Epiphany Investing

Searching Out the Optimal Portfolio of “Revelation” Stocks

A Note on Investment Strategy for the Secular Trends Portfolio

Posted on | October 15, 2008 Time: 8:46 pm |

It has yet to be determined whether starting the Secular Trends Portfolio in September of 2008 was a unique blessing or a painful curse. From the outset I decided to create a long-only, all equity portfolio, and this is simply not environment for that. Volatility reigns the day for “economically sensitive” stocks, and apparently every equity on the planet has become an economically sensitive stock.

Today’s HeatMap of the S&P 500 tells the story…I count 7 stocks in the green today.

I would love to have some short positions in this market, but I would rather aim for a strong track record against all-equity benchmarks. It’s just the path I’ve chosen to follow. I do make short calls over at the Investopedia Stock Community, and they have helped my statistical performance measurably against my bullish calls.

As to what I would short right now, consumer retailers, consumer tech, and selected media stocks are at the top of the list. I’ve had short calls up on Marriot (MAR), Macy’s (M), DTS (DTSI) and Bed Bath & Beyond (BBBY) over the past few weeks and they’ve outperformed the S&P by about 20%.

Are the Fundamentals the Blade?

Are the Fundamentals the Blade?

That has helped buoy some severe losses on my knife-diving exercises with the agriculture and energy stocks. These long calls on names like Peabody (BTU), Potash (POT), Agrium (AGU), Mosiac (MOS), and Valero (VLO) will likely profit over the 2 year time horizon I originally selected for my calls. As for holdings in the Secular Trends Portfolio, only Potash is held in the ag space and my only consumer-based holdings are defensive names like Safeway (SWY) and Costco (COST), which should both thrive in a “where can I save a few bucks?” economy.

Once the fervor over this earnings season subsides, I think the analyst consensus (slow as it forms) will be to scale back earnings estimates for energy and materials names by 50%, then realize that forward multiples are still below S&P levels, and upgrade the space.

Ryan Barnes

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Category: Agriculture, Grocers, Investing Philosophy, Retail, Sector Study, Secular Trends Portfolio
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