Experimental Market Timing - February Edition
Last month was a bad month for experimental market timing since my defensive strategy of sitting in cash for about half of January led me to underperform the S&P 500, Large Cap Value Fund, and Small Cap Growth Fund by 3.07-5.40%. http://caps.fool.com/Blogs/market-timing-january-tug-of/687851 (comment 4)
January was a testiment to the power of small moves up over a prolonged period of trading sessions, and how these seemingly minute moves can result in a robust return. To avoid another record month from "sneaking up on me," I have been more diligent in updating my performance vs. the benchmarks every day or two to measure my progress in February and determine next steps.
For now, I'm willing to write off my Jan. underperformance to having a European debt hangover from 2011. My New Year's resolution may be to re-read my bullish case for 2012 outlined here: http://caps.fool.com/Blogs/2012-time-to-put-away-the/681091 anytime I want to stay parked in cash for a big chunk of time.
The good news is that I have dusted myself off and went in search of some risk in this low volatility environment. I landed in a small cap growth fund. I bought half on 1/27 and the other half on 1/30. http://caps.fool.com/Blogs/market-timing-january-tug-of/687851 (comment 3)
For those of you wondering, small cap growth is a realitively new investment for this exercise, as I primarily used market timing in a large cap value fund, cash, and a bond fund to outperform the S&P 500 by 5.8% in the 5 month period from Aug - Dec 2011. http://caps.fool.com/Blogs/market-timing-happy-new-year/686847
As of 2/8 I have a 3.99% gain in the small cap growth fund compared to 2.64% for the S&P 500 and 1.86% return for large cap value fund so far for Feb. My hope is I will be nimble enough to move into cash soon to avoid the short term pullback that I feel is right around the corner. As I mentioned in my comments to close out January, I think volatility is now uncomfortably low.
As always I'll provide my investment changes, rationale, and performance in the comments section as the month progresses.