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Biderman’s Market Picks model portfolio lost .8% last week and is now down 1.7% since we began at the end of this past May. That compares with last week’s gain in the S&P 500 of 0.2% and 7.8% since the end of May. Our underperformance is obviously due to our short positions, which in aggregate are down between 10% and 15% since May.
However, at some point gravity has to take stock prices much lower and the fact that we are only down less then 2% is not all that terrible to me. Looking back in time, I have mostly been early ahead of major moves. For example, I first turned bearish early in February 2000 and was quite frustrated until the market started to break down in April that year. As to bullish calls, I turned bullish during the summer of 2002 – when withheld income an employments taxes and corporate buying pointed towards an improving economy – and the market did not really take off until the day after the Iraq war started in March 2003. But then again I was dead-on calling the October 2007 market top, which call was based upon a surge in corporate selling as well as a significant drop in withholding.
As this is being written, the mess in Europe is in focus and now it is becoming more apparent to most that even Germany and Austria are growing negatively. Add to the slowing economies there being an increase in political instability in Italy and Spain. That should help our short positions in European stocks, (EFZ) and the Euro (EUO) and even the big banks short (SEF). On the other hand, the bullish news from China could hurt our Emerging Market short, (EUM) although I do not believe any of the economic data reported by the Chinese government.
Apple was obviously weak last week – down 9% — and, although the model portfolio’s holding have been reduced by half, AAPL still accounts for 3.5% of the model portfolio. Regardless, I will buy a bit more Apple at the end of this year after all the tax based selling ends. The tax selling in Apple and the other fast growing techs is not due to those stocks being down year to date, but because those stocks are still up a lot. How many of you know that Apple, even after the recent drop from 700, is still up over 30% since year-end? That was why I recommended reducing our tech holdings when Obama – the taxman – was reelected and the stock was still 10% higher.
Gold has also been weak recently, and in my opinion for the same reason as Apple. That is even after the recent price decline gold is still up over 10% year to date. I will also be adding to the model portfolio’s gold holding after the tax selling season ends at the end of December.
Remember, for those of you who are investing and have a five year + time horizon, I still recommend dollar cost averaging into TrimTabs Float Shrink ETF, TTFS. The reason, even though stock prices are likely to drop over the medium and longer term, when the US, European and Japanese governments addiction to spending is forcibly ended, the underlying global economy will still be incredible robust. TTFS invests in companies shrinking the number of shares outstanding with the share purchase being funded solely from free cash flow. The benefit of dollar cost averaging is that you buy at the lows so when the recovery does occur, your average cost will obviously be much lower. For the record, I am the portfolio manager of TTFS as well as CEO of TTAM, the fund’s sub advisor.
President & CEO, TrimTabs Investment Research
Portfolio Manager, TrimTabs Float Shrink ETF (TTFS)
Biderman’s Market Picks (“BMP”) is a newsletter offered by TrimTabs Investment Research (“TTIR”). TTIR is not an investment adviser. Charles Biderman is the CEO of TTIR and the sole source of trading ideas and portfolio holdings of BMP. He offers his general market opinions as well as some of his own investment ideas and information on his actual personal investments. Mr. Biderman does not intend to, and has no obligation, to disclose his entire portfolio in BMP, or the performance of his portfolio.This arrangement may result in several potential conflicts of interest.TTIR also provides investment research to institutional investors on supply and demand for shares of stock, and data on money flows as well as economic trends. Some of the information in BMP will be available to other TTIR customers before BMP is published each week.
Mr. Biderman is also the CEO and portfolio manager of TrimTabs Asset Management (“TTAM”), a registered investment adviser and the sub-adviser to the TrimTabs Float Shrink ETF (“TTFS”). TTIR and TTAM are therefore under common control, and they share certain employees, but TTAM does not use TTIR data and research.
As the portfolio manager of TTFS Mr. Biderman personally makes portfolio decisions for the 100 portfolio holdings of TTFS, based upon a customized TTAM formula of float reduction, free cash flow generation, and leverage reduction, rather than fundamental analysis of a company’s shares. To mitigate any conflicts of interests, BMP will not include any stocks included in the TTFS portfolio. However, this means that users of BMP will not have the benefit of Mr. Biderman’s views on companies that are included in the TTFS portfolio.
While BMP may include suggestions for investment in specific securities, including TTFS, Mr. Charles Biderman may trade in any position held by the model portfolio in his personal and family accounts at any time. He may make recommendations for the model portfolio after or before purchasing or and selling the same positions from his personal and family accounts. Charles Biderman’s personal accounts differ in size and composition from the model portfolio.
The model portfolio will consist of ETFs, both leveraged and unleveraged, and liquid stocks.
The model portfolio assumes a starting date of May 29, 2012, of $100,000 in cash invested in securities at that day’s closing price. All future transactions are assumed to occur at the closing price. The model does not include deductions for advisory, brokerage, custody or other fees and expenses which typically apply to an actual portfolio. Such fees and expenses will reduce returns, and they will have a compounded negative effect on a portfolio’s performance over time. The performance of the model will be affected by market and economic events in addition to the investment and trading decisions of Charles Biderman. The model’s performance is not indicative of future results.