All blog content is for information purposes. Any reference to indivisual stocks, indexes, or other securities as well as all graphs and tables are not recommendation but only referenced for illustration purposes.
The following is to provide some insight and perspective on the performance of the Audacity Strategy for March and more. For more information on the strategy, visit our website here.
The Audacity Strategy is most often recommended as only one component of a Super-Diversified Portfolio. Therefore the information in this blog only pertains to one component of a Super-Diversified portfolio. For more on Super-Diversification, visit our website here.
Note: the Year-to-Date return is back-tested through 3/31/2020
A Demonstration of Low Correlation
Our Audacity Strategy is demonstrating exactly how low correlation works. Unfortunately, this is one of those times that it doesn’t feel so good.
Low correlation to the stock market means that one of three things can happen:
Stock Market UP Months
We’ve seen it all in 2020. As this linked table shows, the stock market has been up 6 of the 11 months so far in 2020. Of these 6 up months for the market, Audacity was up 3 months and down 3 months. November was one of these 6. Sometimes Audacity gained more than the market during these up months, sometimes significantly more, and other times Audacity’s gains were smaller than the market’s.
Stock Market DOWN Months
The stock market has been down 4 of the 11 months in 2020. As can be expected from the Audacity Strategy with low correlation, Audacity was up twice during these market down months and was down during the other 2. 2020 has given us examples of everything low correlation is designed to deliver over time.
Everything changed on November 9th. This was a great day for the world with reports of the first successful COVID-19 vaccine fueling a stock market rally and huge gains in stocks such as airlines, cruise lines, and energy companies that have suffered the most during the economic lockdowns. Unfortunately for our Audacity Strategy, it was short many of these stocks losing money when they went up in price.
As the accompanying table shows, the entire loss in November was the result of the short positions. The long positions, those that we profit form when they go up in price, rallied with the market but the short positions rallied more resulting in the month’s overall loss.
We’ve Seen this Before
There is nothing unusual about November and the performance of Audacity. For example, we had nearly identical performance earlier this year from early May through early June when our long positions gained +8.0% and the short positions lost -29.3% resulting in a negative performance for Audacity when the market was sharply higher. Within less than a month Audacity had fully recovered. The same thing also happened in mid-September 2019 but this time it took 5 months for Audacity to again reach new highs.
Our research and experience make it clear such short-term performance like we experience in November is to be expected. I have total confidence it will fully recover and again reach new highs and deliver continued great long-term returns.