1/21 newsletter
Samuel brain MRI shows that he suffered a stroke during pregnancy. Please pray for him that he will be able to grow out of it. He has shown a lot of progress in the past few weeks.
*** Market
SP500 retreated 1.5% this week. Dow losed all the gain in 2006. However, the mid/small cap seems quite rescilient to the bear. Technically the selloff has been anticipated. Economically, oil price is testing $70 high again amid tension with Iran. It is a short squeeze on oil bear and a good chance for selloff on the stock side. Some fear that persistently high oil price will eventually slow down the global economy.
My portfolio mirrors the mid-cap, resisting to fall. it is now almost 2% ahead of SP500 for January. Doing quite well. I want to mention DNB. This was a longtime Wall Street star, which spinned off Moody's and Cognizant. Last year, it was basically flat to a point I thought it has losed its growth steam. But it finally broke the $65 barrier in 2006 and roared into $70's. Blackrock (BLK), the premier asset management firm, is also doing very well. The diversification to international stocks seem to work well too. The rationale for international stocks is that when dollar begins to fall, you will gain from currency translation on top of superior growth of the emerging markets.
However, the medical instrument firms are not doing good, despite general belief that the industry will be benefited by demographic trend. COO was stopped out, PDCO slipped 40% from its high. BCR is flat (Amy's Zimmer is also down).
*** Comment
Inspired by hedge fund strategies, I began to look into portfolio correlation and optimization. One reason to study correlation is that the 2000 crash seems to be caused by a group of highly correlated stocks. A highly correlated portfolio is not as diversified as you would like it to be. The algorithm indeed reveals the picture of correlation to a certain degree. From 1996-2000, the portfolio correlation was getting higher and higher. And after 2002, portfolio correlation was reduced to a reasonable degree.
I have not quite figured out how to optimize portfolio automatically. But it seems possible manually. It has been shown possible to have two 100% anti-correlated stocks in a growth portfolio. This portfolio has least volatility and maximum Sharpe ratio. Last week I sold SHFL and bought AET thinking I should get some healthcare stocks. It turns out AET is almost 0% correlated to my current portfolio. It then is a good choice for portfolio optimization... Ideally if you can get a group of non- or anti- correlated stocks, your portfolio will be extremely bear-proof. Maybe I can find such combination! Am I dreaming?
Steve
*** Market
SP500 retreated 1.5% this week. Dow losed all the gain in 2006. However, the mid/small cap seems quite rescilient to the bear. Technically the selloff has been anticipated. Economically, oil price is testing $70 high again amid tension with Iran. It is a short squeeze on oil bear and a good chance for selloff on the stock side. Some fear that persistently high oil price will eventually slow down the global economy.
My portfolio mirrors the mid-cap, resisting to fall. it is now almost 2% ahead of SP500 for January. Doing quite well. I want to mention DNB. This was a longtime Wall Street star, which spinned off Moody's and Cognizant. Last year, it was basically flat to a point I thought it has losed its growth steam. But it finally broke the $65 barrier in 2006 and roared into $70's. Blackrock (BLK), the premier asset management firm, is also doing very well. The diversification to international stocks seem to work well too. The rationale for international stocks is that when dollar begins to fall, you will gain from currency translation on top of superior growth of the emerging markets.
However, the medical instrument firms are not doing good, despite general belief that the industry will be benefited by demographic trend. COO was stopped out, PDCO slipped 40% from its high. BCR is flat (Amy's Zimmer is also down).
*** Comment
Inspired by hedge fund strategies, I began to look into portfolio correlation and optimization. One reason to study correlation is that the 2000 crash seems to be caused by a group of highly correlated stocks. A highly correlated portfolio is not as diversified as you would like it to be. The algorithm indeed reveals the picture of correlation to a certain degree. From 1996-2000, the portfolio correlation was getting higher and higher. And after 2002, portfolio correlation was reduced to a reasonable degree.
I have not quite figured out how to optimize portfolio automatically. But it seems possible manually. It has been shown possible to have two 100% anti-correlated stocks in a growth portfolio. This portfolio has least volatility and maximum Sharpe ratio. Last week I sold SHFL and bought AET thinking I should get some healthcare stocks. It turns out AET is almost 0% correlated to my current portfolio. It then is a good choice for portfolio optimization... Ideally if you can get a group of non- or anti- correlated stocks, your portfolio will be extremely bear-proof. Maybe I can find such combination! Am I dreaming?
Steve
posted by Steve at 12:34 PM
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