The quarter closed up 4.4% for FatAlpha vs 0.6% for the S&P 500. September was a down month for both the market and the portfolio as they dropped -1.55% and -2.39% respectively. Volatility increased in a month which historically has poor returns. Investors should keep a close eye on the 100-day moving average and the market’s price action around that level. The past six times this occurred, it was a buying opportunity. See my article which outlines how an investor could have entered long:
http://seekingalpha.com/article/2474205-2-simple-charts-to-monitor-the-s-and-p-500
On a positive note if this pullback repeats the pattern of the past then this drop should be over before month end and the market should continue on its merry way. Standard & Poor’s historical analysis of mid-term election years shows that the average return until April is 15% with the market advancing 94% of the time. Sounds good to me!
The portfolio was weighed down this month due to VLO, SANM, HPQ and ALK which dropped -15%, -11%, -7% and -6% respectively. Of these four, I find that only Valero Energy had a true reason as the refining stocks took a pounding on margin concerns. And while the sellers’ argument is respected I’d like to see some financials before taking action on what is one of the top 5 cheapest stocks in the Russell 3000 with a EV/EBITDA of 4.5x and a P/E of 9. This month I rebalanced the portfolio, increasing concentrations and leaving little cash. I believe this more aggressive stance will help the portfolio as we approach the usually profitable Xmas season.
Readers would do well to also see my article on Staples as we could very well be witnessing a case study value trap. http://seekingalpha.com/article/2444435-staples-is-a-meltdown-coming
As I mentioned in my trades below, Credit Suisse speculation allowed me to exit at a better price than expected. SPLS has earnings out on Nov 19th and speculative investors could try a put position. On the other hand, we must always keep an open mind as stubbornness has burned many investors. In either case, volatility in this stock is almost a guarantee.
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