Bookkeeping: 'Rising Tide' Performance Week 37

Week 37 performance of the mutual fund

Comments: Two more weeks until "our" 3rd quarter closes... it was a great week for the markets, and yet another "best week in 5 years for the market" - we just had one of those 2 weeks ago. Showcases the extreme volatility that remains in the market. It seems long ago but we had a down day Monday and then from there no amount of bad news could bring this market down - from Intel to IBM to Google to Citigroup. The tell tale sign this week was actually Thursday, which was a day the market did nothing... in the face of a handful of quite bad earnings such as Nokia, and Merrill Lynch. Yet no selloff. We also had 2 more inflation reports insisting it's all in our imagination. This is simply a market that wants to go up - aside from "surprise" blowups like General Electric (GE) last week, it's been the case since April 1, 2008. Strange how things turned on a dime like that once the calendar turned.

Looking at the fund (and market) of late, we had the "best week in 5 years" (on the Dow I assume) this week, repeating the same scenario from 2 weeks ago, and another great week 4 weeks ago for the indexes. In between those weeks were 2 not so good weeks. So when the indexes rip off these huge moves, we've had a hard time keeping pace simply because the moves are so enormous and sudden and abstract. Without employing a full 100% long, throw risk to the wind strategy its impossible to really keep up those weeks. That's been the case 3 of the past 5 weeks. In the other 2 weeks when the market corrected or was constrained, we've outperformed by a country mile, generating 10.5% positive return versus the indexes as a more hedged approach worked out. Hopefully the markets calm down to some degree on a week to week basis, and individual stock selection becomes more important than asset allocation again. But somehow I don't count on it. It is hard to believe but before last spring we went a year and a half without a single day where the index (S&P 500) traded +/- 2%. Now we get those almost daily. And week after week of +/- 3% moves. When I review the data, 6 of the past 16 weeks have seen moves of +/- 4% - very extreme action.

Technically, we ended the week at S&P 1390 which is an interesting spot. Right below some previous highs but close enough to be titillating as a precursor to more upside. The general mood seems to be bright/euphoric and when bad news is treated as good news it is hard to bet against the market. I'd "assume" we make a move north of 1400 and onto 1430s at some point next week - taking a peak at what is on the schedule for earnings early next week I don't see anything that should scare the market and as long as we keep rolling out multinationals that can show big growth through currency conversions (weak US dollar drives big revenue gains) we can continue to drink Kool Aid. Granted this is only about 200-300 companies in the entire US, but those are the 200-300 the market fixates on, so as long as they report numbers that make people happy, we can forget about all the bad things under the surface in smaller companies who rely solely on the USA. Remember, the market attempts to look ahead - when it attempted this last October/November and the market ran to new highs, it obviously missed the forest for the trees - we had corrections in November and January, the latter being extremely serious and later in 2008 we required Federal Reserve intervention to prop up the equity markets. So whatever the market was "predicting" last Oct/Nov was clearly a big mistake. So now we enter a new period where the ever hopeful bulls believe everything will be fine soon enough. We'll check back next fall to see if they were correct or not.

For the fund, we entered this week cautious with a very large cash base and a meaningful short exposure (20%) - so obviously when the indexes just pulled their best (Dow) week in 5 years that was not a good match. However, as I stated the past 2 weeks my goal this earnings season is to not give back the gains we've built up for the year; at the risk of missing out on upside performance. So that came to fruition this week, as we did not keep up with the indexes but eeked out a positive return despite having the lowest long exposure for 4/5ths of the week, since fund inception. While I changed stances somewhat on Friday, I still am going to tread cautiously (cash is still nearly 1/3rd as we speak). If this is the beginning of a new era of bull market and "everything truly will be fine in 6 months" there will be plenty of time to catch up later versus the indexes, and more important is to keep rolling out positive returns. Further, almost every sector I am really interested in, save the infrastructure stocks, have already put in quite epic moves in a short period of time, so to keep shoveling money down the throats of these stocks is inviting trouble.

This week the S&P 500 and Russell 1000 once again put in an enormous move, gaining 4.3%. I assume the Dow did even better as those stocks dominated this week's news flow. Rising Tide Growth Fund was like a hesitant baby turtle, just hatched and trying to cross a busy Florida highway - eeking out a 0.6% gain. Way too much cash and way too much short exposure this week to even attempt to keep up with the indexes.

Price of Rising Tide Growth: $11.724
Lifetime Performance to date (vs Aug 3, 2007): +17.24%

Comparable S&P 500: 1,390.33 (-5.11%)
Comparable Russell 1000: 758.19 (-4.77%)

Fund return vs S&P 500: +22.35%
Fund return vs Russell 1000: +22.01%

Last week's results here.

Since the market cap of the median stock in the Rising Tide Growth fund (median $7.1 Billion as of April 08) 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 April 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