Wednesday, August 4, 2010

Assessing, and Constantly Reassessing

We currently have investments aimed at the Managed Health Care industry in several of our model portfolios. The position has not been performing up to expectations as of late, and as is the routine here, that meant a complete review of the industry and holding to reassess our conviction in it. A security review in this case consisted of reviewing valuation metrics, technical conditions, micro-fundamentals (like wages and costs effecting the industry), business cycle analysis, ratings from the independent analysts we follow, earnings, seasonality, and pretty much anything else that we believe relevant to the industry and/or specific holding (e.g., politics in this case).

After reassessing all of the above, we concluded that it’s prudent to hold our positions at this time. There is no crystal ball to go to when rotating among equity sectors and industries, however we believe it is critical to have a system that covers all of the bases and provides us with an informed opinion to help us execute our strategy. Once the work is completed and we make a decision, we generally give the position some time for our view to unfold. But we are not dogmatic about sector holdings any more than we are about our overall market view. Since the market is constantly moving, either for us or against us on a position by position basis, it requires that we constantly reassess where portfolio holdings stand in our investment models. Assessing and constantly reassessing positions is just a routine part of the investment process at Pinnacle Advisory Group.