Bookkeeping: Weekly Changes to Fund Positions Week 15

Week 15 Major Position Changes

Fund positions of 1.0% or greater can be found each week in the right margin of the blog, under the label cloud and recent comments areas; I highlight weekly the larger position changes.

Being a long only fund, via Marketocracy rules, the only hedges to the downside I have are cash or buying short ETFs. I cannot short individual equities.

To see historic weekly fund changes click here OR the label at the bottom of this entry entitled 'fund positions'.

Cash: 0.0% (vs 0.2% last week)
52 long bias: 93.0% (vs 98.7% last week)
4 short bias: 7.0% (vs 1.1% last week)

56 positions (vs 59 last week)
Additions: Chicago Bridge & Iron (CBI), Ultrashort MSCI Emerging Markets (EEV), Agco (AG), Massey Energy (MEE), Suntech Power (STP), First Solar (FSLR), Silver Wheaton (SLW), Canadian Dollar ETF (FXC)
Removals: Nordstrom (JWN), Intercontinental Exchange (ICE), iShares Hong Kong (EWH), Blackrock (BLK), Perini (PCR), Atwood Oceanics (ATW), Freeport-McMoran Copper & Gold (FCX), Cummins Engine (CMI), Excel Maritime Carriers (EXM), VMWare (VMW), Garmin (GRMN)

Top 10 positions = 34.9% of fund (vs 35.2% last week)
46 of the 56 positions are at least 1% of the fund's overall holdings (82.1%)

Major changes and weekly thoughts
While the indexes this week were much more stable than last week, there is a lot of downturn movement and churning below the surface. Beaten down sectors such as financial and retailers enjoyed some stability and even a pop in the first half of the week, only to sell off late in the week. Outside of very flexible traders, those areas remain hard to trade as of yet. But areas I have been hiding in took major hits especially Monday and then again Thursday. I did write last week in my review:

In a general sense if we do get this truly emotional selling next week, I do expect even the stalwart positions in the portfolio that have held up (agriculture/infrastructure) to take a hit, albeit it a short one in terms of duration, although they could be sold down hard.

(there are times I hate being correct)

The median stock is down 20-25% range from peak so it's a much tougher environment than even the indexes showcase, and more in tune with traders. The fund is down about 6-6.5% from its peak so all in all, not bad considering it was able to make a lot of hay during the "good times" of September and first half of October.

To wit, the S&P 500 is currently in a trading range of 1440 to 1490. This is down from 1490+ previous to that. So the obvious move is to buy when the index reaches the lower end of this range, and sell (or re-short) when it gets to 1490. I've done this aggressively in my personal account this week, but obviously running a fund, you can't really do those type of sales wholesale. I did lighten up to get to about 20% cash by end of day Wednesday when the market spiked up so severely Tuesday and mid day Wednesday, but in keeping with the spirit of running a mutual fund, I never try to go over 25% cash. So I reached my "limit" very quickly.

At this point either the market will break down below 1440 or break above 1490. Anything in between, to me, is simply white noise. So the obvious move is to lighten when we get to the top of the range, and get more aggressive buying at the lower end of the range; so with the index at its lower end of the range Friday I am more aggressively long than I was mid week. This is simply playing the odds - eventually either buying at the low end of this range will be incorrect (as the market falls through that support and plunges), or selling down positions somewhat at the top end of the range will be incorrect (as the market finally puts in a real rebound). But until then, I will continue with this obvious strategy and try to lock in some 'shorter term' gains.

I do believe sentiment is pretty bad, and this week upcoming is generally a positive one, and this "round" of write downs from the financials should be close to done. As I stated in September, when the first round of kitchen sink quarters happened, this would not be the only one, and expect a lot more sinks - well we just went through our second round and I expect more down the road, but we should be through this round of sinks and probably can wait a month for the next round. At some point this continued uncertainty about financials will either have less and less effect as each round of "sinks" is announced OR will cause a panic that this is an unending abyss. I think this week also was one where it began dawning on investors that the economy is truly slowing down, so expectations going forward are beginning to get adjusted. Unfortunately a lot of items I stated in late August in my "Et tu, September?" piece are coming to fruition, they just came on a delayed basis while investors basked in the Kool Aid that "Fed Cuts would make this all go away". I do expect to hear a lot more revised guidance downward in the January earnings season, so when we get there it will be a time to be very cautious in my opinion. But hopefully an oversold rally first....

My main worry is the international markets at this point. They will slow, but we are still in the perception that "US markets might slow but emerging markets will be unaffected". At some point, probably in 2008, this scenario will be shown to be false and a lot of stocks in my portfolio could get haircuts, even if they are will do just fine at 3-7% GDP growth in those emerging markets. But it won't matter as hysterical lemming investors panic and dump everything. Hence I am keeping that in mind - we are still getting GDP growth numbers >11% from China. I could see some sort of panic ensue if they "drop" to something "terrible" like 8%. I think the market is still pricing 11-12% Chindia growth from here to 2050. Not realistic, and when that adjustment happens it will get ugly - but the timetable for this change in opinion is unknowable, and knowing what triggers it also is - so until then, one just must take it week by week and let the individual stocks tell the story.

Marketocracy.com is again down today so I cannot load individual position trades - in a general sense I just held on with revolt Monday watching my favored positions get whacked - I did do some selling of things holding on strong that day and bought into my favored sectors in the teeh of massive selling. On the rebound Wednesday, as the S&P 500 hit my upside target of 1490 I lightened those positions which turned out to be the right short term call; so I saved some downside exposure. I have seen in many names repeated tests of the same levels on the downside, i.e. Mosaic at $60 so short of more panic/emotion selling or forced liquidations by institutions these levels seem to relay good support levels. I entered the week light on cash as I sold down my short ETFs into the emotional selling Friday, and while those sectors actually rallied in the first half of the week (meaning the ETFs lost value), most of the rest of the sectors I was in also fell Monday. Since I was so low on cash and short exposure, I lightened up mid week in the rally, and thus was able to rebuy back some of those positions at much lower values late Thu/Friday. Unfortunately short of this type of 'trading' for short term swing trades it has been nearly impossible to make money on the long side. Buying and just holding has not been rewarded the past few weeks....

Below are the fund changes this week - the specific rationale for each of these major moves is explained in the weekly posts which can be accessed in the left margin under archives.

Some of the larger changes (chronologically) to the fund below:

1. Closed short term position in Nordstrom (JWN) as the retailers bounced a bit after being oversold and I wanted cash to buy stocks in favored sectors that were being trounced on Monday.
2. I bought Mosaic (MOS) on it's pullback and started a new position in infrastructure name Chicago Bridge & Iron (CBI) - this was a handful of the infrastructure names with exceptional earnings and after a gap up post earnings this was the first time it had shown any weakness.
3. Needing more cash, I closed a minor position in Intercontinental Exchange (ICE), and I sold down my Garmin (GRMN) position because (at the time), it was locked in a bidding war for Tele Atlas which would limit upside - of course late in the week they called off the acquisition effort and Garmin spiked, so I closed the position into the spike. With the money from the reduction in Garmin on Monday, I added to Russian coal/iron play Mechel (MTL), more Mosaic (MOS), and Shaw Group (SGR), another infrastructure name - agriculture and infrastructure had a terrible Monday so with such bargains I wanted to add exposure there - although it is never easy buying into a flurry of selling.
4. Late Monday, I continued to "sell strength", and "buy weakness" - closing 2 more positions, (reluctantly) selling Blackrock (BLK) - only because it was holding so well and other stocks I like as much were being sold off at such low prices, and iShares Hong Kong (EWH), a position held since August. I also reduced Ciena (CIEN), one of the few tech names to hold up quite well in this selloff of NASDAQ names, to raise cash. With this cash I went to work trying to buy very late in the day Potash (POT), Baidu.com (BIDU), more Shaw Group (SGR), and CF Industries (CF) - only the Potash buy went off in time and the next day most of these names bounced pretty huge. It is easy to look back in retrospect at charts and say "nice buys", but at the time it looked like the world was about to end in the portfolio. :)
   
5. Since most of my buys did not trigger late Monday, I got to work applying the cash first thing Tuesday morning in two stocks that were down in an up market, Foster Wheeler (FWLT), and Apple (AAPL). I had been selling Apple down in the $180s and it was not a major part of the portfolio of late, so to be able to add exposure in the $160 area was something I was happy to do.
6. I cut 3 smaller positions Tuesday in the rally - these were 'technical' sells more than anything ; stocks that had not rebounded Tuesday and had broken their 50 day moving averages and not making a good effort back at regaining this important technical level. These names were Perini (PCR), Atwood Oceanics (ATW), and Freeport-McMoran Copper & Gold (FCX). While far too early to tell if these are good moves, as of Friday none had regained the 50 day moving average although ATW was making a good effort.
7. For the same reasons, I also closed out Cummins Engine (CMI), a company I really like but sentiment could turn in the near term against this name simply due to exposure to US economy. Still like this as a Chindia backdoor play but I don't want to fight the market. The stock is down another 4% from where I sold it.
8. Wednesday mid day I took a big knife to the portfolio - reducing 9 positions and closing 3 entirely - Excel Maritime Carriers (EXM), VMWare (VMW), and Baidu.com (BIDU). I sold a smallish Baidu.com position around $350 but as it weakened later in the week, I did rebuy Friday in the mid $310s. So it was just a temporary exit from the portfolio. Again, if this was more of a hedge fund environment I would of taken a much stronger stance on cutting positions but these sales raised 15-20% which is more appropriate for a mutual fund. Most of what I cut back on were positions in infrastructure and agriculture that I had bought 10-13% lower just the day before... others were stocks I had a larger position in, that I did not want to exit completely but whose technical picture had deteriorated in the near term so I wanted to lighten up in those positions and stick to stronger charts. For example, reducing McDermott (MDR) and redistributing cash into Chicago Bridge & Iron (CBI) or Foster Wheeler (FWLT) - so I am buying the same sector, just names in better technical position and relative strength which "should" outperform this quarter. This manuveur is more about respecting the whims of the market; I like all the names but if the market favors 2-3 names over the other, my job is to maximize gain and follow the market into the names it prefers for the next 90 days. (until the NEXT earnings period when it can bash new names, and create new favorites). I did end up buying back some of the names I had culled Wednesday mid day by end of day Thursday, as the same groups (agriculture/infrastructure) were taken out to be shot again after a 2 day respite. Incredible volatility, and again its a traders market - not an investors.
   
9. Thursday, I did initiate a new short position in UltraShort MSCI Emerging Markets (EEV) - my thinking was dead on, I just bought the wrong instrument as a hedge as the Emerging Markets actually held up, but China specifically tanked so if I had bought UltraShort China (FXP) it would of provided a great hedge on Friday as the instrument gained over 10% Friday. These are very volatile instruments, so I am simply using them as hedges and with the market seemed poised to (maybe) rally next week I cut back my EEV exposure heavily late Friday.
10. I also initiated two new names in the fund Thursday, Agco (AG) in the agricultural space, and Massey Energy (MEE) in the coal space. I only started initial stakes, but added a bit to each on Friday. Both were bought because I like the fundamentals of their sector, and these names had among the best relative strength in this sell off.
11. I continued adding more layers to the potash related names, Mosaic (MOS) and Potash (POT) on weakness Friday.
12. I restarted a position in Suntech Power (STP) Friday, as well as beginning First Solar (FSLR) as these two names emerge as the leaders in their respective spaces (PV vs thin film), and had tremendous relative strength Friday - not selling off an inch despite a market on edge... these were just starter (small) positions but even when the market rallied a tiny bit Friday these 2 positions took off in the last hour of the day.
13. I did add quite a bit of Research in Motion (RIMM) late in the week as the stock was very weak....it briefly broke below its 50 day moving average, and is in precarious position technically, just poking its head above. If it weakens further from here, it might need to be culled until it forms a bottom but with such tremendous fundamentals its hard to see it down if the overall tape improves.
14. I got back some of the Mastercard (MA) I sold around $200 last week ago, near $180. Another stock with incredible relative strength.
15. Late Friday I added 2 weak dollar plays, that will also act as hedges for the fund - Silver Wheaton (SLW), and the Canadian dollar (FXC) - while it might be early to jump into these, they are not typical 'long' positions for the fund and fall into the 10% of the fund I use either as hedges or strategic shorter term positions.

The above do not include the trades in my Ultrashorts which I am trading quite often as the market ebbs and flows - I continue to focus on Russell 2000, Financials, and Retailers; although I continue to believe these are overdue for a rally.