But as we noted in this Don't Celebrate Quite Yet post, there is more high stakes drama to play out in Washington over the next few months with number one being a call on increasing the debt ceiling level. As we have noted, we see this debate just as cantankerous as the fiscal cliff deal. Republicans battered and bruised from cliff talks are certainly not going to cave in on this issue. While on the other hand, the President has already stated that he is not negotiating this issue.
All of this leads to uncertainty within the markets which as we all know does not usually lead to positive returns. While the markets may have brushed off the worries for now, new ones are just over the horizon.
But with that said let's take a look at how we finished up 2012.
We posted a return of 21.7% here at DWCM with the portfolio that we manage on Investopedia. This return beat all four major equity benchmarks that we track to which include the Dow Jones Industrial Average, S&P 500, NASDAQ, and Russell 2000. You can see from the chart below that we beat the DJIA by almost 3 times and the other benchmarks by almost 1.5 times.
You will also see in the chart above our under performance in Q4 vs. the benchmark indices. This was largely due to the poor performance of our largest holding Apple AAPL. After hitting its all time high of slightly over $700 per share back in the fall, the stock has been in somewhat of a free fall down almost 22% over the past 4 months.
We still believe that in the long run, Apple is a stock worth owning. It has great fundamentals although the technical indicators are a bit troublesome at this point. Any break below the $500 level would be quite alarming so what this mark quite closely.
We are poised to continue riding this rally out to see how things begin to develop over the next few months. We are certainly not going to go out and chase performance. And while this may hurt short-term performance when compared against the major indices if this rally continues, then so be it. Our first goal is always to preserve capital which we see as the prudent thing to do right now. We always have our watchlist handy if and when prices come down to levels that we see as attractive entry points or to build upon current positions.
A defensive type of strategy never reveals its true purpose until the crisis has shown itself. This is evident in our DWCM Fund performance this first week in January. Sitting on as much cash as we currently are and holding relatively a high portion of conservative positions, when the market takes off we aren't likely to participate in the festivities. But when the music stops we are in a much better position to preserve capital and live to hear another song.
The Week Ahead
This week is relatively light with economic data especially compared to last week's heavy load with the release of the jobs report on Friday that basically came in as expected. It is unclear to us how long it will take before the debate heats up in Washington over the debt limit. If things are quiet, this rally could continue to run in the short-term through January and possibly into February.
- Mon - N/A
- Tue - NFIB Small Business Optimism Index
- Wed - N/A
- Thu - Jobless Claims
- Fri - Import and Export Prices
Have a great week!
DreamWorks Capital Management
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