The big story for Portfolio A1 is the recent drawdown, which is now registering a peak to trough drop of 29.7%, approximately triple that of the S&P 500 index benchmark. Since its inception (2/16/07), Portfolio A1 is now down 18.2%, vs. a 0.7% drop for the S&P 500.
Clearly, this has not been the place to have your money during the liquidity crisis – and the performance of this portfolio has given me a fair amount to think about. First of all, I usually have target drawdowns beyond which a portfolio or trading system automatically gets consigned to the trash heap. As I am an aggressive investor, the drawdown threshold usually falls in the 30-40% range. With Portfolio A1 now hugging the 30% drawdown line, I am tempted to shut it down. The question, however, becomes what to replace it with or whether to even bother with this portfolio feature on my blog. Here is my thinking at the moment: I will keep Portfolio A1 up and running until 1/1/08 or it reaches a 40% drawdown, whichever comes first.
Starting 1/1/08, I will unveil a new portfolio that is a hybrid between an automated system like Portfolio A1 and a discretionary system. As a result, it will incorporate more of my contemporaneous thinking about the markets and about individual stocks. It should also be a portfolio for which I feel greater ownership and accountability.
I toyed with a bunch of other ideas about what to do with this space on the weekend, but I kept coming back to my desire to highlight a specific portfolio and specific stocks. I look forward to the transition and hope that in the remaining 4 1/3 months, Portfolio A1 can regain some respectability.
Note that Portfolio A1 has finally decided to drop former high fliers Terex (TEX) and Southern Copper (PCU), replacing them with two companies with a strong agriculture component: Mosaic (MOS), a fertilizer company; and CNH Global (CNH) a Dutch manufacturer of agricultural and construction equipment.
A snapshot of the portfolio is as follows: