Bookkeeping: 'Rising Tide' Performance Year 2, Week 6

Year 2, Week 6 performance of the mutual fund

Comments: Terrible. That explains how we did this week, and also explains what I think about the shenanigans going on in this market. Without the ability to short individual names, it's simply a very tough market to make money. As I've been saying, the gains on the up days are not making up for the losses in the down days. I wanted to review what the heck happened this past week on a day by day basis because I was incredulous to suffer so badly this week... let's have a chart handy

Let's start with last Friday - so we looked like we were about to fall off the cliff, as we went to test July 15th lows... breaking those lows would send off a cascading waterfall effect of quant fund selling along with human traders who still use old technical analysis. We were in a very dangerous moment - then out of the blue, mid day - financials reversed. I mean what could of driven it (Goldman finding out about meetings between Fannie/Freddie officials and Treasury and letting their best clients know? nah!) But just by "random chance" financials knew to reverse - imagine that. So if you were positioned for the cascading selloff Friday you lost some money. But by 4:15 PM Friday you were looking at more losses and post bailout Sunday night you were staring at an abyss. Monday the market gapped up around 3% and while pulling back during the day, ended on its high. That would usually signal a very good thing. So you'd want to lighten up short exposure - plus since the market gapped up you had to "pay up" to get more long exposure. What was the result of that? Total obliteration Tuesday as the market gave back all it's gains (it's the big red line seen above) So already in a span of last Fri - Tues, you were done in by "important people" knowing before you about Fannie/Freddie - a gap up Monday in which you had to scramble to put on long exposure, of which you were obliterated owning Tuesday as the market crumbled. These were not small moves - they were of the 2-3% types each day.

Wednesday was relatively quiet, but weak - no real rebound. Then we got to Thursday which opened weak and once again we started into the abyss early in the morning - you want to increase your short exposure in case we fell off the cliff. But by doing so you were obliterated as once again "someone" found out that Lehman was getting assistance from government (ah this one was known to a lot more people because people at Bank of America knew, people in other banks that were being contacted as "suitors" knew, and our friends at Goldman always know) So financials reversed up out of the blue. That Ultrashort Financial (SKF)? Obliterated just like last Friday. From the low of the day to the high of the day - a 300+ swing in the Dow and another nearly 3% change. So it went all week.

I keep repeating this market is not for investors. It is for traders and even traders are being blown up because directions are changing if not by the day, now by the hour. It is simply impossible to game and fundamentals mean little to nothing. As for the fund, I came into the week quite happy we had lifted short exposure Friday going into the weekend and Monday party - I had bought some commodities because they looked to be "bottoming". Again, it is a treacherous market where if you are 1-2 days too early you lose a lot of money. We were 2 days too early and these stocks across the board lost 8-12% on both Monday and Tuesday. Despite only being a fraction of our exposure this caused us to lose 2% Monday when the market was up 3% (along with our remaining Ultrashorts working against us). And then on Tuesday we "outperformed" the market as we were down 2% - our commodities/global growth stocks got blasted again but at least our Ultrashorts helped us.

Wednesday again was quiet but Thursday we managed to lose money into an up tape since the "play" that day was to get rid of all your short exposure at the days low (when we were facing falling off the cliff) because as the market turned 3% intraday all those positions got smashed. Once again, any day the market makes a large move up - we will lag because of a hedged exposure. But these 2-3% swings are almost a daily thing now. This level of volatility is simply impossible to keep up with. And the "gains" do not make up for the losses. Friday we had a nice day in commodities but most stocks gained in the 5-8% range. Whereas those same stocks were losing 8-12% Monday and Tuesday. So 16-24% on the way down, 5-8% on the way up. It is swimming against the tide - we're the trout. The market is the tide.

So no excuses here. We are simply not able to match this market. It is better than us, and the logic it is employing of housing rebounds, and consumer rebounds is beating us over the head. Our best performers have been Lennar (LEN) and Buckle (BKE) but those are tiny fractions of the overall portfolio. Meanwhile we take massive hits on A-Power Energy (APWR) and most commodities/global growth (versus last Friday's prices) So despite 1/3rd in cash most of the week we somehow take substantial losses. And this is why I continue to say it is just not worth it right now in this market. The gains are just not making up for the losses, and most gains have to be harvested in 24-48 hour time frames which is not suitable for a mutual fund. At least on the long side - on the short side there are some huge winners that we cannot participate in. So you can at least see what we are "experiencing" instead of just looking at a performance that appears to make us look completely inept.

Unfortunately, on go forward basis I don't see much rosy. The action has been random and violent. I don't see any reason for that to change - one day has no memory for the next and this is a market dependent on government action it appears. Both explicit and behind the scenes. I see chart after chart in disaster mode - most gains are being made in oversold, broken charts - but if you buy them 2 days too early (see commodities this week) you lose 20%. So when they "bounce" you are not making gains, just making up losses. I fear what I see in the Apple (AAPL) chart of all things and technology simply cannot get a sustained bid. I just don't have any roadmap for a market where you have to know what hedge funds are in trouble, and who needs to sell what out of desperation before you place a trade. I'm a fundamental investor in a market devoid of fundamental rigor. Frankly this market makes one feel like the first week you ever traded since none of the old rules apply and you just throw darts out there hoping they stick. You feel totally blind to even the next day, not to mention the next few weeks or months. That's not a way to make money on a sustained basis. I'm marking this market "for daytraders only".

We could be offsetting some losses on the long side with "easy" gains on the short side, many of which we've outlined on these pages but we can't do that right now. So we come to the game with 1 arm tied behind our back - this is not a market that you want to lose the power to short. One "big win" (ahem Freddie Mac 90% gain Monday) would make up for weeks of losses. We've been calling Washington Mutual (WM) for months. We've been calling Lehman (LEH) out. Etc. But we're not profiting. It is what it is for now.

The S&P 500, with a bailout induced rally Monday leading the charge, was able to gain 0.8% this week and the Russell 1000 gained 0.6%. Rising Tide Growth continues to be lost and trading as if it has subprime exposure losing 4.8%. So far year 2 has been a lost cause, and we're back where we started at at $10.00 NAV back in August 2007. While this is beating the vast majority of peers in the past 13 months, it still stinks. We've not had a good streak of 3-4 weeks of great returns in ages.

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: $10.009
Year 2 Performance to date (vs Aug 1, 2008): -9.10%

Comparable S&P 500: 1251.7 (-0.68%)
Comparable Russell 1000: 682.8 (-1.08%)

Fund return vs S&P 500: -8.4%
Fund return vs Russell 1000: -8.0%

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