What to do with Tesco and Gold?
We have seen some interesting articles in the past week regarding the outlook for the economies of the world and in particular features on Tesco and Gold (IFA On-Line Fri 4 May) as investments for the future.
Tesco has been subject to great debate on the Motley Fool website analysing extensively the process of rebranding and change management that it has undertaken and whether it will be a success in the future. We have set out below for comparison our Heatmap Score (-6 to +6) on Tesco and the corresponding % Ytd performance.
Fig 1. Sinergi Heatmap (Tesco PLC)
Gold as we all know is in the midst of a commodity bull-run predicted to last for many years to come. However, having reached a peak of $1,975 last year it is languishing in the $1,640 range at the moment with many commentators projecting target levels of $2,500 and beyond.
Back tested Trend Evidence Versus Forecasting
What interests us, is not the process of forecasting and applying theories to facts that we select to support our beliefs for each of these investments. Although by virtue of human nature we ourselves indulge in discussing why, how and what will happen in the future.
We accept that there is significant evidence that each of these investments has performed very well over an extended period of time and merit consideration for inclusion in a diversified and well-structured portfolio.
Our question is specifically tactical. Following a decision to include an investment in a portfolio, how much of your portfolio should be invested at this point in time each of the constituents?
Separating Tactics and Strategy
Surely, at this point in time, giving consideration to practical matters of portfolio size and transaction costs it would be better to direct portfolio resources to investments other than Tesco or Gold. In particular we would avoid committing fresh funds to each of these opportunities until their relative prospects improve in the near term.
Tactically, our first concern is the erosion of accumulated value in a portfolio. It is hard enough to make gains in the investment world, so the last thing we want to see people doing is handing them back in the short term while waiting for their personal life cycle milestones to arrive.
Fig 2. Sinergi Heatmap (Commodities)
Applying Tactics in A Strategy- a statistical edge
The Sinergi Heatmap Table above and chart below employing our statistical backtested edge outlines the recent history of Gold over the last few months as it has appeared in our Heatmap and TACT reports. As we analyse the price trend in recent weeks we have seen it change from a benchmark position where we would be comfortably retaining our long term position in Gold to a decidedly negative trend ( -4) and an opportunity to reduce our holdings or more importantly in the context of fresh funding of a portfolio, avoid increasing exposure to Gold.
Fig 3 Gold (Comex) Weekly Chart
It is worth noting that we don’t speculate on how long this trend may last other than our back tested results currently suggest they persist on average for approximately 7 – 9 weeks at a time.
What might this mean for you and your asset allocation strategy? There are many points to consider in steering a portfolio through the markets that we are now experiencing and it is important that you establish a long term outlook for a well-balanced investment strategy. However, by adjusting the amount of each investment you can take significant steps to preserving wealth.
Our analysis is intended to fill the gap that exists for you between your strategic reviews. We aim to provide the information that will assist you at a tactical level to retain value in successful investments and avoid entry in to investments that are declining in the short term.
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