My Equity Stategy In 2008

I haven't posted about the performance of my equity portfolio strategy since this piece on July 1st of last year. I wrote,

"I am very, very sorry to note that my proprietary equity allocation signal has finally gone to "short" for the first time since 2001.

Believe it or not, even January's rollercoaster ride and March's collapse didn't trigger it. Almost, but the April bounce lifted the S&P just enough to keep us long for a while.

June's S&P return of at best -9%, on first glance using a simple Yahoo-sourced price difference, is the worst in ages, and sends my proprietary market turbulence/allocation signal firmly into short/put territory."

And there it has remained ever since.

The equity strategy racked up a 5% gross loss for the first half. However, by going short with a theoretical 50% of assets for the next six months, it earned 18% in the second half. Netting the two halves resulted in what would have been a +13% gross return for the full year.

I don't even have my own money in the equity strategy now, since the optionized version that my partner and I use is far more profitable. But I still run the underlying equity model to assure the validity of the tool that underpins the options approach derived from it.

Thanks to the risk management tools which I built in the midst of the 2000 equity market crash, the equity portfolio was correctly positioned for this past fall's carnage. While the short portfolio had as much as a 48% return at its peak, it of course gave back some profit as the S&P climbed some 23% from its late November bottom.

For now, my allocation signals still indicate a short position in equities for quite a few more months.

In the worst year for S&P equities on record, it's gratifying to know that, if I had managed just equities with my strategy, it would have not only outperformed the S&P500, but actually had a positive return when many well-known funds lost heavily.