Sunday, 26 October 2014

The Market Dips

In my last post back in September, I mentioned the fact that some commentators were saying that market was due a 10% correction. I argued that a pull-back in stocks seemed unlikely because it is perhaps one of the few asset classes left able to deliver real return. Given the market rollercoaster over the last month perhaps I should give up making predictions!

On the other hand I was not entirely wrong. Although there was a whiff of panic in the markets, there was no obvious cause. The papers have been full of headlines on Ebola, but the broader geo-political and economic picture seem relatively unchanged. What's more, the FTSE 100 correction from peak to trough was barely 10% before it staged a 3% recovery last week. I am sure that many sellers have asked themselves what they should do now with their new found cash and decided to buy back in. This market blip seems to be just one of those things that happens from time to time.

With this dip in the market I made the decision to go all in with this year's Stocks and Shares ISA allowance, so I had a  busy time this week topping up my portfolio. I am now 80% in equities, which is as far as I want to go until the next lurch downwards.

Portfolio Update

The Mechnical Bull portfolio held up pretty well during this correction (See chart below). Indeed it is already back at the level it was a month ago. Cohort (CHRT) has provided the strongest support for the portfolio over the past month increasing 20% followed by Pace (PIC) which has bounced back 12% following an extended decline.

There was a change in the MB porfolio on 17 October. The MB score for Harvey Nash (HVN) dropped below 80 and so was sold at 88p for a small profit of 3.4%. This was disappointing given that the share price touched 125p in May. It was replaced by Cenkos (CNKS) which was scoring 104. Despite a Momentum score of 96, Cenkos is down 20% over the month.

What Works on Wall Street

I have been reading James O'Shaugnessy's classic, "What Works on Wall St". I am already familiar with his ideas, but this is the first time I've gone directly to the source. In terms of his broad philosophy he is preaching to the converted although there a couple of things that he mentions that have given me pause for thought, particularly around managing risk.

The overarching message of O'Shaugnessy's book is  the importance of looking at what works over long time periods (i.e. over 50 years). Its good to be reminded of this when short-term events, like this months market dip consume our attention.

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