Bookkeeping: Weekly Changes to Fund Positions Year 2, Week 8

Year 2, Week 8 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): 44.8% (vs 38.5% last week)
32 long bias: 51.4% (vs 49.8% last week)
7 short bias: 3.8% (vs 11.7% last week)

39 positions (vs 45 last week)
Additions: Regions Financial (RF)
Removals: Amazon.com (AMZN), Walter Industries (WLT), Massey Energy (MEE), Constellation Energy (CEG), Big Lots (BIG), BJ's Wholesale Club (BJ), Millipore (MIL)

Top 10 positions = 30.4% of fund (vs 23.2% last week)
24 of the 39 positions are at least 1% of the fund's overall holdings (61%)

Major changes and weekly thoughts
If you've been reading along I don't have much to add to this market. It is unlike any many have experienced and unfortunately I do not see that changing soon. We have the mother of all bailouts coming and everyone will be watching the credit markets to see if this soothes the nerves - it is all about confidence. My gut tells me the problem is so much larger than even $700B so after an initial "happy" period this will become clear to the market and this will set the path for another leg down. When the timing of this is, is beyond me. I hope I am wrong in this prediction for obvious reasons as it would cause a lot of further pain.

As for individual stocks, it is really dart throwing out there... very little has to do with fundamentals so hence our basis for investing is useless in this market and has been for a long time. Despite what I've been forced to do here, I much prefer to build core positions and trade around the edges, as opposed to the wholesale trading in and out that has become necessary the past few months. In the first part of this bear market there were at least a few groups that were immune and doing sustained runs - now there is very little of this nature. So what works today, you can assume will be sold off in 3-5 days, and vice versa. It is a troubling time for investors. To that end I rarely carry positions with 5-6-7% type of stakes like I used to, nor do I have a major exposure in the top 10 positions as I used to. The risk of a stock blowing up and dropping 40% in hours is too great.

I've adopted a high cash position and basically exposure to healthcare and darting in and out of the market in the more volatile sectors to try to create some gains in a market that is cruel and unusual. The week end cash position and short position are actually understating the defensive measures we are in - I was nearing the maximum cash outlays Marketocracy.com will allow (35% cash and 25% in any 1 position) mid week as we were >55% in cash or cash equivalents (SVH). I had a much larger short position most of the week but began lifting that midweek as I did not want to be standing in front of any "hey the government is here to save us again". This is very repetative as we've had the same rally going back over a year - when the Fed first cut rates we actually raced to all time highs as "the government is here to save us" (I know, I know the Federal Reserve is an "independent entity" free from a political nature and not really the government - yeh right), then when they bailed out Bear Stearns in March we had 7 weeks of happiness as the government was here to save us, then when they took over Freddie and Fannie we had a full 24 hours of "celebration" as we were again saved, and so on and so forth. I was not optimistic in any of those "saves" and I'm not optimistic here, but that doesn't mean the market cannot rally on misguided hope. It's put on some serious short smashing rallies during the past 14 months, which eventually it gave up as "reality" eventually trumped "hope". But if you stand in front of hope you can take major losses so that's all we are trying to avoid - timing is everything - even for shorts. The tough part of this market is we've been really outperforming the market on down days but getting completely crunched on the huge rallies within this bear market as we have sector short ETFs as opposed to being able to short individual names. Hard to make any sustained upward movement in the overall portfolio without perfect market timing which no one can do.

I am hoping for a rally to S&P 1250 at which point I can see an easy place to get aggressive again on the short side. Complicating matters are earnings season beginning - and as I outlined this week - the same message I've been pressing all year - there is no "2nd half 2008 recovery" and earnings expectations do not reflect this. So I see a lot of danger from that front ahead as 4th quarter estimates need to be ratched down, big time. Ironically some of the stocks with the greatest earnings stability are the ones being hurt the most right now. Hence, there is no place to run or hide in this market - so no reason to put a lot of capital at risk. We do have a relatively large "long financial" exposure to start the week - only for a trade on bailout happiness. And we bought some commodities late in the week as they were destroyed (again) - most have now given back an entire year of gains even though many have earnings 50-100% higher than a year ago. The bears will say that was the top of the cycle, and earnings are going back to where they were 2-3 years ago. Perhaps, but I don't believe it to be true for all commodities - potash prices in fact are completely flat the past 4 months while the stocks have been destroyed. But that is talking a fine tooth needle in a market that using sledgehammers. This only reinforces the fact that this is not a market that serves our style of finding good growth prospects - we have many stocks now trading at single digit multiples for 30-50%+ growth. It does not matter - they just keep going down.

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

1. Monday: we had put a "trade" only on Amazon.com (AMZN) in the post bailout rumor rally last week, in case the market continued its run up, but on Monday the stock broke support so we quickly sold the stock for a small loss in the $78s. By the end of the week the stock had fallen another 10%+ as Research in Motion (RIMM) put a bad taste around most technology stocks.
2. As James River Coal (JRCC) spikes to $36 we took off almost our entire position and dropped it to a 0.1% stake. There is no investing in this market, only trading - by the end of the week JRCC had dropped to the $24s - otherwise known as a 33% drop between Monday and Friday. This is an example of what I would consider a "great trade" yet we still took a hit on this position this week since we began buying back 1 day too early.
   
3. Speaking of, we closed Massey Energy (MEE) and Walter Industries (WLT) in that spike Monday. As stated we cut out all other coal positions since they all trade in unison and you could see that Friday when they all were hit to the tune of 7-10% losses. Hence we are just focusing on 1 name in the sector and "trading" it... that's all this market offers at this time. This turned out to be a good trade as well as Monday was the highlight of the week for this group. I still like this group for the long run - but fundamentals mean little so we are going to respect that and avoid further carnage.
4. We closed the trade of Constellation Energy (CEG) for a small loss; I was hoping for a better buyout price for this wounded animal, but management decided to take Buffet's offer to protect itself from the death spiral of credit agency downgrades and short attacks. This has been a lethal combination for other companies.
5. Speaking to the nature of a market with no memory or logic, Lennar (LEN) sold off on its earnings to the tune of nearly 10%, but the next day rallied nearly 20%. Logic I tell you. I took profits on Lennar on that near 20% move Wednesday.
   
6. Sequenom (SQNM) had very positive data to report for its next stage of results from the Down Syndrome's test, and the stock (which reacted quite mildly really in afterhours) took off like a rocket the next morning. After the stock was up 25% Wednesday morning we took 1/3rd off the table just under $26.
7. Wednesday I started Alabama based Regions Financial (RF) as a "bailout" trade - this is a smaller regional bank with a high beta (volatility) so a good trading vehicle - however I should of bought Wells Fargo (WFC) as well which I assume right now is among the most highly sought after stock in the institutional world judging by how strong the chart is. I did add more Friday as the market panicked on "no they're fighting again and maybe there won't be a bailout after all" trade down in the morning.
   
8. I began rebuilding the James River Coal I sold Monday near $36 in the $27/$28 range not 48 hours later - a market with no memory. But I started slowly saying I'd get more aggressive in the $24 range. Which we got Friday, so I added more there.
9. Thursday, I cut some of my consumer exposure with sales of Big Lots (BIG) and BJ's Wholesale Club (BJ). Basically I am adopting the same strategy as the rest of the portfolio. Everything is a trade now, not an investment so it's better to have fewer positions in each "sector" - when that sector is in favor - you can sell it down - then 48-96 hours when its out of favor you buy it back. Keep repeating and hopefully you can make a few bucks. This strategy is too time consuming to do with 5-6 names in a sector so I've been consolidating. Again, these stocks simply do not trade on individual merits anymore - its just a big sector allocation trade every day, and has been for months on end.
10. I have added a lot of healthcare stocks the past 2 months, so I decided to cull the herd a bit - the weakest chart is Millipore (MIL) so I closed that position. Simple as that, it broke multiple support areas so until it gets back above those - it is a short on a rally, not a buy.
11. I started rebuilding Mosaic (MOS) ahead of this week's earnings. Aha, 1 day too early and in this market that means you lose 10% in a jiffy. But I'm an incremental buyer so we only went up to a 2.6% stake Thursday, and then up to 3.4% Friday. I also added to Potash (POT) and CF Industries (CF) Friday taking them up from 0.1% stakes as they are nearing an oversold condition. Again, no investing here - just trading. When they bounce to near resistance I am going to avoid the Kool Aid of "people love commodities again" and just sell them, and wait for the next demolishment. It is tiring but the only way to make a buck off these stocks. One day this will change. Who knows when.
12. Last, I cut more Sequenom (SQNM) to lock in profit Friday - if it blows past $29 I'll pay up to get these shares back as this will be a new breakout (which we rarely see in this type of market), and bought some exposure in other healthcare stocks. I have such little long exposure that if the market rallies (on hope) I partake very little - but I trust so little the only space I really want exposure is healthcare. I also bought some Buckle (BKE) on the pullback - again I've cut back consumer exposure earlier in the week, so with fewer names I can build the remaining names into larger position.
    

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