FOLLOWERS of this column would have noticed that my portfolio has been quite quiet in recent days. I would like to share some of the reasons why.
This portfolio only buys stocks that are highlighted by Stocks with Momentum on The Edge Markets, which are in turn, picked out by a mathematical algorithm based on volume build up and rising stock price trend over periods of time.
Thus, it is to be expected that the algorithm will pick far fewer stocks when the broader market is trending down, as is the case currently.
This also means that the algorithm is a pretty good leading indicator of market direction. Indeed, its notably slim pickings over the past few weeks is the reason why I have sold most of my stock holdings. Right now, I am only 36% invested in two stocks. The balance is in cash.
Importantly, my portfolio continues to outperform the FBM KLCI, by 9.2%, and is registering an annualised return of 5.1% since inception, on 8 July 2014.
Going forward, as and when the algorithm starts picking out more stocks, it should be a positive signal for the broader market.
The FBM KLCI index dropped another 27.82 points yesterday to close at 1,758.15. The benchmark index is now flirting dangerously close to its lowest close for the year. Market breadth was negative with losers outnumbering gainers by 3.4 to 1.
This article first appeared in The Edge Financial Daily, on December 4, 2014.