Consolidating Your Recent Gains

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

It was the lousiest week for both U.S. and global stock markets in many months. The Dow Jones was down 0.97% and the S&P 500 tumbled 2.22%. The MCSI Emerging Markets Index fell 2.59%. Over the past week, risk appetite has soured following an election stalemate in Italy and anxiety over the U.S. “sequester” spending cuts that kick in on March 1.

As a result, you were stopped out of two of your positions — homebuilder Lennar Inc. (LEN) and iShares MSCI Mexico Capped Investible Mkt (EWW) — for gains of 22.92% and 11.5%, respectively. I am putting these positions on the watch list for re-entry later.

Vanguard Global ex-U.S. Real Estate Index Fund (VNQI) also dropped below its 50-day moving average and moved to a HOLD.

I also am tightening your stop on PowerShares Global Listed Private Equity Portfolio ETF (PSP) to $10.84, which locks in a 23.66% gain, including dividends. Also, raise your stop in S&P Global Timber & Forestry Index Fund (WOOD) to $44.25.

With the global markets pulling back in the past two weeks, this week is all about protecting your hard-earned gains. I have been recommending that you pare back your exposure to markets and to lock in your gains by raising your stops for several weeks now.

After a rip roaring January, it has been a disappointing month for stock markets across the world. As of the market close yesterday, only a handful of the 37 global markets I monitor on a daily basis — Israel, Thailand, Indonesia, Sweden, Japan and the United States — are up in the month of February. Note that your current Alpha Investor Letter portfolio is weighted heavily both in the U.S. markets and in Japan, with Indonesia on your watch list. So, you have been quite well positioned so far.

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That said, with the sequester arriving on Friday, I’m somewhat surprised the market reaction has been as restrained as it has been. Despite the recent spike in volatility, the market strikes me as quite complacent.

In any case, having locked in some recent big gains in your Alpha Investor Letter portfolio, and raising your stops on some of your current big gainers, you are well positioned to ride out any approaching market storm.

Portfolio Update

Berkshire Hathaway (BRK-B) gave back 2.28% for the week, but managed to hit a new 52-week high before then. Berkshire Hathaway has put more than $83 billion to work in new investments in just the past five years. This includes substantial deals such as the recent Heinz acquisition for $13 billion, the purchase of Burlington Northern in 2009 for $26 billion, and the 2011 acquisition of a large stake in IBM for $10.7 billion. This growth poses a challenge for Buffett, since the larger a corporation becomes, the harder it is to move the needle on growth. BRK-B is a BUY.

Visa Inc. (V) closed the week flat. Visa and J.P. Morgan Chase & Co. are expanding their partnership to include a new processing service for J.P. Morgan Chase’s Visa card transactions. This move will allow J.P. Morgan to negotiate its fees directly with its merchants, as well as bring increased transaction volumes to Visa. Moving right along its 50-day moving average, V is a BUY.

WisdomTree Japan SmallCap Dividend ETF (DFJ) gained 1.83% last week. DFJ’s chart is starting to show some real signs of life, as the Bank of Japan’s efforts at economic stimulus start to take effect. DFJ finally managed to hit the mighty $45 resistance level — a price DFJ has not seen since nearly one year ago. DFJ is a BUY.

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PowerShares Global Listed Private Equity Portfolio ETF (PSP) gave back last week’s gain, dipping 2.30%. Although PSP is a “private equity” exchange-traded fund (ETF), its heavy weighting in financials occasionally makes it appear in a “Financials Top Ten” list. In fact, PSP’s 10.5% year-to-date 2013 gain makes it the number one financial sector ETF for 2013 on the Sabrient SectorCast ETF Rankings leader board. PSP is a BUY.

Vanguard Global ex-U.S. Real Estate Index Fund (VNQI) dipped 1.24% last week. VNQI continued its sideway move last week, even as domestic real estate ticked lower. However, the resurgence in real estate is a long-term winner. Fed Chairman Ben Bernanke recently highlighted the 4.5-year high in sales of new homes. VNQI fell below its 50-day moving average and is now a HOLD.

S&P Global Timber & Forestry Index Fund (WOOD) hit a 52-week high early last week, but closed the week down 1.30%. Although WOOD may retrace a bit of ground due to the general cooling-off in housing stocks, the global demand for lumber is very unlikely to dip at any point in the near or long-term future. Holding its 50-day moving average, WOOD is a BUY.

Two Harbors (TWO) also managed a new 52-week high last week, but then gave back 3.91%. In a testament to the art of “buying on the dips,” TWO’s vice president disclosed a sizeable insider purchase of shares last week, as did the company’s chief executive officer. As the old saying goes, “Insiders sell for many reasons, but they buy for only one.” TWO remains a BUY.

Wisdom Tree Japan Hedged Equity (DXJ) dipped 0.88%, thanks largely to a bounce in the otherwise steadily depreciating Japanese yen. With Prime Minister Abe appointing a “liberal” head of the Bank of Japan, you can expect the depreciation of the yen and the rally in the Japanese stock market to continue. DXJ is a BUY.

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