THE DARK HORSE HEDGE 7/13/10

Seeing no compelling reason to be more bullish on this uninspiring market, we are maintaining our 67% short tilt (weighing) with three new positions to enter today.

For reference, we started this virtual portfolio with $100,000 in cash and we allocated $90,000 for intermediate to long-term positions, and $10,000 for occasional swing trading positions.  To date, we are short four stocks and long two. Today, we are going to add two more short positions and one more long position.  

We are aiming to be hedged in our market exposure by being long stocks with the greatest potential to rise and short stocks with the greatest potential to decline.  To identify these winner and loser stocks, we use Sabrient’s Value Change Up (VCU) assessment system. Sabrient’s VCU system is a multi-factor quantitative ranking system that scores over 2,000 stocks and allows us to enter LONG positions in the best ranking stocks and SHORT positions in worst ranking stocks.  This method enables us to achieve greater Alpha (return over market return) and Sharpe Ratios, while maintaining a near zero Beta for Absolute Return. 

Because we are working towards 12 long and 12 short positions, and starting with $90,000 to invest in this strategy, we allocate $7,500 for each long and short position (90,000/12 = $7,500).  (The extra cash generated by short positions is not counted in this calculation.)  

Apartment Investment and Management Co. is rated a STRONG SELL by Sabrient and is ranked #5 at the bottom of the VCU strategy.  AIV scores poorly in VALUE score of 6.4 out of a possible 100 which is a measure of the relationship between a company’s stock price and its intrinsic value.  Additionally, AIV scores below industry averages in both BALANCE SHEET score of 29.8 versus the industry average of 37.3 (possible range is 0 to 100) and FUNDAMENTAL SCORE of 12 compared with an industry average of 37.3 (possible range of 0 to 100).  AIV announces earnings on July 30, 2010 and the 17 analysts following this company have an average projection of +$.33.  AIV has disappointed four consecutive quarters and we believe the dubious…

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