Friday, August 03, 2007

Portfolio July 2007

Last month was a wild ride in that my portfolio was up 6% overall at one point before giving it all back in the last week. The actively managed portion gained 1.66% which is almost entirely off-set by the 1.58% loss in the asset allocation account. The overall portfolio finished the month with a 0.12% gain. This result is superior to almost all benchmark indexes (emerging markets being the lone exception) that finished ~3% in the red for the most part.

The main on-going concern is whether to take defensive action against a possible vicious bear market that can send the market wheeling 30% or more. My approach is to use a couple long-term and slow-moving indicators. For example, one secondary indicator is the 200 day moving average (simple or exponential) of the S&P 500. I’ll start hedging 25-50% of my domestic equity exposure if the 200 DMA is breached. The primary indicator I follow is even slower-moving than the 200 DMA but also gives more reliable signals. Again, the idea is not to catch the exact top or bottom but to stay on the right side of the long term trend.