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Model Portfolio

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3rd Quarter, 2002

September 30, 2002

During most of July the market averages continued their downward path reaching new lows and then rallying furiously for almost a month. That rally pumped our portfolio more than 12% but our new stop system, which was designed to keep us longer in the markets, managed to give back all the profits. What happened was that the turnaround was so quick that, our new trailing stops were hit before the trend indicators signaled the end of the move. However, after a brief study, it was determined that even if we had kept the old stop system in place, the end result would had been more or less the same. The old system would have taken us out quickly, thereby keeping more profits. However, the trend indicator, still signaling an uptrend, would have taken us in again, just in time to get caught in the new downtrend. It was not until mid September that our trend indicator changed direction from up to down. As a side note, it is interesting to note that most of the profit loss actually came from our Russell 2000 position, whose entry signal was given 7 trading days after the rest of the indexes we trade. As a matter of fact, Our position in the Dow Jones broke even and the S&P500, S&P400 and Nasdaq-100 were close at profits of 2.12% (0.39R), 2.51% (0.52R) and 1.40% (0.20R) respectively. The loss on the Russell 2000 was 3.23% (0.51R). Still we managed to hold ground overall, greatly outperforming the S&P500. Considering that the failed rally didn't raise the indexes high enough, we decided NOT to open short positions.

This date also marks the first anniversary of the portfolio. While our reliability of 63.33% is close to that of our historical study, our expectancy of -0.03 is way out of target. A review of the trades made through the period showed us that the main problem resides in low R multiples for the winning trades. To this date all losing trades, except one, have -1R or less. The only exception was a -1.47R trade, made during the 4th quarter of 2001 and that was the direct result of a discipline failure. One more reason to implement the new stop management system. The adjustments made to our stop system will help us to boost the size of our gains relative to our initial risk. Also, we recognize that the decision to use stop orders had a direct impact on the expectancy by adding to our transaction costs on an account with low equity. However we are willing to delay the target date for achieving our estimated expectancy, because the implementation of stop orders had greatly improved the trading discipline.  The table below shows the performance of our portfolio net of management fees and before taxes, compared to the major U.S. indexes that we traded.

From Sep. 30, 2001 to Sep. 30, 2002

GCM Model Portfolio -3.41%
Dow Jones 30 -14.19%
S&P 500 -21.68%
Nasdaq-100 -28.75%
S&P 400* -6.19%
Russell 2000 -10.52%
* For this index figure we used the ETF MDY as a proxy
Considering that we used our system almost entirely on the long side (28 out of 30 trades), the result of the first 12 months are within reason.

Portfolio Statistics

Final Allocation


Period to Date


GCM Portfolio

S&P 500

Quarter (1) -1.07% -15.83%
Quarter (2) -1.57% -15.83%
Year (1) -7.15% -28.99%
Year (2) -8.63% -28.99%

(1) Before management fees

(2) Net after fees

Charts and data processed with Captools Software and proprietary spreadsheets. Performance net after management fees. Certain fixed expenses and taxes excluded.

Performance Charts

Quarter to Date

Year to Date