You can see that we like to let the winners run and cut the losers short. Over time, this approach has potential to pay off handsomely while doing everything possible to mitigate large pullbacks (risk) in the portfolios. We don't pretend to know everything or always be right, but when you limit the losses when you are wrong and maximize the gains while you are right, the long term tends to turn out well.
Please note the percentages listed vary based upon your risk classification, but this gives you an idea how we attempt to mitigate risk without limiting gain.
The following chart depicts how we are protecting your portfolio while, at the same time, trying not to limit potential gains. A majority of the activity in our accounts will surround the pivotal areas of the market. We take new positions when we aren't far from a support level where we know we have the least amount of risk. When we are right and we get further confirmation of a new positive cycle, we will add to our positions. If the market decides to go the other direction, we know exactly where we will get out and save the portfolio values.
S&P 500 (IVV etf)
We can begin on the left side of the chart. Although Don wasn't officially the CIO yet, he suggested I take a position on Dec. 8th of last year after a brief market consolidation.
- You can see this initial position had a nice run and had gained over 9% before sold in this last consolidation.
- Once the market corrected about 2.5% we scaled in with another position, knowing there was a support level near by where we could sell if this consolidation was really the beginning of a larger correction.
- Scaled in again at 133.64 since the correction started showing signs of a short life with prospects of more gains.
- Immediately the next day, March 7th, indicators turned negative and began pointing to a possible deeper correction, so we began scaling out at 131.40.
- Confirmation of further deepening of the correction so we scaled out again at 130.73 on the 10th.
- Expecting further decrease in the market, sold the balance of the S&P500 position on the 11th at 130.98.
By doing this we missed a 4.5% decrease in the market over the next few days.
New support levels developed at this point. Remember support levels are areas we can buy in the event the market begins going up while at the same time we know exactly where we will get out if things go wrong. These support levels create excellent potential for a small amount of risk.
- 7 We purchased a 39% position at 127.51. Gives a 6% return if the market simply returns to it's high 2 weeks earlier.
- 8 Short term expectation decreased so we lightened the position by selling 20% which represented about half of our position.
- 9 Immediate market improvements occurred so we increased positions by adding a 32% position so the total portfolio is now about half S&P 500.
