Bookkeeping: Weekly Changes to Fund Positions Week 24

Week 24 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 0.0% last week)
52 long bias: 94.7% (vs 98.7% last week)
5 short bias: 5.3% (vs 1.3% last week)

57 positions (vs 61 last week)
Additions: N/A
Removals: iShares Malaysia (EWM), iShares Brazil (EWZ), Crocs (CROX), US Steel (X)

Top 10 positions = 39.3% of fund (vs 36.3% last week)
42 of the 57 positions are at least 1% of the fund's overall holdings (73.7%)

Major changes and weekly thoughts
After outlining last week how the average stock was down 30% since the October highs, masking how poorly the market is "underneath" the indexes, we went on to layer on just an awful week on top of the damage already taken. So I assume now the average stock must be closer to 40% down from the October highs. As mentioned Wednesday, the S&P500 is in the worst technical condition it has been in half a decade, along with being the farthest below the 200 day moving average it has been in half a decade [S&P500 in Worst Condition in Half a Decade]. The majority of stocks now trade below their 200 day moving average (a key support level)... it is even harder to find the few trading above their 50 day moving average. So in a larger sense, if we are in a technical bear market or not (20% down from highs), it is a lot like asking "are we in a technical recession or not" - it all semantics, and it really does not matter what the label is; the reality is apparent. This is essentially a rotational bear market - which has moved from financials to consumer discretionary to (now) everything else.

We had hoped last week to see the stock market bounce off August and November lows of roughly S&P 1385-1405. But as stated, triple bottoms rarely hold and boy did we get reacquainted with that lesson (it's been a long time since we had to pull out that lesson plan). We had bounced off those levels ever briefly but broke down below Wednesday and from there the computers on Wall Street took over, seeking refuge in cash and selling off everything and anything (aside from airlines). Even the safety sector stocks took hits this week. So it's ugly out there.

Once we broke these previous lows (Aug/Nov), the next logical step was to assume a waterfall type of panic selloff. We seemed close Thursday, but then due to some decent earnings from General Electric (GE) and IBM (IBM) we opened higher Friday... only to sell off all week. This was not the preferred course [We Need to Open Lower]; indeed the 'playbook' says once technical support is broken, we'd just prefer to have a wretching finale selloff marked with words 'Abandon Hope all Ye Who Enter Here'. It doesn't have to end this way, but many market participants are waiting for that moment - a very awful open and than an intraday reversal. So it is sort of self fulfilling - until we see that, many people will stay on the sideline with cash.

Specific to the fund, I lightened up cash and short exposure in the last 10 days, expecting some level of oversold bounce. Obviously this hindered performance as we never got this bounce. But with that said, my 'short' focus this late summer/fall/winter have been areas (financials, real estate) that held up "relatively" well this week. So while it would of helped to have more short exposure, nothing short of cash this week would of helped offset the enormous drops in the long positions. Many stocks that had performed well during the past year saw very large selloffs similar to the worst action in August 2007 (they held up much better in the November 2007 selloff). Not much more to say, as there was very little logic or differentiation among winners and losers this week - almost any stock was deemed a loser this week. I checked a database that I run each week and only 126 stocks over $2 Billion market cap returned > 1% this week. Slim pickings indeed considering the universe is so large - again of all things, many on the "winners" list are stocks that had dominated the "worst of" lists in previous weeks - home builders, retailers, airlines. Groups that already imploded and now are seeing "value" investors buy in off of washed off levels. Or maybe just short covering by satiated bears.

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. It's been a wild ride in Mosaic (MOS) of late. Last week after a stellar earnings report, the stock was pushed down to $80, where I took the position to a 6%+ type stake. Monday, I took 10% of my position off the table as the stock (in just 3 days) reached $104. Then on Tuesday, I took another 15% off the table around $107. These gains were just far too much too quickly (not that I was complaining). As I wrote at the time "All these sales go under the category of "sell when you can, not when you're forced to." If only I knew how appropriate those words would be by Wednesday. I bought back some of the shares I sold around $100 Wednesday, and then 24 hours later in the $88s range. The stock is down a full 10% lower from that level by Friday, but I have more than enough exposure at >7%. I did not catch the top ($110), nor bottom (upper $70s) but was able to maintain my 6-7% position, and place a nice trade in between.
2. Tuesday, I took profits in the coal names, as the stocks were up 3-4% in a tough tape, and up 10% from levels just a week earlier where I added to my positions. The volatility in this tape is of course extreme. I essentially just lowered my allocations back to where they were 2 weeks ago in these names.
3. New Oriental Education (EDU) reported a good quarter, beating estimates, but by missing analysts expectations with conservative guidance by half a million dollars the stock dropped well over a billion in market cap. This is logic. :) I added one layer as the stock dropped to $70, and later in the afternoon, another layer as the stock was imploded down to $56. Just due to the need to raise cash, I did sell the shares I added at $56 near $64 later in the week. All in all, I went from a nice gain in this name to a -$2800 loss in this position and considering the hectic drop this week, I can live with that.
   
4. I closed my long standing position in iShares Malaysia (EWM) Tuesday, in anticipation of Asian markets potentially following the US market down. Malaysia remains one of my favorites in the region as a natural resource rich country, but I had a gain I wanted to lock in, was short on cash, and want to move away from Asia exposure for now. While I do expect a bounce in the region I expect 2008 to be shaky as global growth slows - but I still think Malaysia will be the least exposed to the coming shakeout. I do expect to be back in this name at some point.
5. I made a lot of transactions Wednesday - due to low cash position I had to sell some positions on the long side to add to others. I essentially moved cash from positions holding up (plus the sales I made the day previous in coal stocks and Mosaic) and moved into stocks that had been hit very hard. The details are found here.
6. I closed my small position in iShares Brazil (EWZ) and rolled the funds into Petrobras (PBR), which in fact is one of the 2 main weightings of EWZ. This puts more focus on the 1 name I want the most exposure to within the index. I also added some First Solar (FSLR) taking the position to 1% of the fund for the first time ever. This is still a very richly valued stock even after a huge drop.
7. Along with Mosaic (MOS) I took the opportunity in the selloffs in the fertilizer names to add a sizeable chunk in Potash (POT), and a smaller piece into CF Industries (CF). For the "long long" run I prefer to focus on names dealing with potash due to its 'wide moat' (even if Morgan Stanley is worried about inventories), but CF Industries (CF) is probably the best value in the near term.
8. Under Armour (UA) imploded this week off an earnings guide down, so in a "better safe than sorry" move I closed Crocs (CROX) at a significant loss. When the retail stocks make their inevitable dead cat bounce and move up 20-25% for no good reason this will look like a dumb move, but I am simply worried about an earnings warning in any retail name coming out of the blue. I'd rather focus on sectors whose earnings I have implicit trust in. That said, Crocs is dirt cheap if its earnings do come through. Absolutely dirt cheap.
   
9. I closed US Steel (X), a position I had as a shorter term trade (not an investment) - for a very small loss due to a good entry point in the stock. The share price has held up very well all things considering the last week, which would imply to me, this stock will run very hard once the market stops assuming that Mars will crash into Earth. I put this money into Ultrashort Russell 2000 (TWM), taking that position to >3%. If the market does have this waterfall selloff moment, I will have some gains in this position, and flip it out, and convert it back to cash or buy some long positions.

Again, I repeat this selloff has been quite awful, and in a very tight time frame. When they take the "generals" (leaders) out to be shot as they have this week, this means we should be closer to the end than the beginning of this move down. However, I would still like to see 1 very bad open to trust this as a true (near term) bottom. Back to it Tuesday...