Robert Drach's "Basic Timing" Model Portfolio

Bob Drach publishes his daily commentary and display portfolio to illustrate the "market timing" method of investing. (To learn more about Bob Drach, read this short biography.)

Drach's Daily Commentary

July 24, 2008

Basic Timing

Daily commentary, current portfolio structure and history follow.

Please direct questions and comments to:
Drach Market Research
2910 Kerry Forest Parkway D4-210
Tallahassee FL 32309
Tel.: (850) 576-2680
E-Mail: DrachMkt@aol.com

Model Portfolio Changes: None.

Major movements (+ or - one point or more among holdings): America International Group -2.67, Cathay Bancorp -1.09, Centex -2.56, DR Horton -1.73, Danaher -1.15, Family Dollar -1.08, First Horizon National -1.21, Home Depot -1.01, Harley Davidson -2.32, JP Morgan -2.82, Pulte Homes -1.78, Park National -4.11, TCF Financial -1.32.

No way to escapes an extremely ugly session for the most popular averages (Dow Industrial -283.10, S&P 500 -29.65, Nasdaq Composite -45.77) this portfolio model and broadly based measures (the number of declining issues on the New York Stock Exchange outnumbered those advancing almost 4:1).

There was no shortage of media sensationalism, but when placed in the context of what has happened so far this quarter, the hysteria appears more bark than bite.

Fannie Mae and Freddie Mac made headlines with the stock of each dropping almost 20%. Going into today, both were up 100% since their July 15 lows. Often reported as being “in crisis,” neither has asked for a penny from special Federal Reserve or Federal government actions and there is nothing substantive to indicate they are in need of special cash infusions. With the Housing Bill they have more explicit Fed credit lines.

The price of crude oil also made news, advancing $1.05/barrel to close at $125.49 on the Nymex. It’s a stretch to try to squeeze hysteria out of today’s activity; it was $147 two weeks ago. Other commodities are also well off recent highs, corn is down over 25%.

Weakness among financials made top news. The financial sector dropped 6.7% today, but was up 34% over the past week.

Disappointing housing reports were the dominant headline, but the homebuilder index (XHB) is slightly ahead of all three most popular averages so far this year. Meanwhile, there is little doubt that the Senate will pass the Housing Bill as it now reads, adding another $300+ billion focused to housing relief.

The point is recognition that July has involved wide pricing gyrations compressed into a very brief period. As wild as today was, it fits a standard technical correction to the prior advance.

We’ll soon see what Friday brings; but with the speculative fluff in oil and other commodities tempered (reducing inflationary expectations) and more infusions (Federal Reserve and legislated) working their way into the economy, it is increasingly probable that the 3rd quarter will be positive for stocks.

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Portfolio model initiated 5/5/95, archived and marked to market daily.
Initial S&P 500 level 520.12, initial portfolio value $520,120.
Current portfolio value $ 1,285,780.98, gain +147.21%.

These results are reflective as to capital capture and market price of current holdings, itemized below. They do not include cash dividends, interest earned on cash balances, transaction costs, or anything else.

Current Stock vs. Cash Allocation

$ 1,285,769.43 (100%) stock. $11.55 (0%) cash equivalents

Summary of Closed Positions

Total Positions	370	Average Position
Profit	336 (90.81%)	Percentage	+ 8.58%
Loss	34 (9.19%)	Days Held	202
Even	0 ( 0.00%)	Annualized	+ 15.50%

Relative performance since portfolio initiation (5/5/95)

S&P 500	+ 147%
This Portfolio Model	+ 140%