May Portfolio Updates and Changes for June

Another month has come and gone so lets take a look at how things turned out.

05/31/15 Shares
VTV 372 85.76 31902.72  +1.16%
MTUM 492 71.91 35379.72 3.36%
VWO 720 42.34 30484.80  -3.55%
Cash 21.31 Change Month $ Change Month All Time
97788.55 0.41% 396.36 -2211.45

Essentially the portfolio went nowhere…slightly positive for the month as has been the case all year the market in general went nowhere. (with the exception of the Central bank and government supported Chinese market)  That’s the uncomfortable reality right now….when bad economic news is released and the market senses the inevitable government and central bank support, stocks go higher.  Not exactly the confidence that I would like to have when buying stocks. However, that’s why I always let quantitative nature of this method tell me where and when to invest.  What’s even scarier than that are a few tidbits of information I read this past weekend:

1.  The Dow Jones Transportation Index is now down 11.1% from its high while the S&P index is within 1% of its All-time high.  Is this clear divergence a canary in the coal mine signaling the beginning of a correction?  We haven’t had a market correction in 3 and 1/2 years.  Who is left to buy stocks?  Who wants to be the last buyer when the herd starts selling?

2.   Mergers and Acquisition activity in April was at its highest level in history coming in at $242 Billion.  Here are a few other high water marks:  May 2007 $226 billion and Jan 2000 $213 billion.  We all know what happened in the market shortly after those high water marks.

3.  Corporate stock buybacks have been at an extremely high level as of late and I have heard at times corporations buying back their stock have been 1/3 of the daily volume in the market thus propping up the prices of the stock with their own demand.  When these bids dry up, again, who is left to buy at these lofty valuations?  Another question I have is how much does reducing the outstanding share count help to make earnings per share numbers improve?  The less shares outstanding, the higher the earnings per share even if earning aren’t growing.

Here are a couple of links to learn more about these interesting points:

http://www.investopedia.com/terms/b/buyback.asp

http://fortune.com/2015/02/11/stock-buyback-binge/

http://www.dailyfinance.com/on/wall-street-bull-market-how-long-can-it-last/

http://www.ravfinancial.com/blog/2015/05/22/divergence-in-transportation-index-may-be-a-warning-sign.240

With all these “obvious” signs the market is going to crash, then why would I be buying stocks here?  Because I, and no one else for that matter knows if or when the market is going to crash.  The market could double from here as easily as it could be cut in half and if you are going to follow a quantitative strategy then you must stick with it through thick and thin because if you try to apply your own gut feeling to it then it no longer is a quantitative strategy and its just guessing.

Here are the changes for June:

SELL VTV and VWO and BUY VBR and VBK.  VBR and VBK are both small cap index funds which makes buying them here even scarier but we shall see June 30th what the verdict is!

06/30/15 Shares
VBR 285 109.46 31196.10
MTUM 492 71.91 35379.72 0.00%
VBK 232 134.41 31183.12
Cash 29.61 Change Month $ Change Month All Time
97788.55 0.00% 0.00 -2211.45
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