A week ago Thursday I disclosed selling our position in Pro Shares Ultra Short S&P 500 due in part to believing that after a very fast decline in the market, an equally fast snapback was possible. By the time yesterday morning rolled around the SPX was trading near 1250 up a lot for the day, again, perhaps due to the jobs numbers.
So in the face of a 7.7% lift in the SPX in about a week (based on the Friday open which is when we placed our trade) we sold our position in WisdomTree Global Natural Resources (GNAT) for large accounts. GNAT used to be the WisdomTree International Energy Sector ETF (DKA). GNAT is more volatile than DKA used to be. GNAT is still a good proxy for the sector and so we still own shares for mid size accounts that generally own an ETF or two for each sector.
I had this trade in mind for a while if we needed to sell something in this context. Our energy sector exposure in large accounts is pretty volatile and so after selling GNAT at the open I plan on replacing it with something less volatile and with more yield but I will hold off as I think some sort of swing down like from a couple of weeks ago is plausible.
As I said with the SDS sale, the GNAT sale looks good relative to Friday's trading but if the market rockets higher from here (obviously not my expectation) then selling GNAT will have been poorly timed and if the market stalls out or reverses then it will look like a good sale. This is true with every trade but the strategy here is to reduce volatility a little while people are feeling pretty good about the market.
On the post disclosing the SDS sale someone commented that it was pure speculation on my part and maybe they will be back again. Depending on how you define speculation then yes it was or maybe, no it was not, again depending on how you define it. Obviously the portfolios I manage are actively managed. The site is in part a look over my shoulder as I try to navigate cycles. As I have said many times an actively managed portfolio is a series of decisions, some of which will be right and some of which will be wrong.
Not everyone, obviously, who tries to manage an active portfolio will be correct often enough to be successful with it but there are enough examples to show it is very possible to have success with active management. One objective here is sharing process so that you can take little bits of my process (if you're so inclined) and also collect little bits from other people's process to build your own process. My way is right for me and should be right for anyone who hires our firm. You need your own process as that will be right for you or if you choose to hire someone then you need to be sure their process is right for you.
Proud Member Of
Random Roger
© 2009 | Gadget Theme Blogger Template
Original WPtheme By Blogger Template | Converted By Gadget Lover
| Distributed by eFree Blogger Help
Original WPtheme By Blogger Template | Converted By Gadget Lover
| Distributed by eFree Blogger Help
7 comments:
What is your reasoning for selling a position in a large account and not for a small account?
Reading between the lines I'm guessing it has something to do with total $ flucuations versus % fluctuations of the overall portfolio.
As I say in the post the rest of the energy holdings we have are more volatile relatively. I also say GNAT is a good proxy but where a large account has four or five holdings for the energy sector I want to reduce volatility for those clients.
I guess I don't understand why you would treat the allocations to various sectors/themes or what have you differently for mid-size versus large accounts.
mid size accounts; one holding for energy
large accounts; four or five holdings depending on the client
having four holdings allows for more subtle tweaks to the portfolio of which this will be one once the swap is completed.
for mid sized accounts I continue to prefer GNAT as a proxy.
maybe the missing ingredient for you is that with mid sized accounts we have far fewer holding to reduce commission drag. 35 holding may not make sense for a $100,000 equity portfolio due to commission costs, at least this is how I come at this.
OK. I get you now. I'm kind of dense.
Roger, going to the detail regarding mid vs large is informative, as are most of your posts. Always enjoy.
Post a Comment