It's hard to believe, but somehow the first half of 2018 is history. And the road to the S&P 500's 4.9% return this year has been filled with twists, turns and potholes.
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But despite the wild ride so far, my Maximum Profit subscribers and I have been able to find success in this market. To be sure, we've had some losers, but thanks to our time-tested, proven sell signals (an important part of any investment system that too many investors often ignore) we've been able to keep the red ink to a relative minimum.
As we wrap up the first half of 2018 and head into the depths of summer, it's important to take a step back and review your portfolio. Look at what's gone right, and what's gone wrong. More important, are you still hanging onto losers in your portfolio that you shouldn't be? Are you still allocated the way you want to be allocated?
I recently did this with my followers over at Maximum Profit, and I firmly believe it was worth the effort. (More on that in a moment...)
Thanks to the MP Score, we have a powerful, proven investment system in our corner. The beauty of it is that the system takes the emotion out of investing. It doesn't pass judgment on what politicians or the financial media are preaching. Its job is to find stocks that are poised to rally (or fizzle out) in the short term. It gives us clear signals on when to buy and sell.
And by "short term," I should note that the average holding period for the stocks in my portfolio is about six months. We're not day-traders over at Maximum Profit. We have absolutely no interest in staying glued to our computer screens, reading complex charts like one would read tea leaves or pig entrails, or any other sort of voodoo that other traders might claim finds winning stock picks.
Instead, the MP Score is based on a combination of two extremely profitable indicators (one technical, one fundamental) that have been rigorously studied in academic environments and proven with real-world results. (For more detailed information, I have a report -- The Maximum Profit Advisor's Guide -- available to anyone who signs up for a risk-free trial to our service.)
But while having a system is good, it's worth nothing if you aren't willing to examine your own performance. So with this in mind, I'm going to open the books and show you how my followers and I have performed so far this year. No holds barred. And unlike most analysts who only tout their successes, we're going to start with what went wrong.
Our Biggest Loser... And A Bunch Of Big Wins
Our biggest loser was back in January when we closed out of small communications equipment firm Aerohive Networks (Nasdaq: HIVE). On January 17, the company made a statement about its upcoming fourth-quarter earnings release, warning that revenue would likely be near the lower end of its guidance range. Investors didn't take kindly to the news and sent shares tumbling by roughly 30%... well below our 15% trailing stop-loss. We ended up closing out with a 35% loss on the trade.
As much as it hurts to close out a trade for a loss, it's nearly mandatory in order to be successful at investing. Had you continued to hold onto Aerohive Networks hoping for it to rebound and get back to even... well, six months later you'd still be waiting. Shares haven't budged from those January lows.
So while we took a punch to the stomach on this one, let me be clear... The MP Score gave us a clear sell signal on this one. That's good. Studies show that most individual investors hold on to losing picks for far too long. And that holding period is what eats into long-term returns more than anything.
Outside of Aerohive, any other losers that we cut from the portfolio have been around 15% or less. In fact, our average loss is 11%, including the Aerohive hit, compared with our average winner of more than 35%, including two triple-digit winners.
Here's a list of a handful of notable winners that we've closed out in 2018 (so far):
At the end of the day, I'm quite pleased with how we've done so far this year. And this list doesn't include the winning positions that we currently hold in the Maximum Profit portfolio.
I can't reveal those picks out of fairness to my subscribers, but our defense contractor pick is up 55% compared with the S&P 500's 13% return over the same period. The system also identified an online craft retailer you (or maybe your spouse) might know, which is up 54% in three quick months, or 208% annualized. Then there's the cloud-based creative software giant, which has garnered a nice 87% return, trouncing the market's 15% return over the same period.
I should note that the MP Score system has nudged us out of equities and more into cash. Between all of our portfolios we can hold roughly 30 stocks (10 in the main portfolio, and five in each of the sub-portfolios).
Coming off the incredible 2017 and heading into the New Year we were more or less fully invested in the market. Twenty-seven of our 30 spots were filled going into the first week of 2018. However, as the tide began to shift, the MP Score moved us more toward cash. I've noted in recent articles that I think the market is at a critical inflection point. The next few weeks will prove critical to determining whether the market will keep marching higher from here, or whether the bottom will fall out.
Either way, take a little advice from me...
Before you fire up the grill or head to the lake this weekend, do a quick check on your portfolio. Make sure you're allocated according to your risk tolerance. If you're sitting on some nice gains, think about taking some money off the table. Double-check that you're investing thesis continues to hold true.
Regardless of what happens, I feel confident about where my subscribers and I are at. Not only do we have the MP Score working for us, which has helped us weather this recent volatility by lowering our equity exposure (roughly 43% cash, 57% stocks), but it will also be a calming guide to get us out of stocks should the market turn south, or continue finding winning stocks should it march on to new heights.