Rally In Remission?

THE ENLIGHTENED-AMERICAN PORTFOLIO SPREADSHEET

  • Enlightened-American Portfolio: -1.2% through May, 2010 (my actual IRR, including cash balance)
  • DJIA: -6.3%
  • Nasdaq: -7.0%
  • S&P 500: -7.6%
  • DJ Wilshire 5000: -6.5%
  • Russell 2000 (smallcap): -3.9%

Even as our portfolio drifts into negative territory, our performance gap relative to all the major indices widens this month. And while relative performance is small consolation for losing money, we must be realistic about investment objectives. Achieving absolute returns is nearly impossible with a long-only, retail investment strategy (i.e. stocks, bonds, no esoteric asset classes). As Buffett so often stated during his hedge fund days, our aim must be to lose less than the market during these downturns and so far, so good.

Yet even with the market at 2010 lows, there remains a paucity of cheap, attractive investment opportunities.  Other than an energy services company detailed for EA-Premium members, I am struggling to find situations worthy of substantial capital investment. Several stocks remain on the cusp for serious consideration but are not yet screaming buys.

My post title, “Rally In Remission”, assumes too much. Unlike many market pundits, I am not convinced the awesome rally begun in March 2009 was not itself a remission from a larger, secular and still-present bear market. If so, it is possible the remission rally is over and another market downturn is now ready to resume. While my investment strategy is not predicated on being able to spot and call market upswings/downturns, our cash holding is nevertheless well over 40% and positions us well should we head lower.

As always, I cannot condone deferring investment on fears of further market drops. If value presents itself, we must buy with full awareness that prices could go still lower. Thus, it is important to build our positions in stages, giving us room to average down and take advantage of future lower prices.

[This post is excerpted from the latest Enlightened-American Premium portfolio update.]

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