Stock Portfolio Updates: Let Winners Ride the Rally
By: Christopher Mistal
February 14, 2017
Once again the bull market has entered an extended period of strength that for some appears to defy logic and reason. S&P 500 has not experienced a daily loss in excess of 1% since October 11, 2016. Nor has it had a 5% correction since last June. Both are protracted time spans, but historically both have been exceeded before and by sizable amounts. The current bull market also managed to go nearly four years without a 10% correction. The brutal bear market that preceded it was unusual within historical context so it is not out of the question that the following recovery and associated bull market would be accompanied with some atypical behavior.
Using a 20% decline as the definition of a bear market, there have been 11 bull markets including the current one and 10 bear markets since 1949. The previous ten bull markets lasted an average of 1770 calendar days and produced gains of 161.4%. Within these 11 bull markets there were 23 corrections ranging from 10% to 19.9% for an average of just slightly more than two corrections per bull market. The current bull market, at 2898 days old and 244.1% gain is above average in duration, magnitude and number of corrections. However, there have been longer bull markets with even more corrections.
In the following table, each bull market has been broken down and includes the corrections that occurred within it. The bull markets beginning and end dates and closing prices are included and are used to calculate the “Days Between Corrections.” In each row labeled “Bull End,” that bull market’s duration and gain is calculated.
[S&P 500 10% Corrections During Bull Markets Since 1949]
The quickest correction was 18 calendar days in 1955 while the longest was 531 from September 1976 to March 1978. The longest the S&P 500 went without a 10% correction was 2553 calendar days from October 1990 until October 1997. The second longest streak without a correction occurred in the last bull market that ended in 2007 when the S&P 500 went 1673 days. The fewest number of days between corrections was 35 in 1974.
The S&P 500’s current streak of 368 days is less than the average amount of time between corrections and is not of major concern. The previous streak lasted 1326 calendar days and ended with the S&P 500 sliding 14.2% over 266 days. Past bullish periods were often devoid of corrections. Low volatility and extended age do not kill bull markets, crumbling economic data and/or geopolitical/exogenous events do. 
At this moment economic data is reasonably healthy and the expectation is for further improvement. Geopolitical and other outside risks do exist (always did and will), but the odds they will significantly upset the U.S. or global economy do not appear extremely elevated. 
Portfolio & Free Lunch Updates
Over the nearly four weeks since last update, S&P 500 and Russell 2000 climbed 2.5% higher as of yesterday’s close. The Almanac Investor Stock Portfolio’s blend of cash and long positions resulted in a 1.0% overall gain over the same time period. Our Large-Cap portfolio produced the most gain at 2.2%. Mid-Caps were second at 1.3% and Small-Caps contributed just 0.7%. Were it not for the sizable cash position in the portfolio results could have been better. Arguably, the Stock Portfolio is under invested at this time of the “Best Six/Eight Months.” This is a situation we anticipate rectifying in the near-term with another basket of stocks.
The sole remaining stock from Free Lunch, Hanesbrands (HBI), was stopped out on February 3 when it closed below its 5% trailing stop loss of $22.64. On that day HBI reported disappointing earnings and offered tepid guidance that resulted in a single day loss in excess of 16%. HBI was closed out of the portfolio using its average price of $19.22 on February 6 for a 10.9% loss.
Aside from HBI, the rest of the portfolio has been performing. Lydall Inc. (LDL) is climbing towards doubling ($65.80) and Unitedhealth Gp (UNH) is even closer ($164.08). As a reminder, standard portfolio policy (detailed under portfolio table below) stipulates selling half the position on a double. This policy has served the portfolio well and we will continue to adhere to it here. However, other profit taking and/or protecting strategies can also be considered. A tighter trailing stop loss could be employed or a smaller (or larger) portion of the original position could be sold.
All positions in the portfolio are currently on Hold. Please refer to the updated portfolio table below for Current Advice about each specific position. Please note that many stop losses have been updated as a result of recent gains.
[Almanac Investor Stock Portfolio – February 13, 2017 Closes]
Disclosure Note: At press time, officers of the Hirsch Organization, or accounts they control held positions in ANET, BUSE, CCS, IESC, MHO and SBRA.