Sunday, October 19, 2008

Bookkeeping: Weekly Changes to Fund Positions Year 2, Week 11

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Year 2, Week 11 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): 32.8% (vs 19.1% last week)
31 long bias: 65.8% (vs 76.9% last week)
7 short bias: 1.4% (vs 4.0% last week)

39 positions (vs 41 last week)
Additions: N/A
Removals: Foster Wheeler (FWLT), CF Industries (CF)

Top 10 positions = 39.7% of fund (vs 43.2% last week)
23 of the 39 positions are at least 1% of the fund's overall holdings (59%)

Major changes and weekly thoughts
There was not much to say about this week - I did a bit of a change in strategy - relying more on a long ETF, Ultra Russell 2000 (UWM) instead of individual names. With the market so volatile - 7-8-9-10% swings each and every session this week, there is simply no need to buy individual names since there is no "investing" right now - it is just massive moves in the indexes that people are jumping in and out of. Until the day comes when individual company good news is rewarded (Trina Solar raises guidance, Peabody Energy blows out earnings) on a consistent basis we do not have a market - just a casino. There is really not much more to say here - some day companies will go up and down on their individual merits. This has not been the case in a long time and every company is a hostage to the greater market. So while we continue to maintain interest in how companies are doing - the market is more about the flavor of the hour, and we're awaiting a return to an investing environment from this complete and utter mess.

For the fund, I temporarily do not have a high short exposure so we are quite unhedged. We are so very overdue for a rally of some meaning, but until we see some confidence return to the market we continue to keep much of our capital in benign hiding places and just use 60-70% of our portfolio to try to make gains. If we dissolve and continue back down into an abyss I'll get back some short exposure but one would think at some point the market would actually go up again for more than 5 hours at a time.

I do expect a steady string of bad news over the coming weeks, months, and quarters as the economy weakens - but this does not mean the market has to be down all that time. In fact some of the strongest rallies are in bear markets, and many times the best time to invest is in the 2nd half of a recession. I personally do not think we are anywhere near the 2nd half of a recession considering most talking heads are still trying to deny we are in one at all (or grudgingly accepting it, but mind you - it will short and sweet!) - but it doesn't matter what I think. If the market thinks we're in the 2nd half and the turnaround is "not too far off" we can rally. That happened multiple times during 2008. But as my words above, and over the past few months have constantly pointed to - we are in a sentiment driven market and sentiment is 100x harder to judge than individual company metrics. Hence it's a guessing game based on "mood" and since that is random we're not going to commit major amounts of capital to what amounts to a craps table.

The larger weekly changes (chronologically) to the fund below:
  1. Monday, on the one of the biggest up days in history, I took profits across the board in names I had bought Friday when we stared into the abyss - many had made 20-30% moves from Friday. I said I'd take another layer off if we opened up strongly Friday since the last hour or so Friday, the full day Monday, and any upward movement Tuesday AM would constitute enough of a movement akin to a few quarters some years.
  2. I got the chance Tuesday to take another layer off in many names - and I closed out two of our remaining 5 global growth/commodities names - Foster Wheeler (FWLT) and CF Industries (CF). As I've been saying for months until individual companies begin to separate and it's not just a huge sector bet each time names move, there is no reason to hold a lot of individual names - they all move in one big bunch - we saw this in global engineering names Monday as I outlined: each stock up 15-18% without regard for individual company fundamentals. To offset this we are putting larger weights in our remaining names.
  3. Late Tuesday the market faltered and we had another huge swing down Wednesday; I began rebuying some exposure as "student body left" and "student body right" continued.
  4. I didn't break out the individual trades this week since they came relatively fast and furious but as the week wore on we added to a bunch of solar stocks which now trade at 3-5x 2008 estimates. Which means if 2009 estimates not only show no growth (they are currently still guiding for 40-75% growth), and in fact 2009 estimates showed a 50% haircut from 2008 estimates (i.e. the business fell off in half) we'd be buying at 6-10x earnings. That's how outrageous the valuations are.
  5. Again most of my setting of positions was with the ETFs, both long and short because the action is random and without sense in individual names.
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

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