This week represents the largest drawdown in the portfolio
to date. The unlevered portfolio was down 0.4% vs. a drop of 0.3% for the
S&P 500. On a levered basis, we were down roughly 2%.
This is largely a trend following system so the tech sector,
which was previously a market leader prior to Friday’s “tech-wreck” is heavily
represented in the portfolio so we suffered a bit from the sectors
underperformance. Additionally, the retail sector has been quite weak and
constitutes several short positions in the portfolio. With the announcement of
the possible privatization of Nordstrom’s (JWN) all the retail stocks seemed to
gather some wind in their sales on Friday. These two items affected the
portfolio results in the most extreme way. We were partially short JWN into the
announcement so it certainly left a mark in the portfolio.
I made a few adjustments to the tracking pages to help me
better understand the portfolio dynamics. I have changed the average gain and
loss calculations to reflect monetary gain and losses as opposed to percentage
gains and losses.
The percentage gains and losses were not adequately adjusting
for position size and could be misleading and unhelpful in the analysis of the
trades.
One item that I need to correct in the portfolio is the maximum
loss that I’m willing to get stopped out with. I had it set to $5000 per trade
but that was too liberal judging from my average wins to loss metrics. I am
also noticing too, that I’m inclined to get out of a trade earlier than the
$5000 loss as it’s not that difficult to see within a short period of time that
the trade isn’t going to work. For the most part, to keep the integrity of the
experiment in good standing I have been adhering to the $5000 stop loss even
though I’m unhappy with the trade prior to that mark.
I’d like to keep my position sizing the same but reduce the
amount I’m willing to lose per trade. I have altered the position size and stop
loss parameters as follows and started using these parameters on Friday
(6/9/17).
I have lowered my maximum loss allowance to $3000 and to
compensate for position size, I increased sell point to ½ standard deviation of
the past 90 days for each security. I will continue to track the aggregate
portfolio but will also isolate these trades starting Friday and watch for
improvements in the portfolio risk/reward dynamics.
Closed Long Positions
Closed Short Positions
Joseph S. Kalinowski, CFA
Email: joe@squaredconcept.net
Twitter: @jskalinowski
Facebook: https://www.facebook.com/JoeKalinowskiCFA/
Blog: http://squaredconcept.blogspot.com/
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