Bookkeeping: Weekly Changes to Fund Positions Year 2, Week 5

Year 2, Week 5 Major Position Changes

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 (1 position [SHV] + cash): 24.3% (vs 34.0% last week)
54 long bias: 65.7% (vs 44.2% last week)
9 short bias: 10.0% (vs 21.8% last week)

63 positions (vs 65 last week)
Additions: NuVasive (NUVA), Thoratec (THOR), Genoptix (GXDX), Parexel International (PRXL), Polo Ralph Lauren (RL)
Removals: Mylan (MYL), Goldman Sachs (GS), Intrepid Potash (IPI), Mastercard (MA), Ctrip.com (CTRP), Kinross Gold (KGC), Jacobs Engineering Group (JEC)

Top 10 positions = 27.3% of fund (vs 26.6% last week)
38 of the 63 positions are at least 1% of the fund's overall holdings (60%)

Major changes and weekly thoughts
In our weekly write up 2 weeks ago I wrote

The credit market continues to be awful and the equity market continues to ignore it. The past few times this condition arose, the equity market had a severe selloff in due time. So I find this to be a risk. However, the knee jerk reaction after government interventions (of the Treasury or Federal Reserve type) has been upward as "free market capitalists" weep with joy that the "Big Brother" is here to tidy up their excess with the sheep's money.

But we must acknowledge the "relief" rally potential when our government comes in and bails us out. With our own money. Just like it was a "seminal event" that "obviously must be the low point, and it's safe to buy financials, and in fact all stocks" - during the Bear Stearns fiasco.... we'll be assured of the same this time.

With futures up 30 on the S&P (Dow up 200), this looks like a good prediction. However, predicting something correctly and knowing when it shall pass are 2 different things. People who will benefit most from this "over the weekend" rally will be those who were already "in" Friday. So aside from those with crystal balls, or unless you are Goldman Sachs, you would not know "why" financials suddenly changed direction Friday and what was about to be announced. We did get a bit fortunate as the market seemed oversold to me, and financials were rebounding into a bad tape, so I took our short exposure down quite a bit. We are at half of where we were last week and in fact over the past few weeks on the short (hedged) side with only 10% exposure. Our long exposure is also the largest it has been in a while since we saw a lot of beaten down merchandise. So the way we were positioned at 4 PM Friday was very different than it was 4 PM Wednesday, when our short exposure protected us during the very bad Thursday. But this goes to show, once again, what I keep repeating - this market is tremendously difficult and your positioning one day can benefit you, and completely pummel you 24 hours. Churn. If we were positioned 4 PM the way we were Thursday we would be taking a major bath Monday if the market opens as it looks to as I type this. We have continuously, over the past year, had to deal with not only company risk and sector risk, but intervention risk. Timing this is simply undoable, not found in any text book, and creates a very difficult situation for all involved. It is difficult if not impossible to keep up with the indexes right now because the movements are so herky jerky, prone to changes in direction in 48-72 hour windows, and unless you went "all in" Friday you are going to miss a big move overnight and in fact your hedges will work against you on top of it all Monday. We live in interesting times.

Looking at the charts, I continue to treat all bounces as chances to sell; I said as much on my "commodity/beaten down stock" buying spree Friday morning. These are no longer investments, simply rentals. I could say the same for most of the portfolio right now. Due to government actions, the bounce looks to be far more severe than I anticipated but it's the same theory - we'll sell into the bounce. But with the punditry screaming again, and the volume will be louder than normal, that this marks the bottom, we can let the lines out for a bit longer perhaps. If the S&P opens as it stands right now, it will be around 1270 and remember, we have our resistance up there at 1300 that we keep hitting so we'll see if we can ride that trend. (the 50 day moving average has fallen to S&P 1290 now versus 1300 a few weeks ago) But I expect to lag the markets since 1240 to 1300 is a 5% move, if indeed that is how it plays out. You have to be nearly 100% long to keep up with these large moves up. We never are. Thankfully, we're positioned relatively well all things considered for the "intervention" trade. As I stated in an earlier piece in return for being on the hook for many liabilities of Fannie/Freddie you are being rewarded with a 2% move in your Etrade account. A fine trade off.

For the week, we continue to make a swerve/change in the fund direction - we culled some long held stocks - continued a move into retail and healthcare, consolidated some names that overlap, and finally bought a new round of commodity exposure after liquidations decimated the group. Seeing how all these commodity stocks trade in 1 monolith as the market is not discerning one versus the other, I am considering culling even more - for example instead of 4 coal stocks, I mostly added to 1 - James River Coal (JRCC) for the "trade" - instead of making huge moves into 4 names. There is nothing "special" about JRCC over the other coal stocks, but it's simply too much work, turnover to jump into 4 names for a 3-5 day trade, and then jump out. We've been cutting a lot of commodity names over the past month, so on this next jump up (if there is a jump up) I might cut more names while keeping weightings constant in sectors (i.e. more into each names but less names) - until the market discerns between the prospects of one name versus the other again. We did the same thing in financials this week, instead of using both Goldman Sachs (GS) and Ultra Financial (UYG) we just decided to concentrate on UYG. They say this is a "stock pickers market" - I fully disagree - this is an asset allocation market. In many cases buying 1 representative stock/ETF gets you the sector movement. Individual names are pretty irrelevant in many sectors right now.

The larger weekly changes (chronologically) to the fund below:

1. Monday, despite our best efforts to trade, the market was closed. Drats.
2. Tuesday, we closed a shorter term holding in generic drug maker Mylan (MYL) because I had a lot of healthcare stocks on my radar with more "growthier" prospects and all things being equal I love growth over value. So we cut this healthcare name in anticipation of adding others soon.
   
3. Speaking of the devil, we initiated later that day spinal device maker NuVasive (NUVA) - I am hoping to see a more protracted move down to the 200 day moving average to build a larger position, but might not get it this time around.
4. We closed Goldman Sachs (GS) due to "overlap" reasons as described above, and potential for some bad news due to their commodity exposure - seeing they seemed to be positioned very similar to many hedge funds and watching those hedge funds suffer miserably - we'll take our changes with Ultra Financial (UYG) instead as a proxy on financials. But don't let this move lull you into thinking this is not Goldman Sachs (GS) market (and government) - we just are here as participants. It's their sandbox but a bully might of kicked some sand in their face this one quarter.
   
5. Wednesday, we continued our healthcare kick with a new position in Thoratec (THOR) a name we highlighted a month ago and never got in; of course we top ticked this as it fell the next day during the hectic selloff after seeming immune for a month straight. We added more Thursday on that pullback to support. We also added to Exactech (EXAC) and Life Sciences Research (LSR) as we continue to increase our exposure to healthcare as an oasis away from the "banks versus oil" war.
6. Flowserve (FLS) broke support in the upper $120s Wednesday, so we stuck to our rule and cut back severely; within 48 hours it was down in the low $110s so we got back our position.
7. We began building James River Coal (JRCC) as a "buy the most beaten down stuff and sell it into the next rally" proxy Wednesday in the $32s. At the time we said we'd be targetting $30 to really load up, which we got by Friday morning.
8. Continuing the healthcare fix, we started lab operator Genoptix (GXDX) on a pullback to support.
9. Thursday, Continuing the consolidation theme we lowered our # of fertilizer stocks from 4 to 3, and sold off Intrepid Potash (IPI) and rolled proceeds into the other 3 names we own.
10. Friday morning we added a slew of names - from commodities to beaten down merchandise ranging from Research in Motion (RIMM) to LDK Solar (LDK)
11. We initiated a 4th contract research organization (CRO) in the healthcare field (note - this is opposite to my anti consolidation trades above but this group is "working" versus the other groups which are simply "trading up and down in hectic nature") - we've been waiting for a gap to fill on Parexel International (PRXL) for a few weeks and finally snagged it. We also added to Kendle International (KNDL) in this space on its pullback.
12. Sticking to our rules, we cut back China Medical (CMED) as it broke support intraday - this one might reverse on us, but we have a methodology in this vicious market and are sticking to it - it's saved us a lot of money over the past month+. If we could short individual names, in fact, going short the names which break support would of generated a lot of gains to help performance.
13. We initiated Polo Ralph Lauren (RL) since the consumer is back! No, not really - but this is where HAL9000 and his army of computers is moving money, so we're piggybacking. Plus the last earnings report was quite solid.
14. Since we've added a lot of names, and want to keep a narrow focus we sold off 3 very long term holdings - Mastercard (MA), Ctrip.com (CTRP), and Jacobs Engineering (JEC) for reasons outlined in the post - along with Kinross Gold (KGC). Now that the government is on the job there is no reason to fear anything so gold is for crybabies who do not understand how the government is going to fix all our problems. Or so the stock is telling us :) Unless it's telling us deflation is coming... err...
15. As Friday war on I got back some Ultra Financial (UYG) and Lennar (LEN) - housing and financials - boo yah.

The above do not include the majority of my trades in my Ultrashorts which I am trading quite often as the market ebbs and flows