Comments: Year 2 begins identical to Year 1 - in the hole versus the markets. Ever feel like you are on the other side of Russell Crowe's sword? See all those objects laying in the dust below - each represents one of our stocks of late.
This remains a bifurcated market - some groups work, some do not but the groups working the past 6-7 weeks have for the most part not been our groups. This is opposite to most of the previous year. I keep saying "on the positive side" our stocks keep getting cheaper as their prices fall and future earnings rise but I appear now to be talking to a wall, or a very belligerent microproccesor. So unlike most funds who will stick stubbornly to their positions and say "we'll continue to lose money hand over fist until the market sees it our way" we are taking actions to mitigate these multiple lacerations, until money flow returns to our favored stocks. I did a forward P/E analysis on all current positions; updated with the latest earnings for those companies that have reported, and some of the number simply seem unfathomable. I'm a P/E to Growth fan and from what I'm calculating there must be one epic global depression coming to justify this dislocation in price versus future earnings - the type where people won't need to eat since they've been wiped off the Earth. I can guarantee you in 6-9 months people will look back at charts for some of these stocks and wonder how stock prices ever got so low and will forget the quant computers relentless selling. But for now it is just punishment to hold these. Right Mr. Crowe?We've been (mostly) punting a lot of the global growth names although when the selling has been extremely traumatic we've made some buys (late Tuesday of this week) but we are now filtering in names in healthcare and retail, and re-upped some technology exposure this week as well. Money has to go somewhere and even the days it goes out of banks it doesn't really flow into the former leadership stocks of the past year. We're still sticking to best of breed names we are ok owning over time, but diversifying far more into other sectors that are currently where the money is headed. This doesn't mean we don't believe in the global growth story, but we can't have 90% of our portfolio working against us for months on end. So we'll call this a restructuring but unlike our banking system I cannot just "write off" the past 6 weeks and say "it didn't happen". It is what it is, and we need to try to find ways to make money or at least not lose it hand over fist. Frankly I feel like a pretzel with the whipsaw action that does not relent week after week.
Actually the action is confusing on another level in that while I see the indexes up strongly some days, I see very little on my watch lists that are ramping along with it - and I have probably 400+ names out there. Here are 2 examples of the type of companies leading the indexes up - both members of the S&P 500 - broken stocks that are rallying very hard the past few weeks/month, and primary examples of why we are being left out of the party. One is a broken technology stock with a chart we'd almost never touch, the other I guess is rallying on the "Americans will have plenty of money to spend on discretionary items as the economy booms" or maybe the "people will change to motorcycles instead of cars - even though they don't need to because oil is heading to $60 anyhow". The point is, its an oversold broken stock rally - and trying to apply much logic to it will drive you (me) batty. I would just call this the "everything will revert to the mean over time" rally. I don't believe in the fallacy that oil to $100 (or $90 or $80) solves the nation's ills, but the stock market is speaking differently.
Another S&P 500 example - Monster Worldwide (MNT) rallying from $17 to $20 this week when we are finding companies cutting back across the board, bankruptcies rising, etc. I guess this is anticipating the "1st half 2009" recovery (here we go again for those of you who were around through the winter and spring). I'm not sure if these examples are all short covering or real buying. It just seems a bit incredulous and my personal super computer (located in my skull) simply does not compute :)
Volatility remains high with 1-2% moves becoming normal in the indexes. And many times in completely different directions in 24-48 hour periods. This has been the case for what seems many months now. However, Friday showed some promise - finally - for the bulls. The only question is which bulls? For now it appears the retail, financial, airline, technology, and healthcare bulls only. A true happy go lucky bull market will lift all boats so hopefully they send the Coast Guard to pick up the global growth stragglers someday. Oh how the worm has turned. ;) I picked up this quote off of Realmoney.com today and it really is spot on - we now live in a market of serious overreaction to every little line item... you can see that with how each day stocks gyrate around oil moving $1 this way or $2 that way - as if the world is different at oil $121 versus $118.Some soundbite traders will have you buying consumer durables as aggressively today on a booming recovery as they had you buying defensive staples last week on the economic collapse.
This is why everyone is getting so whipsawed - the economic "thesis" is changing by the day if not hour nowadays. Just yesterday we had the End of Days on the AIG news and does ANYONE remember the 455K job losses? Fannie Mae and Freddie Mac anyone? But today with the dollar stronger the world is now ok and with oil headed to $110 its time to load up on retailers? Seriously? Yes. If you look at stock prices. It is all incredulous but this is 'fast money' trading showing its dominance. It makes little fundamental sense. And what day next week (Thursday I assume - when the next batch of jobless claims comes out) do we stress out over the economy? So we have to buy defensive stocks at 3:59 PM Wednesday, and then dump them all Thursday at 3:59 for the "oil is going to $60 - it's time to party" rally on Friday. Again *this* is what the market has come to right now, to make any consistent money. Complete arbitrary binary positions, which deviate many times 180 degrees depending on which way the wind is blowing.
Speaking of those "loser" global growth stories - even if the "global slowdown" does slash 10, 15, 25% off of earnings (which I don't believe to be true) across the whole lot, these stocks are very cheap on forward earnings considering their growth rate. But those are fundamentals, and we don't use the f word around here anymore. It's all about charts and momentum and the momentum has long left the building for these guys. I'd also like to add to all the "stronger" dollar cheerleaders - you do realize what the only thing that has been holding up the U.S. economy the past year correct? Exports? Mmmm I know... I know... details details - we can't be bothered with facts like a sustained move in the dollar would rip apart the only leg this stool is standing on. We are too busy buying stuff to worry about it. :)
For the fund, as we mentioned above we've morphing directionally - we're delving into some more healthcare, some new retail, and increasing for the first time in a long time some technology exposure. With the market changing its mind on which sector is the "right one" to run up every 48-72 hours, this should provide us with more balance if nothing else. It still did not help us this week, as Tuesday and Friday (ironically the strongest days for the market) - completely sunk the week. I still only count 2, or perhaps 3, stocks we own that could in any way shape or form of report what could be called "disappointing" earnings/guidance - but we've been taking devastating hits left and right post earnings on the vast majority of our stocks. Many of which raised guidance substantially - talk about adding insult to injury. It certainly is a new era; ever since I began you went into earnings hoping you at least "matched expectations" and as long as you surpassed it you were fine. Now it simply does not matter - only sector allocations matter. So we're adjusting on the fly to this "new truth". We did have one big winner with Fuel Systems Solutions (FSYS) but one does not make up for 18-20 post earnings losers.
The markets gyrated up and down viciously (again) all week, and through Thursday were flat - but ran off like a scalded monkey (ref: Macke) Friday. Which it also did Tuesday. Before being decapitated Thursday. But I digress. The S&P 500 gained 2.9% and the Russell 1000 was up 2.6%. Rising Tide Growth continues to trade in a parallel universe which it has been locked inside the past 6-7 weeks and fell 3.2%. That says a lot for the majority of the portfolio, considering our top position going into the day gained about 30% Friday. On the plus side we have 51 weeks remaining to attempt to reach our yearly goals. Ok I'm searching for silver linings...
As always if interested in pledging an investment when fund is ready to launch (shooting for late 2008) please attach a comment here, or send me an email (need your state please). We are now approaching $4 million pledged - thank you.
[Note: we are counting each year on it's own so this is the beginning of year 2 since its the 53rd week]
Year 2 Metrics
Price of Rising Tide Growth: $10.658
Year 2 Performance to date (vs Aug 1, 2008): -3.21%
Comparable S&P 500: 1296.3 (+2.86%)
Comparable Russell 1000: 707.9 (+2.55%)
Fund return vs S&P 500: -6.0%
Fund return vs Russell 1000: -5.7%
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 July 2008.
Basis for indexes for year 2 is closing price August 1st, 2008.
SP500 : 1,260.3
Russell 1000 : 690.3
Please click here: fund performance for previous updates
*** Year 1 Results here: +10.1% vs -14.0% S&P (+24.1%)
4 comments:
Hang in there Mark. I've been in your position many of times. Times like these will often make you stronger in the end. Remember the old Livermore quote, it went something like this.....Sometimes in trading as bad as it gets is as good as it gets. I don't think there is a more appropriate take on the current status of things like the financials, airlines, refiners, retail, etc.... Most were/are priced for B.K., so how realistic is that? I remember all the bankruptcy talk in CLF back in 2002, we all know how accurate that was. Go back and read some board posts in CLF, you will swear they are talking about a airline or financial. No different this time around, just different characters. Fear and Greed, Fear and Greed. Thus why I believe the beat down sectors are the places with the most potential, commodity/global growth stories are nothing more than another group in a long list of recent bubbles, they look juicy from the fundementals slant, not much different than homebuilders of 2005/2006. In a year from now they won't look so swell. Just my opinions. I admire the fact that you are taking the beating to heart and at least are moving to other areas. It takes some a lifetime to figure that out. Keep with it, things will get better.
Mark - we have all been there [/here!] before - it takes a strong, honest person to look at the preception of a failing situation and then to deal with it.
Read this, take two beers and come back in the morning ... [besides it features you]
Feed: TraderFeed
Posted on: Friday, August 01, 2008 6:22 PM
Author: Brett Steenbarger, Ph.D.
Subject: Those Who Fake It Never Make It: Notes on Faking Reality
After noticing Trader Mike's update regarding a doctored interview with Dave Mabe of StockTickr, I decided to leave a comment on Dave's site. Here I'd like to amplify that comment, because it gets at the heart of trading success and failure.
We talk about losing discipline in trading as we might talk about losing our car keys or our way out of a forest. But losing discipline is not about a simple act of forgetting. It is an active process of refusing to act upon one's knowledge, of blotting out uncomfortable realities. It begins in small ways: talking about our winning days, but remaining mum about losers; convincing ourselves (and others) that we're "doing okay" and "breaking even", when in fact we've stopped looking at the red P/L; ignoring a profit target and taking small gains; violating a stop-loss level and substituting hope for planning on a losing trade.
Out of such small fakes of reality come the larger ones that lead to blow ups: the breaking of risk management rules, the rogue trader's futile attempts to cover up losses.
The really good traders? They don't present themselves as gurus. They're all too keenly aware of the market's way of humbling such pride, and they keep their hard-won lessons firmly in mind. Reality is their best grounding. It's the boasters and self-promoters who have to fake reality to sustain their images in the public mind. But if would-be gurus can't be faithful to reality, how can they remain true to you?
Years ago, when I was in Syracuse, I met with a trader who wanted coaching and counseling. He had sustained major losses in the markets. During his description of his trading woes--and his grandiose plans for making the money back--he casually noted that his home life was tense because he had hidden the losses from his spouse. I declined further meetings with the gentleman. His problem was not trading and, strictly speaking, it wasn't psychological. It was his lack of integrity: his unwillingness to be true to his wife, his plans, and his perceptual process. I had no doubt that his marriage would blow up the way his trading had blown up--and for precisely the same reasons.
As part of writing my new book, I asked over a dozen bloggers and traders to share their ideas about self-coaching and what has worked for them. A dominant theme in the responses has been a relentless drive to keep score: to learn from losing trades and winning ones; to assess performance and guide risk taking accordingly; to clearly identify strengths and weaknesses and adjust trading styles for those. These are experienced and successful traders who have met with success largely because they've been unafraid to sustain the look in the mirror.
Now when I first start working with a trader or a firm, I will toss out a simple homework exercise, such as keeping regular journal entries. Some traders go out of their way to make the most of the assignment; others fulfill it with minimal effort; still others fail to follow through at all. It's the difference between those who work hard at trading and those who hardly work: one seeks earned achievement; the other seeks the unearned. One is grounded in plans, the other in fantasies.
Show me a person's relationship to reality and I'll show you their character--and their success. Contrary to the popular saying, those who fake it never make it.
.
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Mark,
I think you mentioned that CTXS was a clear sell into strength because the rally barely broke the resistance. Well I don't mean to be annoying but I notice you favor Moving averages which is solid. I also notice how your charts have volume indicators...well usually when these stocks make miraculous comebacks on declining volume (downtrending volume) the rally is fake and will meet resistance. And the same goes for breaks through resistance...they are more believable on high volume.
I am in T/A 101 too and i think you'd agree (ok more than agree) that charts are so important (only thing that matters) in this market, so i just was wondering if you ever use volume at all in decisions.
The other thing is that...I notice you are more of the Rev Shark type (as opposed to cramer) not to pin you to a pundit, but you prefer to sacrifice the bottom and the first 5% to preserve capital as you'd rather see and uptrend/better chart and catch the middle of the move, as opposed to buying aggressively and calling a bottom ;)
but secondary indicators are said to help spot turns earlier. when RSI and stochastics start turning up and making higher highs and higher lows and are in uptrends it usually signals the stock is already or is going to be in an uptrend. Actually I noticed this with a lot of junk that's been pumped up lately...look at Tech stocks ..like RIMM or aapl or whatever else, a few weeks ago the RSI and stochastic bottomed and have been in an uptrend before the stocks really showed a sustained bottom and then uptrend.
Again I apologize if i seem to be annoying and tutorial but i just thought that looking back on the recent tech rally..the RSI divergence (stock is sideways or down while RSI is starting uptrend with higher lows and highs) and stochastic divergence called the bottom so one would have been able to get in earlier and miss only the first say 5% instead of first 10% of move. when you see a stock beaten down so much way below supports/resistance it seems like its hard to chart and they're lost in nowhere's land..i just find secondary indicators can take away the "lost" feeling as they confirm trends and the changing of trends.
unfortunately in this market you're investments are only as good as your chart so hopefully your chart (as you reiterate and pound day after day) is good.
Hi Bill,
Honestly I am more of a fundamental guy - really I prefer to pick stocks, hold them for months/quarters/year+ and then cut back when they begin to break down or take profits along the way. What this market is now is something that does not suit that style or play to my strengths which is fundamentals. A lot of what you are saying is probably accurate but I don't really pick stocks on technicals alone or technicals (mostly) but am being forced to. My strength has been idenitfying stocks/trends early and then benefiting when the crowd gets there. If one wants to argue that airline stocks or financials are the "new trend" I guess there is an arguement there but I simply don't believe the fundamental story for those, although fundamental mean little. So again, not my type of market.
I didn't say CTXS was not a buy or something to sell. I simply said its not the type of stock that fits my wheelhouse from the chart. What is working now is broken down stocks returning from the dead... thats not really my thing and I expect many of them to break down again in due time.
Unfortunately time frames right now are much too short for a "fund perspective" - it it for traders, not people who want to own good long term fundamental stories.
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