roi note Jan 2019 small and mid cap
The Russell 2000 small-cap (RUT) and S&P400 mid-cap (MID) indices had a major correction in late 2018 falling about 25% and giving back most of the gains that were generated since the presidential election in Nov 2016. Because of the severe technical damage done to these indexes, we paused for 12 weeks patiently waiting for our watch list of high quality small and mid-cap stocks to start providing entry triggers. Because we follow strict exit rules, just prior to the correction that started on Oct 10, 2018, exits were rapidly triggering in our portfolio that closed most long positions and moved us to the sidelines in cash. Our strict exit rules allowed us to close out 2018 with a +25.6% gain, versus a -12.2% loss for the Russell 2000 Index benchmark.
On Jan 17, 2019 we started to get some entry triggers, which allowed us to start adding positions back into the portfolio. It’s never wise to guess/predict the bottom of a falling stock or index, which we say “trying to catch a falling knife”. Our philosophy is that it’s best to wait for the market to stabilize, and then patiently wait for high probability technical setups to form before moving back into long positions. As of Jan 31, 2019 the portfolio is back up to a full allocation with high quality stocks that have excellent earnings growth along with high probability chart patterns and statistical strength via quantitative analysis.