Friday, August 29, 2008

Bookkeeping: 'Rising Tide' Performance Year 2, Week 4

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Year 2, Week 4 performance of the mutual fund

Comments: Yawn. We continue to churn. [Churn] Despite all the hectic moves this week the indexes were not wildly different than where they they were at the end of last week. Or the week before. Or the week before. Four weeks ago the S&P 500 was 1296; today 1283 - or a -1% move in return for wild daily gyrations. The fund is almost exactly the same spot it was 4 weeks ago - one PENNY higher. Whoop there it is. Again - the brokers executing the trades are the only one amassing any real wealth the past few months. Fact of the day - the S&P 500 first hit 1300 nine and a half years ago. So here we are again (well, technically we are below it). And that is not adjusted for inflation which would make this measure a whole lot worse. Does a country's stock market reflect said country's fundamentals? You can decide.

It is really impossible to generate any meaningful appreciation even in most individual names as things stand. The time frames necessary to make gains are far too short for our purpose. 3 days in; then out of position - let position retrace and then jump back in - repeat. That's the nature of the market right now and certainly does not fit the landscape of any mutual fund. We were (yesterday) at the top of our recent range which I mentioned constituted an opportunity to begin to short either today or Tuesday... and now if patterns hold, we will fall for a few days, then rebound for a few days... until we hit resistance... and then we'll fall. I don't know what gets us out of this funk but it's surprisingly repetitive. On the economic front an export loaded, rebate loaded backwards looking GDP figure was celebrated event though when bad news is reported, we are told to ignore it because it's backwards looking. But don't ignore "good" news. Next week we have the monthly nail biter - the unemployment report.

Old favorites (sectors/stocks) that held up best the past year (pre July 1) continue to drip drop away slowly but surely in stock price - they will occasionally make oversold bounces, raising hope - but that is quickly sold off. Out of favor stocks (up until July 1) continues to do the opposite - slowly making gains, before occasional sharp drops which wipe out 2/3rds of the gains - before making a new run up. And so the dance continues. If you can jump in and out of these names every 48-72 hours you can make a living here. Otherwise it's water torture. We have a much needed staycation ahead of us.

For the fund we took some hits in both A-Power Energy Generation (APWR) on earnings (even though they were fine and this is one exciting story), and Amylin Pharma (AMLN) as last week's drop was followed by more perceived bad news. We were protected Monday from the downturns in the market by our financial and real estate hedges, but all those gains were evaporated (plus some) during the rest of the week as those stocks, after being out of favor for 3 days, went back into favor for... 3 days. So we actually lost money on hedges this week even with the slightly down market. That's what bear markets will do to you. We are sort of inverse to the market right now - we did well Monday/Friday and trailed the rest of the week. The problem right now is we need some direction, any direction to generate some gains and we're getting nothing that lasts - big drops are quickly reversed and big gains are quickly reversed. So unless you are in and out of positions/ETFs in 48-72 hour increments you cannot hold onto gains. The alternative is playing the most beaten down stocks and then you can make some money with riverboat gambling... err investing. But again these are trades, not investments. Investing is simply difficult right now. I've continued to liquidate some long held positions this week, along with Amylin, to narrow the scope of names we hold. With what we hold, we're getting "effectively" stopped out of position after position - i.e. once the stock breaks support on a chart we're cutting back to 0.1-0.2% type of positions. So cash continues to build. This is the most cautious positioning we've held in a while. It is a morass out there.

I appear to be the only one worried about the economic outlook ahead - everyone is jumping on the "everything is fine in 6 months" bandwagon - the same one they jumped on a few times over the past year. Frankly, while I had a blueprint that this is how the economy would devolve, to see it happening slowly but surely is making me more worried. Whereas the equity market has the opposite reaction. I find that strange. We enter the historically worse time of the year - while crashes infamously happen in October, September is the worst month of the year in actuality. However, I remember typing that last August verbatim and seeing the market race to all time highs on the S&P. Why? Well it was predicting good things ahead of course - that's what the market is right? A predictor of the great times 6-9 months ahead. That predictive ability proved to be "wrong". We'll see how things go but I continue to shake my head at both the apathy and rationalization of the data, and spin doctoring of it all. Maybe they can keep it up and just want to get through the election. I'm still trying to figure out whose pockets the next $500 billion in write offs in financials is going to come from?

A very volatile week intraday but again we went nowhere as a market - the S&P 500 lost 0.7% and the Russell 1000 lost 0.6%. Rising Tide Growth gave back a bit more than half of last week's gains and is right back to where it was a month ago, losing 1.0% on the week. "Year 2" is currently quicksand.

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 at roughly $4 million pledged - thank you.

*** Year 1 Results here: +10.1% vs -14.0% S&P (+24.1%)

Year 2 Metrics


Price of Rising Tide Growth: $10.656
Year 2 Performance to date (vs Aug 1, 2008): -3.22%

Comparable S&P 500: 1282.2 (+1.79%)
Comparable Russell 1000: 702.2 (+1.72%)

Fund return vs S&P 500: -5.0%
Fund return vs Russell 1000: -4.9%

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

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