My marketocracy funds continue to beat the market…My long-only fund is up nearly 32% since inception (August 2001, a rather inauspicious start time), compared to the S&P500’s nearly 18% loss. My short-only fund is up 43% since inception (January 2005) compared to the S&P’s 21% loss, with limited shorting (overall, a 8.25% annualized return since 2001 if invested in both).
I continue to find value in the market, with consumer discretionary stocks and industrials looking promising for the next up cycle. Many consumer stocks are literally pricing in Armageddon, while industrials will benefit from lower raw material costs (and many brand-names are screaming bargains). I would continue to hedge with shorts focusing on technology (in the wrong part of the upgrade cycle), basic materials (pricing power is now gone) and most likely some select consumer staples (many are overpriced from too many people piling in).
I would also recommend some “Armageddon” put protection as the volatility is simply crazy. Buying some way out-of-the money puts is a way to sleep a little more soundly while not losing much upside in case of a rally.
I’ve added a Google document for some stocks and my target prices for entry. You’ll notice several stocks are under my target price. I think that taking my target price and looking for a solid-to-steep discount (10-20%) is the way to think about that list. My target prices are derived from several valuation metrics (dividend discount, free cash flow, free cash flow with margin etc contraction) and represent a pretty “fair value”–but we’re looking for bargains, not just fair value.
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