Friday, April 4, 2008

Bookkeeping: 'Rising Tide' Performance Week 35

Week 35 performance of the mutual fund

: Another bipolar week in the market, with financials/retailers/homebuilders ramping Monday - Wednesday, while commodities were trashed, followed by the exact opposite on Thursday and Friday. On Tuesday, we had our third 400 point "best in 5 years" type of rally in the past 4 weeks, but this time, unlike the past 2 I cautiously went out on a limb believing this move could have some legs as we made a new higher high [Dare I Say It? A Higher High?] This proved to be an accurate call, as the market shrugged off >400K weekly unemployment claims and a worse than expected monthly labor report later in the week. We're at an interesting point as I outlined earlier today. We've put on quite a move, a lot of charts look technically better than they have, but volume has been relatively light and we need more people at the party to take us higher. But the action has been far more constructive than any other week this year (and we're already in the 2nd quarter), so there remains some hope for an extension of a rally as opposed to all those other false bottoms that pundits assured us "no, really this is the bottom - buy buy buy!"

On the economic front, things continue to worsen. I am only awaiting the moment the first pundits begin the "1st half 2009" recovery - from their current "2nd half 2008" recovery. Just remember, everything will be fine in "6 months" - they just don't tell you which 6 months. Again, my views have not changed but as with Sep/Oct 2007 when the "accurate discounting mechanism" of the collective market completely missed the coming financial carnage, I had to hold my nose and drink Kool Aid. Just like I am doing now. I don't believe in any of the myths being told, but I realize these myths can take the market up, and if I sit on my hands, or stay insistent on being short the market, I will be correct intellectually but make my shareholders far poorer. That's not the point.... so I'll play along conceptually but just smirk intellectually at the madness of the Kool Aid. The market is pricing in a 'light, shallow, and quick recession' - I believe it will be much harsher than that, so when the market needs to price in what I believe will be coming we will have another 'adjustment period' (read: down). I truly think this is one of the biggest disconnects between Main Street and Wall Street I've seen in my years doing this... but the people who reside in both spheres do live in totally different worlds, so I can at least understand "why" the disconnect is there. But I continue to believe the ivory tower crowd in NYC is going to be surprised by the large earnings revisions downward coming in 2nd half 2008 for any domestic focused company - multinationals should be ok...

The fund had a solid week, but it was a Tale of 2 Weeks. The fund was trashed early in the week [This Week's Commodity Action is a Reversal of a Reversal], and in fact lost a lot of value Monday and then even was down Tuesday as the indexes sprinted to 3.5% gains. We did not own the type of early cycle stocks the market was falling in love with (once again) - many financials ran up 15-20% early in the week so I could only watch in mock horror. Further, I actually owned Ultrashorts against all these positions (and a large cash position) which has served me well for months, but has been awful 3 of the past 4 Tuesdays, including this one. I correctly dumped a large portion of these Ultrashorts late Tuesday but the damage was already done that day. Essentially running a 'hedged portfolio', the days the markets make magnificent moves upward, I can never hope to match those returns - you'd need to be completely or nearly completely unhedged, throwing caution to the wind at the exact right moment to fully participate in such moves. I did a lot better later in the week when individual names ramped and the markets were relatively listless.

Later in the week some moves back into commodities and a prescient call to re-enter solar stocks in a material way helped me gain back some of the lost ground versus the indexes (especially Friday), but the knockout punch of Monday/Tuesday made it impossible to catch up, especially with a 25-30% cash position for most of the week. I also went cautious on my fertilizer exposure, specifically with Mosaic (MOS), reducing it from a 6% position mid week to just above 1% going into earnings Friday - not because of fear of results, but because of fear of the lemmings reaction to results. So a quick back of envelope calculation shows by reducing my stake by 5% and missing out from $100 to $113 or so where I began getting back in the name today, I left about 0.6-0.7% of fund performance on the table. Quite a lost opportunity... but that's the opposite side of being cautious - you are going to leave some on the table. I still stick by the structure of the trade (because if it went down severely I'd be thankful) and as we enter earnings season I'll probably miss a few other opportunities like this because I'll be cutting back exposure for almost every stock going into earnings - just too much unpredictable behavior for my tastes. I prefer to be a contact hitter, producing a lot of singles, doubles with a few HRs thrown in, rather than a HR/strikeout king.

So overall, the fund made a very nice return this week, but due to the above mentioned reasons lagged the huge move up (most of it in 1 day) by the indexes. The S&P500 returned +4.2% this week, and the Russell 1000 +4.3%. Rising Tide Growth Fund gained 2.8% so a nice return on absolute basis, but we trailed the indexes this week.

Price of Rising Tide Growth: $11.538
Lifetime Performance to date (vs Aug 3, 2007): +15.38%

Comparable S&P 500: 1,370.4 (-6.47%)
Comparable Russell 1000: 747.12 (-6.16%)

Fund return vs S&P 500: +21.85%
Fund return vs Russell 1000: +21.54%

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

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