespeare's observation that "all's well that ends well."
If you reinvested your dividends (and capital gains distributions) along the way, you at least got some compensation for all those sleepless nights.
Better still would have been to use the market crash as an opportunity to accumulate great assets at great prices.
After all, many stocks were selling at single-digit earnings multiples and yielding 7% or more. Junk bonds - whose yields are now at the smallest premium to Treasurys in history - were yielding over 20%. And many real estate investment trusts, in addition to yielding 12% or more, have put on ferocious rallies.
As I pointed out in hundreds of Investment U columns over the last four years, it was easy pickings - especially since so many investors simply sat on the sidelines and left the bargains there for the rest of us with enough gumption to take advantage of them.
Can't Beat This
But even better would have been to do what Oxford Club members did over the last five years.
With the luxury of hindsight, it's clear that our investment strategy was uncanny. Almost unbelievable, in fact. And we don't need to resort to industry-standard cherry-picking to prove it.
Just glance at the chart below...
You see, 2008 was the worst year for the stock market in modern history. The S&P 500 finished the year down 38.5%.
In The Oxford Club's Trading Portfolio, as you might imagine, our trailing stops knocked us out of some positions with losses. Yet those same stops protected our many gains, too.
Taking into account every recommendation, we closed out 45 positions in 2008 with an average gain of 28.62%. That's pretty incredible in a year when the market took almost a 40% swan dive.
View larger image
That was just for starters, however.
No sooner were we fully in cash than we started redeploying our proceeds and rode the market rebound like Silver Spurs champions.
We have taken a number of profits - and a few losses - in our Oxford Trading Portfolio since the market bottomed four years ago, but our overall position could hardly be better...
We currently have 30 recommendations in our Trading Portfolio. Twenty-nine of them are profitable, with gains of as much as 289%. Our one down position - D.R. Horton (NYSE: DHI) - is less than 7% below our initial entry price.
A Winning Strategy
With world-class performance like that, it's no surprise that the independent Hulbert Financial Digest ranks us among the best-performing investment letters in the nation for more than a decade now.
I don't know any stock investor who played this 16,200-point move better than we did.
I'm often asked how we could know that the market would fall so precipitously and then rebound so magnificently.
That's the fascinating part. We didn't.
The Oxford Club uses a proprietary trading strategy that allows members to capitalize on the uncertainty inherent in the world's financial markets.
Some investors believe that with the market moving into all-time high territory they don't need a battle-tested system that maximizes gains in the good times and protects those profits in the bad ones.
But they do.
If you aren't ready for the bear market that follows every bull market - or the bull market that follows every bear - you aren't managing risk.
You're flying by the seat of your pants.
And if there's one thing a 16,200-point move in the market proves, it's that that doesn't work.
Good investing,
Alex
| P.S. If you'd like to find out what's included in our current Oxford Trading Portfolio, and get access to a trove of investor resources available only to Oxford Club Members, click here. | | | |
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