Nov 27, 2009: PIE vs SPY - Nov 2009 summary

A brief update for Nov 27 2009.

Below is the updated chart of PIE vs SPY for the YTD period till the week ending the day after thanksgiving: Nov 27, 2009.

The chart shows the actual performance of PIE, real trading account in 2009 (YTD) in blue, vs SPY (The SPDR S&P 500 ETF) in red. Samples are weekly samples.

I've been very cautious in the past 4 weeks with a mostly hedged positioning due to the negative divergences that now abound in the markets. This conservative positioning is pretty evident in the reduced volatility. In hindsight, it was somewhat suboptimal as the major indexes charged to new highs in mid November, but very favorable in the past week (The Dubai default scare). In a totally unrelated lapse of judgement, I also made one grave mistake in not following my own rules with one position in November. This mistake has costed me 2% in the past month. Lesson learned, hopefully.

Notes:
  • My outlook now is very short term bullish (for early next week), as the market brushes off the Dubai scare, but longer term bearish. I would take advantage of sharp violent corrections for a quick reversion to the mean, but plan to resume a more defensive posture on any significant spikes next week.
  • PIE is now slightly under 10% above SPY (YTD) while having a much lower volatility.
  • YTD Sharpe ratio of PIE, is 2.92 times better than SPY.
  • PIE has been positive in 34 out of 47 weeks so far (72.3%) this year with not a single down month. This is mostly due to luck: PIE had a few 4-week periods which ended negative, but they just didn't happen to coincide with end-of-month points.
  • With 4.5 more weeks left till the end of the year, PIE is now up slightly over 31% and conservatively positioned.
  • I'm making progress on coding what I believe will be my best model so far. I hope to have a first version running this long weekend. Then I will need some time to test it not just out of sample, but in real time, before I can start following it more mechanically.

Wishing a happy December and holiday season to all readers.

As always, this isn't intended as investment advice. It merely reflects my own thinking and actions at the time of writing. In the immortal words of John Maynard Keynes "When the facts change, I change my mind. What do you do, sir?"

Every investor should make up his own decisions based on his risk tolerance, time-frames, comfort-zones, convictions, and understanding.

Any feedback is welcome.

-- ariel