My 2008 investment performance
Market recap 2008 (and some from 2007 and before).
For the year, my four real-money personally managed accounts, which use ETFs, lost 24.55%, 21.03%, 25.51% and 23.92% (including commissions and account fees). The S&P 500 index (with dividends) lost 37%. Accounts are held at Foliofn, with results calculated by Foliofn using the “Mid-Weighted Dietz Method” to calculate returns on a daily basis and a “Unit Value Method” to calculate the aggregate performance returns over various periods of time. (Don't ask me to explain!) This is a time-weighted measure, which accounts for cash flows into and out of accounts and produces a comparable measure with other portfolios or funds.
All in all, my results weren't as horrific as the market overall—which they could have been, because my style is aggressive growth. Together with performance from 2004-2007, these results further my belief that average investors, by paying attention to the market's subplots--and using ETFs, sector funds and style-pure mutual funds--may well be able to temper some of the downside while capturing the bulk of the market's upside. The key is to not attempting to time the market so much as avoid areas that aren't working over time. (Note, few active managers can beat the market on a risk-adjusted basis over time. Hence my focus on trying to stay fully invested in styles and sectors that are performing relatively well.)
How did I do during the last bull run? Not badly, at least compared to the S&P 500. In a taxable account (account No. 2 below), for which I have data back through 2004, my results were as follows:
Acct. No. 2 ... S&P 500 (with dividends)
2004: 18.55% versus 10.88% for the S&P 500
2005: 8.35% versus 4.91% for the S&P 500
2006: 17.43% versus 15.79% for the S&P 500
2007: 10.79% versus 5.49% for the S&P 500
To review 2008, first let's go back to October 2007, as the U.S. equity market peaked. After the peak, I thought I saw a buying opportunity in large cap growth and foreign stocks, both areas that were doing relatively well. But on Nov. 21, I noted on this blog that most styles and sectors had fallen below their 200-day moving average lines—not a good sign. Still, after Asian markets rallied, I cautiously guessed in a Dec. 29, 2007 post that now was a time to buy.
Not a great call. Everything got hammered in 2008.
By the end of January 2008, after a nasty market drop to start the new year, I called it for what it was--a bear market, noting that Treasury bond ETFs had relative strength ratings of 90 from Investor's Business Daily (outperforming 90% of all stocks). Commodity-related ETFs also looked like they were holding up.
On Jan. 29 I wrote: “It's probably a time to lighten up on equity market exposure, which we have been doing over the past several months in both model and real-money accounts. ... The severity of the correction that has taken every heretofore strong style and sector down below 200-day moving average lines and left them there with no strong rebound, together with the attendant bad economic news, points to a possibly severe downturn.”
Not a bad call. The problem, it seems, is actually following your own advice.
While I had healthy amounts of cash and inflation-protected Treasuries (TIPs) going into the September 2008 meltdown, I was still exposed to large growth, foreign stocks, and energy and materials ETFs. That cost me. These areas ended up being some of the hardest-hit victims of the September and October sell-off. (FYI, some of my current holdings in energy and material ETFs are remnants—I ran out of rallies to sell into. And during the collapse, there were no rallies. I have recently added to these sectors as they sold off after signs of recent strength.) Meanwhile, the TIPs holdings helped, but TIPs also sold off, going from above 105 before the September/October crash, to below 95. That was good performance relative to the stock market, but still a drain on absolute performance.
As of November and December 2008, the market looks to have made some kind of bottom. How so? Volatility has dropped, chart patterns have tightened up, and many styles and sectors have broken above their 50-day moving averages as well as their two-month trading ranges (over the period from November through December), all on decent up volume. This is no guarantee of a bottom, to be sure, as this “cheap” market could still get “ridiculously cheap” (a distinct possibility, given the serious economic situation we are in following historic bubbles in stocks and real estate). But, the risk of missing a powerful rebound rally—or the start of a new bull—is too great to be out. As I wrote in late November: “There is no uptrend [which I normally like to see]. But this has got to be a buying opportunity. Major risk now is missing a bear-market rally.” Remember, there were major bear-market rallies in 1932 and 1975, after severe declines.
As of year-end, I've cut cash and bond holdings, and increased equity exposure, focusing on consumer staples, health care and regional banks, and I've also added global telecoms and utility ETFs as well as high-yield and emerging market bond funds. I continue to have sizable stakes in TIP and CMF (a Calif. muni ETF) in several accounts. As I noted earlier on this blog, such bond weightings are probably still too conservative. That said, it is again worth noting that we may well be headed down to super cheap levels on equities, akin to 1982, which may require something like another 30% loss overall.
So, I'm a bit skittish, but betting on at least another investable rally in this secular bear.
Style and sector breakdowns are as follows for two representative accounts, during critical stages of the 2008 market:
Asset Allocation
Acct. No. 1, IRA account
2008 performance: -21.03%
12/31/07: Cash 30%; JKE 22%; IWR 20%; EFA 11%; EPP 6%; TIP 2%; FXI 2%; and 1% each for GSG; IDU; IYM and IXP.
08/31/08: Cash 16%; TIP 40%; IYM 12%; IGE 5%; JKE 5%; IWR 5%; GSG 5%; EFA 5%; SLV 3%; ILF 2%; and 1% each for DBA and IDU.
12/31/08: Cash 6%; TIP 31%; VDC 17%; TLT 7%; VHT 7%; EFA 5%; IYM 4%; IGE 4%; IXP 3%; IHE 3%; VDE 3%; KRE 3%; IAT 2%; SLV 2%; DVY 2%; EMB 2%; and 1% each for HYG; EEM; EWM; and IDU.
Asset Allocation
Account No. 2, taxable account
2008 performance: -23.92%
12/31/07: Cash 11%; EFA 28%; JKE 20%; EPP 9%; EWC 5%; GSG 4%; EWY 4%; FXI 4%; IGE 4%; IGM 4%; IYJ 4%; IXP 4%.
08/31/08: Cash 12%; TIP 41%; IYM 13%; GSG 9%; IWF 6%; EFA 6%; IGE 5%; EWC 5%; UDN 4%.
12/31/08: Cash 5%; CMF 32%; VDC 9%; VHT 8%; KRE 7%; IBB 5%; EEM 5%; IDU 5%; VAW 5%; IYK 4%; EFA 4%; EWM 4%; VDE 4% IXP 4%.
For the year, my four real-money personally managed accounts, which use ETFs, lost 24.55%, 21.03%, 25.51% and 23.92% (including commissions and account fees). The S&P 500 index (with dividends) lost 37%. Accounts are held at Foliofn, with results calculated by Foliofn using the “Mid-Weighted Dietz Method” to calculate returns on a daily basis and a “Unit Value Method” to calculate the aggregate performance returns over various periods of time. (Don't ask me to explain!) This is a time-weighted measure, which accounts for cash flows into and out of accounts and produces a comparable measure with other portfolios or funds.
All in all, my results weren't as horrific as the market overall—which they could have been, because my style is aggressive growth. Together with performance from 2004-2007, these results further my belief that average investors, by paying attention to the market's subplots--and using ETFs, sector funds and style-pure mutual funds--may well be able to temper some of the downside while capturing the bulk of the market's upside. The key is to not attempting to time the market so much as avoid areas that aren't working over time. (Note, few active managers can beat the market on a risk-adjusted basis over time. Hence my focus on trying to stay fully invested in styles and sectors that are performing relatively well.)
How did I do during the last bull run? Not badly, at least compared to the S&P 500. In a taxable account (account No. 2 below), for which I have data back through 2004, my results were as follows:
Acct. No. 2 ... S&P 500 (with dividends)
2004: 18.55% versus 10.88% for the S&P 500
2005: 8.35% versus 4.91% for the S&P 500
2006: 17.43% versus 15.79% for the S&P 500
2007: 10.79% versus 5.49% for the S&P 500
To review 2008, first let's go back to October 2007, as the U.S. equity market peaked. After the peak, I thought I saw a buying opportunity in large cap growth and foreign stocks, both areas that were doing relatively well. But on Nov. 21, I noted on this blog that most styles and sectors had fallen below their 200-day moving average lines—not a good sign. Still, after Asian markets rallied, I cautiously guessed in a Dec. 29, 2007 post that now was a time to buy.
Not a great call. Everything got hammered in 2008.
By the end of January 2008, after a nasty market drop to start the new year, I called it for what it was--a bear market, noting that Treasury bond ETFs had relative strength ratings of 90 from Investor's Business Daily (outperforming 90% of all stocks). Commodity-related ETFs also looked like they were holding up.
On Jan. 29 I wrote: “It's probably a time to lighten up on equity market exposure, which we have been doing over the past several months in both model and real-money accounts. ... The severity of the correction that has taken every heretofore strong style and sector down below 200-day moving average lines and left them there with no strong rebound, together with the attendant bad economic news, points to a possibly severe downturn.”
Not a bad call. The problem, it seems, is actually following your own advice.
While I had healthy amounts of cash and inflation-protected Treasuries (TIPs) going into the September 2008 meltdown, I was still exposed to large growth, foreign stocks, and energy and materials ETFs. That cost me. These areas ended up being some of the hardest-hit victims of the September and October sell-off. (FYI, some of my current holdings in energy and material ETFs are remnants—I ran out of rallies to sell into. And during the collapse, there were no rallies. I have recently added to these sectors as they sold off after signs of recent strength.) Meanwhile, the TIPs holdings helped, but TIPs also sold off, going from above 105 before the September/October crash, to below 95. That was good performance relative to the stock market, but still a drain on absolute performance.
As of November and December 2008, the market looks to have made some kind of bottom. How so? Volatility has dropped, chart patterns have tightened up, and many styles and sectors have broken above their 50-day moving averages as well as their two-month trading ranges (over the period from November through December), all on decent up volume. This is no guarantee of a bottom, to be sure, as this “cheap” market could still get “ridiculously cheap” (a distinct possibility, given the serious economic situation we are in following historic bubbles in stocks and real estate). But, the risk of missing a powerful rebound rally—or the start of a new bull—is too great to be out. As I wrote in late November: “There is no uptrend [which I normally like to see]. But this has got to be a buying opportunity. Major risk now is missing a bear-market rally.” Remember, there were major bear-market rallies in 1932 and 1975, after severe declines.
As of year-end, I've cut cash and bond holdings, and increased equity exposure, focusing on consumer staples, health care and regional banks, and I've also added global telecoms and utility ETFs as well as high-yield and emerging market bond funds. I continue to have sizable stakes in TIP and CMF (a Calif. muni ETF) in several accounts. As I noted earlier on this blog, such bond weightings are probably still too conservative. That said, it is again worth noting that we may well be headed down to super cheap levels on equities, akin to 1982, which may require something like another 30% loss overall.
So, I'm a bit skittish, but betting on at least another investable rally in this secular bear.
Style and sector breakdowns are as follows for two representative accounts, during critical stages of the 2008 market:
Asset Allocation
Acct. No. 1, IRA account
2008 performance: -21.03%
12/31/07: Cash 30%; JKE 22%; IWR 20%; EFA 11%; EPP 6%; TIP 2%; FXI 2%; and 1% each for GSG; IDU; IYM and IXP.
08/31/08: Cash 16%; TIP 40%; IYM 12%; IGE 5%; JKE 5%; IWR 5%; GSG 5%; EFA 5%; SLV 3%; ILF 2%; and 1% each for DBA and IDU.
12/31/08: Cash 6%; TIP 31%; VDC 17%; TLT 7%; VHT 7%; EFA 5%; IYM 4%; IGE 4%; IXP 3%; IHE 3%; VDE 3%; KRE 3%; IAT 2%; SLV 2%; DVY 2%; EMB 2%; and 1% each for HYG; EEM; EWM; and IDU.
Asset Allocation
Account No. 2, taxable account
2008 performance: -23.92%
12/31/07: Cash 11%; EFA 28%; JKE 20%; EPP 9%; EWC 5%; GSG 4%; EWY 4%; FXI 4%; IGE 4%; IGM 4%; IYJ 4%; IXP 4%.
08/31/08: Cash 12%; TIP 41%; IYM 13%; GSG 9%; IWF 6%; EFA 6%; IGE 5%; EWC 5%; UDN 4%.
12/31/08: Cash 5%; CMF 32%; VDC 9%; VHT 8%; KRE 7%; IBB 5%; EEM 5%; IDU 5%; VAW 5%; IYK 4%; EFA 4%; EWM 4%; VDE 4% IXP 4%.
posted by Dan Jamieson at
9:59 PM
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