Managing Volatility at WMA Cara


We have been working on an improved trading methodology for the Natural Resources portfolio (which we like so much that we’ll apply this methodology to Top Picks as well).  As many readers know, Bill Cara is taking a break to deal with personal and business issues.  The volatility of the Natural Resources sector requires a major time commitment to trade the portfolio, as those investing in Nat Res know. Bill does not have the time to actively trade, but will continue to be Senior Advisor to the strategy until he gets back. Bill’s sabbatical gave us reason to re-work our allocation methodology.

We have been investing in companies based on our fundamental rankings.  Our work with fundamentals will always be our guiding light in asset allocation. If you don’t buy companies for their earnings potential, strong profitability, or low valuations, what other possible reason can you have to invest in a company?  If you are buying a company because price is rising, you are a TRADER (anyone buying a company like Amazon today is a momentum trader). INVESTORS buy companies based on fundamentals and prospects for earnings, profits, good valuations ,etc.  At WMA, we will always take an INVESTOR focus.

That said, our current attention to price has been based on the weekly Friday close. In this market, too much is happening between Monday and Friday to sit back and watch.  The new twist to our methodology is to separate the fundamental company analysis from the price trend analysis.  As such, each weekend we will continue to run our fundamental data in order to come up with a WATCH LIST for each strategy. These will be the best quarter (for Nat Res) or top 10% (for Top Picks) of the 4100 companies that we track.  For the week these companies will be potential candidates for investment. Moreover, our watch lists will be dynamic — as fundamental ranks change, our list will change. This makes good sense to us.

From our weekly watch lists, we will try to find opportunities to buy companies during the week as prices ebb and rebound.  We will enter our watch list into a Trading Model, similar to the Trend Model we post for macro allocations. The Trading Model will be updated with each daily closing price. Importantly, for current holdings, the Trading Model will serve as a risk management tool, as we’ll see quickly if a holding turns down before waiting for Friday’s close.

Here is this week’s Nat Res watch list in the Natural Resources Trading Model.  We’ll try to run the Trading Model for each strategy prior to the market open each day.  As we advance with this project, we’ll add the watch list trading models to the site under the Models tab.  In the meantime, Strategies & Models subscribers are welcome to follow our work daily. Send an email and we’ll create a daily mailing list.


S. Owen Williams DBA CFA


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