Model Portfolio crees:10STX

One of the portfolio management characteristics that we find useful is how cash is managed in a portfolio. It is one way that a manager can:

• Protect the downside from a sudden drop in the market
• Preserve buying power, so when the market drops the portfolio has cash to take advantage of buying opportunities
• Is an indication of bullishness or bearishness towards market and best idea stocks

The chart above is the percentage of Chris Rees' 10STX model portfolio that he held in cash since his inception in Oct. 2000. The first thing you should note is that his average cash position is 23%. So the phenomenal returns he has generated have not only been with a very diversified portfolio, but also with a portfolio that has had a large portion in cash. Chris' strategy is to first protect the downside and not lose money. You can see him implementing a portion of that strategy on this chart.

You can also see that there are several times when he protects the portfolio by moving into cash and there are a few times when he has the conviction and confidence to aggressively be fully invested but generally just for a short period. At the end of 2006 he was up to 42% in cash and then this year he invested more aggressively than his average. What you don't see is he protected the portfolio by building a 7% position in ProShares Short QQQ (amex: PSQ) - which goes up when Nasdaq goes down. So at the end of Feb.'07 as Nasdaq hit a 6-year high and then dropped 7.55% in a week during the Shanghai Index-sparked global sell-off, he sold his PSQ near the peak. He preserved buying power with his PSQ position and then bought into one of his best ideas when the market sold it off.