Portfolio Update

Is the equity market back on firmer footing?

I disclosed having bought the Cambria Tail Risk ETF (TAIL) on October 22nd for clients upon the S&P 500 having closed below its 200 day moving average (DMA) for a second consecutive day. Today was the second day that the S&P 500 closed back above its 200 DMA so late in the day I sold TAIL. It was a loss of $0.55/share which I would say is very cheap insurance.

We still have AGFiQ U.S. Market Neutral Anti-Beta Fund (BTAL) and the Pacer Trendpilot Large Cap ETF (PTLC) which will probably still be in defensive mode for a few more days. As I always say, there is no way to know whether a given breach by the S&P 500 of its 200 DMA will be serious or not which is why I start taking defensive action slowly. Bear markets have the historical tendency to start slowly, giving plenty of time to get out. I don't believe in literally getting all out but adding a few of the things we have been talking about since 2004 here (inverse funds and the right type of alternatives) combined with just a few sales can be effective in avoiding the full brunt of the ultimate decline.

BTAL has generally been rising in all markets lately due to what I believe the fund capturing a rotation out of higher beta names even as the market goes up. PTLC will have only been defensive for a couple of weeks assuming the SPX stays above the 200 DMA.

If the market's deterioration had continued I believe I'd have bought a true inverse fund before selling anything (TAIL uses put options) and eventually would have sold a few holdings. The goal with crucial turning points is to not get whipsawed because a turning point might turn out not to be crucial. It is too early to know whether this current one is a big deal or not and I am not worried about trying to guess because more important than anything else is sticking to my investment process.

I was happy with how TAIL acted and would prefer to use it again as a next step instead of an inverse fund so long as the next breach clears the time needed to avoid wash sale problems.

Every aspect of investing becomes easier when you can ditch emotion and/or second guessing and fallback on an investment process that you have a reasonable basis to believe can do what you hope it will do. In my case I simply want avoid the full brunt of any large declines that come along.

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