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Mission: Raise $7M from readers to launch a real mutual fund; this is my journey. By providing a transparent platform for a 'virtual' growth mutual fund, I'll create a mechanism by which readers can view my thought process & results in creating a 3 year return worthy of investment. I'll invest in 50-60 positions with secular growth trends such as: global infrastructure, agriculture, energy, digital entertainment, etc. Economic and social commentary thrown in along the way. Comments welcome!
If anyone who reads the blog, has any expertise on creating a "widget" for a blog, please shoot me a line via email (available on right margin). Thanks.
Just noticed Zach over at Zachstocks.com has a nice write up on one of the fund holdings, Ctrip.com (CTRP). Ironically for the first time since October, I added to this name Friday. I have noted in October at the height of China mania (PetroChina hitting 1 Trillion Valuation), when every financial expert on TV was telling you to pile into China (doh! at the top no less) that things were getting out of control and instead I was running to India [Buying a Bucket of India] which was getting no attention by the 'savvy smart money experts'. That worked out well in retrospect as Chinese stocks have performed quite poorly the past few months. [China v India the Past 2 Months] However, I have noticed the past week or so some 'relative outperformance' (not performing as badly as US equities) in the Chinese stocks so we might be ready to get some rotation back to these names. Maybe. I own a few small and mid cap Chinese stocks (Ctrip.com being one) but had cut back exposure the past few months, while focusing on India. However, I am watching to see if this group is ready to make a move up - in fact if the portfolio were not already chock full of names (I am trying to keep to roughly 55 long positions) I'd be interested in potentially adding some of the larger cap Chinese stocks if they begin to break out - oil company CNOOC (CEO) is one I have had my eyes on for a long time. So if I do add one as a proxy for large cap China this would be the one.
Regarding, Ctrip.com this has long been a personal favorite and a part of my personal portfolio on and off for quite a few years... this was a Chinese stock to own before Chinese stocks became sexy. The long term story is quite easy to summarize - China, travel. And without the risk of high fuel prices that you would encounter by buying a Chinese airline or things of that nature. Ctrip.com has never been a cheap stock, but it has been one of those "growth stocks that has always been expensive". Yet it always seems to perform and it's management plays the Wall Street game to the hilt; under promise and over deliver. While there are always threats of increased competition to a service company such as this (so one must always be on the look out for slowdowns ingrowth), the growing pie of Chinese travel should provide secular growth for quite a while.
As a side note - as readers know from the name of my mutual fund, I am a big believer that being in the right sector is 2/3rd of the battle, but this sector is a case where you have to be in the right company. Many times over the years, as Ctrip.com has been very expensive I've been called by the siren song of "cheap" eLong (LONG) a competitor. But if you pull up a 3 year chart of eLong you can see what an unmitigated disaster it has been. Thankfully I never touched this name, but it was close a few times. So this is certainly a case of you need to pay up for high quality. Since I have a preference for "growth at a value" I tend to chase after the eLongs in sectors such as solar which truth be told has held me back (I've sat many months in 'value plays' while the most expensive stocks in the sector ramp up day after day)- closing your eyes to valuation and just buying a First Solar (FSLR) [which I found 'expensive' way back at $60] for example, was the better option. So I just want to point that out - because as they say it is sometimes better to pay up for best of breed, and online travel in China is case in point.
Anyhow back to Ctrip.com -in terms of technical stock performance, this has to be one of the most reliable stocks I have been associated with the past half decade. It generally will stair step up - make a move, consolidate (rest), than make another move up, and keeps repeating it. Short of an earnings warning in the future, this just seems to be the historical pattern. And we might be coming to the next move. As the chart below shows, the stock has been range bound for the better part of 2 months after a larger move. The range has become more and more narrow - during this time I winnowed my exposure to the name to use cash in other places with more appreciation. But generally as this range narrows, we begin to enter a stage where a large move can be made. Whether it is up or down is the open question. :)
Here are some points from Zach's article:
Week 22 performance of the mutual fund
Comments: Well I started last week's review with "A quiet week overall". Can't say the same this time around. It's been a long week - so long in fact it feels like it's been over a year long (oh cmon now, I've been waiting to use that line for months). No, on a serious note - this was a bad week. I was not keeping track of the fund/index performance week by week during the August swoon, but this week was worse than anything we had in very awful November on the S&P500. I don't track the NASDAQ weekly but Friday alone the NASDAQ lost nearly 4%... bringing back memories of summer and fall of 2001 or just about any week in 2002.
For the S&P500 in November the worst weeks were week 11 (of this fund) at -3.9%, and week 14 at -3.7%. Small potatoes as we start 2008 off with a bang with the S&P 500 down 4.5%, and the Russell 1000 down 4.6%. That is obviously some serious territory. Rising Tide Growth Fund fell this week too but a very manageable -1.00%. I'll take it! In fact, relative to the indexes this is *the* best week the fund has had period; with an out performance of >3.50%. To put that in perspective that annualizes to a yearly out performance vs the indexes of >180% (I wish)
This was actually quite the week. Monday was in line with the markets but during the heavy drop Wednesday, the 'pair trading' set up I have, long certain sectors combined with Ultrashorts against others worked great, so the fund was actually up during a 1.5% type of loss day, and Thursday with the market flat, this continued with sectors I am exposed to such as agriculture and infrastructure ramping very strong, while my top position at the time Ultrashort Real Estate (SRS) went on a 1 day 6%+ tear, as people start buying into the commercial real estate slowdown. (remember this is not a residential real estate short). And then it had another big day Friday. While I don't have an Ultrashort against the NASDAQ my Ultrashort against the Russell 2000 continues to outperform as it is chock full of companies dependent on the US economy - note the Russell 2000 was actually DOWN in 2007 whereas the S&P 500, Dow, and NASDAQ were up. This all plays into my thesis started in August that companies without benefit of exports will get hit the hardest.
Only on Friday did the longs in the portfolio suffer as the market started "baby with bathwater" type of selling, but the decent cash position and remaining Ultrashort exposure helped to buffer the fall to some degree.
From here, we appear to be approaching critical support on the indexes. If S&P 1400 does not hold, its a free fall situation. I would doubt this happens right away without a bounce first, but anything is possible. For the fund, I came into the week as heavily hedged as I go (19% type of Ultrashort position - I try to limit myself to around 20% since this is a long focused fund) and kept that level most of the week until late Thursday and Friday. Now with the market swooning so strongly, I am going back to a more long stance anticipating some bounce, and then once we hit 'resistance' again, will return to this negative stance as we enter earnings season. But the complexion of the portfolio changed quite a bit on Friday as I did the first round of heavy buying I have done in quite a while. Sentiment is starting to get quite poor so I would expect at least some attempt at rebounds next week. How successful it will be, I suppose depends on the market mood and if Fed cuts, government bailouts and the like convince people (for the fourth or fifth time) that those actions are enough to stop the business cycle.
As for the fund, it has been quite a hot streak of late. This sort of pace will not continue so I expect the market to take some gains back soon. She is a wild beast, and likes to humble us often so I expect to get some of that humble pie sooner rather than later. When things are working this well, it does not last. So I am expecting some weeks ahead where things don't go so splendid as they have of late. With 4 weeks left in my 2nd quarter of the fund life, I'm at pace to beat the indexes by over 60% this year (my annual goal is 15%), if the 3rd and 4th quarters match the 1st and 2nd. Even Ken Heebner would be proud? ;)
Price of Rising Tide Growth: $12.374
Lifetime Performance to date (vs Aug 3, 2007): +23.74%
Comparable S&P 500: 1,411.6 (-3.67%)
Comparable Russell 1000: 768.3 (-3.51%)
Fund return vs S&P 500: +27.40%
Fund return vs Russell 1000: +27.25%
Last week's results here.
Since the market cap of the median stock in the Rising Tide Growth fund (median $9.8 Billion as of November 07) is significantly below the SP500 index (median $13.1 Billion as of September 07) but higher than the median market cap in the Russell 1000 (median market cap $5.8 Billion as of September 07), I am measuring the fund against both indexes. Click here to see all fund's holdings as of mid November 2007.
Basis for indexes is 5 day weighted average of closing prices Aug 3-9
SP500 : 1,465.2
Russell 1000 : 796.2
To see why I use the 5 day weighted average of the first 5 trading days to smooth out the volatility of the indexes as the fund launched, see here.
Please click here: fund performance for previous updates
Normally at this time I will post the weekly performance of the fund. However, the Marketocracy.com data is not working right now (it is showing most stocks returning 0% return today) so I am unclear on the exact returns the fund posted this week. If it gets fixed in the next 30 minutes I will post the weekly summary. Otherwise I will get it up Saturday.
It was a very good week up to today, but not sure how things went today- I am very curious.
As discussed this morning I was hoping to add (more) Apple (AAPL) at the 50 day moving average ($184) - I am getting my wish so I am taking this stalwart up to a >3% position, with a larger buy than I did this morning.
Post earnings when it trades at $215, people will look at the chart and ask "why did I not buy", forgetting the emotion of the moment. Charts are so easy to read 2 weeks after the fact. ;) If my personal account was not chock full of other stuff this is where I'd be adding some as well. While we won't get a 40% increase in Apple, like some more speculative names could provide , it should have relatively limited downside as people flock to 'safety' (relatively). And if they wish to take it down to $160 or so I'd be happy with that too.
Remember the pattern discussed earlier this week - first teflon tech stocks fall (check), next solar (starting), next infrastructure (starting today after a blowoff type of top yesterday) and agriculture (sell off? never!). Amazing repeat of November happening before our eyes.
I am exhausted at this point.... been sitting on the sidelines mostly the past few weeks, waiting for this part of the cycle... I am out of practice hitting "buy buy buy". My only worry is we might not bottom until the agriculture stocks are taken out and shot. Maybe Monday.
p.s. Holy Crocs (CROX)! I am adding more down 15%? Wow. I'll start printing up the T-shirts "I went long the stock market and all I got was Crox'd!" Should be a good seller and bring in some revenue ;)
Long Apple, Crocs in fund; wish to be long Apple in personal account
Well it's been a breathtaking week eh? Happy New Year and all. I have no idea what Bush did or did not say - if anyone had the TV on, please let me know what the 'working group' told him to say.
I am seeing some major negativity in the stocks, but still no drop in the damn fertilizer names :) I assume these will only fall when we get the "crazy throw everything to the curb I don't want to be long anything" sort of selling we got in August and November. But I've decided to chop another layer of my Ultrashorts off. The S&P 500 quickly approaches the August/November lows of 1400-1405, just like that (a week ago we were at 1495? amazing). While it is possible we just continue straight down, the more probable path is some bounce in first half of next week. In a general sense nothing goes straight down, or up. If we get that bounce, I will use that opportunity to reload on my insurance (Ultrashorts). They are helping to mitigate losses to some degree today. If I am wrong and we just continue to go straight down - well I will be giving back some of these large gains in the fund performance but that's why you need to make hay when you can. :)
I also don't want to be in the path of a surprise intervention which the Bernanke Fed seems to love to do at the most inopportune times for shorts. But I do think we have first sniffs of fear in the air - first since November. Reality is finally starting to hit some people over the head - those that have denied reality since that fateful day in July when Bear Stearns hedge funds started to implode. Not a great start to the year for the bulls.
One area that seems to be doing quite well today are the Chinese large cap and mid cap ADRs... so that got my attention. I added to my New Oriental Education (EDU) this morning and just added some to my Ctrip.com (CTRP) here on this relative strength. The Chinese large caps have stunk the past few months, but could be putting in some near term bottom here so I have really lightened up on my Ultrashort Xinghau China 25 (FXP)
Long all names mentioned above in fund; no personal positions
Posted by
TraderMark
at
3:01 PM
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Labels: Ctrip.com, Ultrashort Xinghau China 25
I've added a few new positions today, and since I want to limit my long positions to around 55, I am looking at names to close out of the portfolio. I've decided to send South American business cell phone company NII Holdings (NIHD) packing. This is another name I've held since August 6th, 2007 (I believe the 3rd I've sold this week), so a stock I've had for quite a while. I am perplexed at how the market has treated this name, as it has solid growth, a good valuation yet is trading as if the South America market is saturated. Whatever the reason I am going to cut my losses here, watch it from afar and see if it can regain its footing in the future.
As outlined in mid December, this has been one of my top 3 losers in the fund [Top 10 Winners and Losers Thus Far]. Since that time it's 'improved' from a $8.6K loss to $8.0 loss as the stock has bounced from $42 to $48 the past month. I only hold 150 shares and a smallish 0.6% type of position, so I am letting these last shares go. Technically, this is a chart only a mother could love, and the stock is somewhat comatose. One good earnings report could change this situation but at this point I am going to have to see some performance before returning this name to the fund. I am not really worried about a lot more losses in the name, but it's simply dead money at this time and I don't have a large enough position (or confidence in the company) to make the position larger, as I have been doing with some of my other "losers".
No position
I am adding two positions here, one an old holding I am adding back to the portfolio and another a brand new name.

Posted by
TraderMark
at
12:28 PM
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Labels: Arcelor Mittal, Atwood Oceanics, Cleveland Cliffs, Diamond Offshore Drilling, US Steel
As mentioned earlier today, I cut back my 'insurance' versus my long exposure - the Ultrashorts by about 15-20% each - locking in some very nice profits over the last week, and expecting perhaps a potential positive reaction to King George when he speaks this afternoon after meeting with the invisible hand.
Of course the market can continue to tank but we have tons of support at S&P 1400-1405 and I don't expect that to break without a bounce first (as I type we are at S&P 1422), so we have somewhat limited downside (for now)
I am making some purchases this morning - below is the list and why
Posted by TraderMark at 10:46 AM 5 comments Links to this post