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Non-correlated portfolios?


DTEJD1997
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Hey all:

 

As time progresses, I am noticing that my portfolios, especially my IRA, have very little market correlation.  On days where the day is up 200+ points, I may be up only marginally.  On days the market is DOWN I may be up tremendously. 

 

That is not to say that I have a negative correlation, but it seems that the companies I am investing in, have little a mind of their own and move in their own direction.

 

A lot of the companies I am invested in are small and micro-caps.  They seem to be more event driven than market driven.  Their price is determined by earnings, dividends (and their initiation, increase, etc), and buyout rumors/news.

 

The result is that these smaller companies are more akin to investing in a partnership than the market as a whole. 

 

Of course, if the market were to go back down 45%, I am sure my positions would take a hit.

 

It is NICE when the market is down 150 points and I can tell my associates I was UP nicely for the day...but it is FRUSTRATING when my associates are giddy with a 200+ point move in the DOW and I'm unchanged...

 

Anybody else experiencing something like this?

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I see a similar thing with my portfolio and agree with your sentiments but frankly it's just a huge distraction to look at the daily performance of your holdings (and especially the daily performance of the market). Just focus on the underlying value and your thesis. But yeah, that's sometimes easier said than done. Unfortunately (?) that's human nature.

 

For some reason this reminds me of the 'What are you buying topic'.  It always seems to me that when the market trends up nobody is posting there, but when the market is 10% up and there is one bad day there suddenly is a flurry of activity. We start hoarding stocks even though we would've been far better off buying them before the market was up 10%. Value investor instincts :)

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It is dangerous to think about your market correlation this way.  I own a ton of stocks that are uncorrelated on a day-to-day basis...literally betas that would measure 0.  However, it is more appropriate to think about what would happen if the market dropped 50% with a repeat of 2008-09...everything becomes much more correlated in a flight to liquidity and quality. 

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It is dangerous to think about your market correlation this way.  I own a ton of stocks that are uncorrelated on a day-to-day basis...literally betas that would measure 0.  However, it is more appropriate to think about what would happen if the market dropped 50% with a repeat of 2008-09...everything becomes much more correlated in a flight to liquidity and quality.

 

I agree. I move in step with the market, but know the crap I hold will get killed and fall harder on a massive correction.

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