Bookkeeping: 'Rising Tide' Performance Week 27

Week 27 performance of the mutual fund

Comments: We started a new quarter for the fund - Year 1, Quarter 3 and it looked a lot like Quarter 2. More randomness and bipolar action. Do you feel whipsawed? You should. Let me show you what the S&P 500 has done the past 4 weeks.

3 weeks ago: -5.4% (the worst week in 5 years)
2 weeks ago: +0.4% (eye of the storm)
1 week ago: +4.9% (the best week in 5 years)
this week: -4.6% (I don't know where it ranks but it essentially wiped out last week completely)

These are enormous moves in indexes and this is part of the reason we are all feeling so uneasy and no trend lasts for more than 3-5 days (or 3-5 hours in some cases). It is madness out there. We are actually at exactly the same point we were 2 weeks ago in the indexes, before the +4.9% gain (last week) and -4.6% loss (this week). So we went through all that trouble ... to get nowhere in particular. This is why I opined earlier today, it makes one want to just go to cash and sit idly by waiting for a better time.

My take for this rampant volatility (and it is a guess) is we are moving from (a) no recession school of thought that pervaded the Street in December to (b) some recession thinking school of thought... and now the next phase is (c) what kind of recession? Layer on top of that the continued unease of the bond insurer situation and the fact that the duration and depth of the recession don't depend as much on traditional things (job creation, inflation) but in large part on an unknowable component - housing. Housing permeates everything - our job creation, our financial system, our banks, our confidence, everything. For every 100 mortgages, we now need to have some idea of how many will still be paying in a year? how many in default? how many in foreclosure? (will the owners have a job?) and then where are all those exposures throughout our financial system. Who owns those mortgages? What balance sheet are the bad ones sitting on? After they blow up how much more write offs will be necessary? What foreign sovereign fund will come to the rescue next time? Will any?

One point I like to drive home to people new to the market is that the Street prefers BAD news to uncertainty. Period. Bad news can be absorbed, measured, and reacted to. Uncertainty cannot. This is why the black boxes that are our banks, and in fact the entire financial system is such an issue. The best bank experts and even those within the companies seemingly cannot make heads or tails of exposure. We all guess. But we have no real idea. And even if we did, it is a moving target. Today 2 houses on Maple Street in downtown Tampa Bay are in foreclosure, 4 other are in default and 3 months late... what will the picture be in 6 months? in 12 months? Who knows. But unfortunately all those moving parts affect the balance sheets of a plethora of global financial institutions. So I am not sure how this ever gets 'measured' - the only "fix" is for home prices to rebound and people to stop (or slow down) defaulting. When that happens than at least we have a baseline and can assume things only get better from there. Right now, the market is simply guessing when it happens and the most popular guess nowadays (using old and useless playbooks) is the commonly cited "6 months from now". As if in 6 months a magical elixir will be swallowed by the country and "it will all go away". Well I'll tell you what the elixir has been the past 20 years - Fed rate cuts. But these are a whole different set of problems than we've had in the past. Essentially a Ponzi scheme built on home price appreciation. So I expect a lot more uncertainty to continue for the foreseeable future. It would be nice if the markets did stop making half the magnitude of a correction (10%) move every week though.

Last week I felt quite frustrated. While the fund made 1.3% I badly trailed the indexes (which I measure myself against) as they went ballistic, chock full of financial, retail, and homebuilder stocks that people wanted so badly. This week, aside from Thursday when "bad news in retail stocks means great news", all those sectors sold off. So it was a more normal week to some degree than the past 2 when "worst of breed" reigned supreme. It was a bad week for the indexes so there weren't many areas of outperformance but areas of (relative) strength for the fund were coal, fertilizer and the good sized short exposure. Areas of weakness were solar, tech, infrastructure, and anything oil related.

The S&P 500 lost 4.6% this week with the Russell 1000 down 4.5%. Rising Tide Growth Fund lost 0.65% this week, so essentially while down, we made up all of last week's underperformance vs the indexes (and then some). For some odd reason I feel better about this week when the fund lost money (but beat the indexes by nearly 4%), than I did last week when the fund made money (but trailed the indexes by 3.5% or so). Maybe because things seemed more normal this week as sectors infected with subprime and a slowing consumer weren't the best performers.

Price of Rising Tide Growth: $10.937
Lifetime Performance to date (vs Aug 3, 2007): +9.37%

Comparable S&P 500: 1,331.29 (-9.14%)
Comparable Russell 1000: 726.87 (-8.71%)

Fund return vs S&P 500: +18.51%
Fund return vs Russell 1000: +18.08%

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 January 2008.

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