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: 31.3% (vs 35.9% last week)
56 long bias: 61.4% (vs43.7% last week)
8 short bias: 7.3% (vs 20.4% last week)
64 positions (vs 61 last week)
Additions: Morgan Stanley (MS), Intuitive Surgical (ISRG), Cummins Engine (CMI)
Removals: N/A
Top 10 positions = 27.3% of fund (vs 25.7% last week)
26 of the 64 positions are at least 1% of the fund's overall holdings (41%)
Major changes and weekly thoughts
I'm pressed for time this weekend so I will summarize the week's action as hopeful and ignoring any bad news while clutching onto the spirit of the US multinationals. I entered the week very conservative with my lowest long exposure since inception and obviously in such a strong week that held fund performance back. But as I mentioned I'd be ok with lagging the market for a bit as we go through the very volatile earnings season, where the "reaction" to the news is quite dramatic and many times unpredictable (Google was case in point this week). So we made less than the market this week, but we still made money, which is the important thing, and retain a large advantage over the indexes we measure against. It would be a tough chore for the market to continue to put 3-4% moves back to back, and as always we lag the indexes when they make huge moves in short periods due to our hedged exposure (holding cash, and short positions). I'm going into this week assuming there is nothing dramatically scary in the earnings reports early next week, and the market can continue to if nothing else hold up, and/or make a run to S&P 1430s, if it can break through the resistance near 1400. It's tough to find what exactly to hedge right now - even the retailers are rallying... so until Kool Aid wears off I have a quite low short exposure after the pasting I took in these names Tue-Fri. I still am keeping a sizeable weighting in Ultrashort Basic Materials (SMN) because that group is far and away the most overextended, and when it does turn it will be a dramatic sell I believe. While I could see the market continuing its rampage since bad news simply does not matter, I have the lowest % of stocks with at least a 1% stake since inception of the fund (41%) since so many stocks I own are overextended and prone to pullback. So as always, this remains a tricky environment. I continue to keep protection of earlier profits as job #1 with the offset of knowing this is giving up potential returns in the short run.
The natural instinct now is to start feeling "left behind" and begin to pay up for merchandise - especially as I see positions I held at 4-5-6% weightings a few weeks ago continue to levitate; I'm going to continue to resist that siren call and focus my purchases on areas that have yet to really take off. Most of my top positions (fertilizer, coal, metals, oils) over the past few quarters have simply gone parabolic and when they *DO* pullback, I expect a severe and dramatic correction... however for all I know it could be up 20-30-40% higher from here. Or it could start next week. With so many stocks running up before their earnings this sets us up for a lot of "sell the news" reactions when the good news is already baked into the stock, so if the market continues to move up with total ignorance of any bad news, than I expect we'll continue to trail the indexes for the time being. While the technical pattern in the indexes have improved, especially Friday, we are now at the top of a long range we've been in for 3+ months, so we'll see how the market reacts from here. As for "early cycle" plays I am curious to see just how much farther financials can go up because they "only" wrote off $8 billion instead of $6.5 billion. This is still a lot of capial destruction. And with gas >$3.50 in many parts of the country I just cannot get on this retail or restaurant bandwagon...
Strategically, I am thinking of implications of a stronger dollar (at least some technical bounce) on both commodities and US multinationals as the Fed signals it is just about done with the blunt instrument of interest rate cuts April 30th. I'm thinking of the implications of food riots, and starvation on the conscience of Western governments (vs buying farmers votes), and I'm thinking about coming meat price increases that I've been anticipating will be here sooner or later as an unintended consequence of jacking up the costs of all feed ingredients to hogs, cattle, chicken... and if the strength in iPath DJ Livestock ETN (COW) the past 2 weeks is a sign it's about to hit (and time for me to buy). And last I'm wondering if Marketocracy.com will have Intrepid Potash (IPI) ready for me to buy on the open as it IPOs this week, and if I will be able to get it under $40.
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:
- It must of been a long week because this seems like a different eon... but Monday Trina Solar (TSL) renounced their plans to build a polysilicon plant - something I questioned the long term sense in, and cheered as it was announced Monday. So did the marketplace, driving this long suffering stock up - I bought more of this name, made this position a large weighting, and then after it's pop made it back into a more normal sized stake Tuesday. I continue to believe this is a very undervalued stock and once the market comes to my view I'll be creating a much larger stake in the name. Until then, the stock is still stuck under some major resistance at $45. That was pretty much it in terms of action Monday.
- Tuesday, I did some sales in my energy baskets of natural gas, oil services, and deep sea oil drillers. As with just about every sale this week, it was premature as things just continued to rally the back half of the week, and specific to this group, exploded up Friday in parabolic fashion. And that pretty much was it for Tuesday...
- Wednesday, I took some more profits on my fertilizer stakes - but see the line item above - selling anything this week after the downturn Monday was smirked at by the market. My fertilizer weight is now the smallest its been since I started the fund, so I won't sell anymore and I'm awaiting that "pullback" :) maybe after Potash (POT) earnings we'll get a sell the news reaction (CF Industries also reports that day) - I expect stellar reports but at this point so does the whole world so I am not sure what these guys can say to surprise anyone. Also, about 20-25% of the Google hits to my blog are not some offshoot of agriculture, whether it be "agriculture", "fertilizer", ""wheat", "rice" - so obviously it's getting hot and heavy and web hits could be a useful contrary indicator. I remember getting lot of solar hits last fall before they imploded (that said, the agriculture story is a lot more weighted in safe fundamentals than the solar story is, in the near term) Again, this is my favorite story - the most secular and dynamic growth I can find. I've been a bull for over a year now. But nothing straight up (or down) - each % higher these names go, the more potential risk and less potential reward. And that does not mean they cannot go up 30% from here, but the odds become less in our favor each day.
- Again, it was a quiet week by our standards with not a lot of transactions - at heart I love growth at value levels - which is why I am always wrong on which solar stocks I pick. The herd loves the ones trading at recent highs, without any respect to valuation. My strategy of buying those with just as good prospects but trading at discounts to the group seems to work in every group but solar. So I continued this "bad" strategy with more scaling in, into LDK Solar (LDK) on Thursday. The stock now unfortunately has convertible debt which it placed this week, which is generally a red flag to me and almost always a dead weight to the common stock (institutions buy the debt and short the common shares). So this name could continue to have an anchor around it's neck for a while but the valuation is simply too compelling. Frankly, the solars have had a huge run here and are prone for a pullback. When they do, its fast and furious as we saw late Thursday afternoon for any of you in the group.
- Google (GOOG) was acting poorly all week as the market rallied, which is normally a big red warning flag - but again - nothing works 100% in the market - heck most things do not work 75% of the time. But you need to stick to a system, so when I see a flailing stock ahead of earnings, over the years that "many times" signals those "in the know" are getting out. But I would never short off that information either because taking any heavy position ahead of earnings, either way (long or short) is simply riverboat gambling to me. And Google showed us that as a whole bevy of shorts got creamed this week. Either way, I reduced some of my 2 internet related names, Baidu.com (BIDU) and Mercadolibre (MELI) on Thursday ahead of Google earnings in case there was collateral damage. Instead they of course popped even more Friday, where I took even more of the positions off the table and now have them as 0.5% type of stakes so I'll be holding these 2 stakes here, and just waiting for a pullback to add more.
- Ironically in a bit of good timing I was complaining Thursday how the infrastructure stocks were simply not understood or appreciated - multinational after multinational were saying how great the infrastructure business was yet the pure play stocks were not moving. Well that finally changed Friday as some key names took off, and as their charts finally improved I began layering into stakes. Most notably larger stakes in Foster Wheeler (FWLT) and Jacobs Engineering (JEC). Now I did notice JEC has earnings next Tuesday so there is some risk there, and if the stock pops ahead of earnings I'll probably reduce that stake a bit just so I follow my conservative policy of not being too overexposed to anything oing into earnings. I still find this whole group cheap, but the overreactions by investors to their 3 month quarters, in a business that is based on 2-3-4-5 year contracts can handcuff us.
- I started 2 new stakes Friday, one in a (hold my nose) financial, investment bank Morgan Stanley (MS) and one in medical equipment maker Intuitive Surgical (ISRG). The former is simply the best looking chart of the 4 investment banks, and along with Goldman Sachs (GS) the only 2 I feel have performed halfway decent through this investment bank implosion. Frankly, they now have the Federal Reserve behind them so the risk of these 4 names is far less than in a "free market"... socialism rules like that. As for Intuitive Surgical, frankly it highlights everything I say about being conservative going into earnings - its the yin to Google's yang this week. Everything they reported looked fine to me, but because forward expectations were a TAD bit under what the horde wanted the stock got creamed. I was buying in the $295-$305 range but frankly ths one looks like it has a good chance for $265, where I'll buy more. There is one huge risk here and that is, if credit markets continue to falter that hospitals might have difficulty funding the purchases of this >$1 million robot. But I love the business model (razor/blades). This is a stock I owned at $40 3 or so years ago, and one of those you wish you just held and never sold :)
- Along with those names, I did add to my 2 homebuilders, Lennar (LEN) and DR Horton (DHI) - again I think the "rebound is coming in 6 months" idea is trash but I have very little exposure to stocks that benefit when that is the market credo so this is why I hold those 2 positions, and now Morgan Stanley. Not some great belief that the turn is here.
- Since I had so much cash I had to find some more long exposure so to replace the internet names I had sold down of late, I added to my Apple (AAPL) stake - but again this one has earnings next week so I am hoping for a pre-earnings run which I can sell into. Last, I added a little to Blackrock (BLK) although the chart looks weak and I could see some material selloff in this name... it's still a minor stake for us.
- With all the momentum from the multinationals, I added back an old position to the fund Cummins Engine (CMI) - this co is a power player in India and China but the stock has been weak for a long time... I had to buy 8% up but it rallied even further in the day. I haven't looked at this name for a while, but upon reviewing it's earnings estimates, it looks very cheap. I also considered another old name of similar ilk (multinational, weak dollar play) General Cable (BGC) but did *NOT* pull the trigger when it was only up 1-2% early in the day - it went on to a stellar day but sometimes you just miss opportunities.
