Friday, October 14, 2011

Investment Report - October 2011: Opportunistic Levered

The best thing about the 3rd quarter is that it finally ended. The global growth stocks in this model were absolutely crushed while large cap dividend stocks held up much better than in 2008. This led the model to seriously underperform the benchmark.

The good news is that many stocks in the model such as Alpha Natural Resources (ANR), Foster Wheeler (FWLT), Hartford Financial (HIG), and Terex (TEX) reached levels similar and as attractive as the 2009 lows. Considering most of the companies have seen little to no impact from the financial crisis in Europe, the sell off was unwarranted.

The bad news is that risk still remains that the European Union will be unable to solve the crisis before it implodes or that China's economy might have a much feared hard landing. A good chance exists that the market has already priced in either outcomes. Being that the model remains highly leveraged in order to take advantage of the cheap valuations, the risk of more downside can not be ignored.

In summary, it has been a very disappointing few months to see equity prices implode after so much progress had been made in the recovery off the 2009 lows. For investors not in the market yet, this provides an opportunity to enter at more compelling prices. Indications exist, that the substantial declines were more from a panic of a repeat of 2008, than the reality. Many indicators reached 2008/09 inflection levels suggesting the panic might of run its course by the end of September.

The model remains committed to taking advantage of the opportunities presented.


Disclosure: Long ANR, FWLT, HIG, TEX. Please review the disclaimer page for more details. 




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