Click here for my Quarterly Letter to Friends of BerkAdvisory. Here's an excerpt:
For the 1st quarter, the ValueAligned® Portfolio (VAP) was up +11.7%. The S&P Total Return Index ended up +12.6%. (It would have been about +10.6% if Apple (AAPL) was flat).
As the media was headlining the roaring stock market, the broad stock market, except for a few sectors, started an internal correction early in February. Our indicators told us then that the "market" needed to rest. There remains a conflict between extreme price momentum (positive) and extreme bullish sentiment (negative).
As we started this year, we had just experienced a rare, very positive signal from our sentiment indicators. Bearishness was at its highest, which is very bullish. That amount of negativity rarely occurs, and that signal has a phenomenal record of producing above average returns in the coming year.
As 2012 kicked off, the market continued to rally until sentiment became fairly bullish (which is negative for future returns). At the same time, however, monetary conditions were still the most bullish for stocks, with short-term interest rates nearly zero, banks could easily make money by lending at much higher rates. Finally, the valuation of the stock market as a whole was more under-valued than at any other bear market bottom of the last 30 years. We had no other choice but to urge full exposure to stocks.
So here we are, +12% higher. Rising stock prices and much better-than-expected economic news made the dumb money a little too much optimistic in early February. The Fed also seems to be feeling a little better about the economy—not all smiles, but not in the panic mode of last summer. Valuation still is telling us that stocks are ultra-cheap, the place where your money is being treated the best.