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Experimental Market Timing - February Edition



February 08, 2012 – Comments (2)

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%. (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: 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. (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.

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.

Fool on!


2 Comments – Post Your Own

#1) On February 13, 2012 at 2:28 PM, RallyCry (23.06) wrote:

The pull back I though was coming arrived last Friday. Of course I didn't sell and remain in small cap growth.

 My concern now is that there is a lack of a convincing short term catylst now that Greece has passed further austerity measures. In the past, I have sold the rumor at high prices and bought after the news caused a sell off resulting in lower prices. Much of last Friday's sell off was due to fears the that Greece wuld keep stalling. I think I will give the market another day or two before I move back to cash. I am going to buy the rumor of a good jobs number and unemployment on Thursday and Friday so I plan on exiting Wednesday 2/15 at market close barring something unforseen. Sometimes it can take a little while to push sentiment down. Any bad jobs data could do slam the market in a hurry. That is as long as Bernacke doesn't announce more quantitative easing if the job market looks soft. Then all bets are off.

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#2) On February 14, 2012 at 10:32 PM, RallyCry (23.06) wrote:

I have moved from small cap growth into cash at market close Tuesday. This was a day earlier than I planned on. I feel the market is frothy, complacent and barring some new Fed program, I think we are poised for disappointment because we have rallied into the unemployment/jobs data which I feel will be lackluster.

The S&P 500 is up roughly 7.25% for year including almost 3% in the first half of February. I have mirrored the performance of the small cap growth fund up 4.55% for the month compared to 2.9% for the S&P 500 and 1.97% for the large cap value fund. So far this is a nice turnaround from getting left in the dust in January. If we sell off a couple of percent, I will reevaluate re-entering large cap value or small cap growth. If I'm lucky and we sell off, maybe I can even get back to outperforming the benchmarks.

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