Bookkeeping: 'Rising Tide' Performance Year 2, Week 14

Year 2, Week 14 performance of the mutual fund

Comments:

Dateline: 4:00 PM Friday November 7th, 2008
Location: The Big Top, New York City (insert circus music here - cue the elephants and clowns)

From 2:50 to 3:20 PM the S&P dropped over 2%. From 3:20 to 4:00 PM it gained 2%. Oh yes, and this morning we put a nearly +3% move on between 9:50 and 10:50 AM. Before dropping 2% in the following 40 minutes. Just another day in the casino/circus where "round trips" of 4-5% in 70-120 minutes are the order of the day.

We go nowhere fast but with mad volatility along the way; this week we 'enjoyed' the worst 2 day period (-10% Wed-Thu) since 1987 and frankly it felt "normal" - that was offset on either side (Tue/Fri) by two 3% up days - why not! It's all just random 3 and 4 letter symbols like a video game anyhow - Missile Command if you're old school Atari 2600 fans. These symbols don't actually represent anything such as an underlying business. Individual equities moving in 10-20% swings on a daily basis, many times in completely opposite direction from the previous day... works for me. The enterprise value of multi billion companies swung in about a 50% range (round trips) for a multitude of companies on my watch lists this week alone. That makes sense.

We had a solid week making essentially nothing, but I take little comfort in it because what works one day or one week will hurt you the next day or next week. Can you really argue with someone who says we'll put on a 10% upside move next week? No. Or a 10% down move. Nope. The lack of any sensible pattern continues to point to holding high cash positions - we had muted action versus the indexes all week; we missed much of the downside and much of the upside - by design. Asset allocation (short v long v cash) remains more important on a daily (or hourly) basis then stock selection - until that changes, volatility subdues, homework is rewarded, leadership emerges, patterns return.... and a monkey who comes in out of the jungle throwing darts at the Wall Street Journal stock table has less efficiency than people with decade(s) experience - then this remains a casino of fools. No offense to any monkeys who may be reading the blog in between a game of darts.

With earnings season now entering its last phases - I mentally reviewed what we hold and stocks of interest in my watch lists and 90%+ outperformed or at minimum did not "disappoint". Yet these stocks were treated no differently than companies who disappointed and performed poorly and are showing major stress from this economy. So the homework has simply not mattered. Yet another reason not to be overextended in a market like this. We had a couple of huge % winners this week but only within very short time frames - and these same stocks were pole axed a week or two ago. So if you had been buying and holding you'd just be making up losses, not actually enjoying any gains. No rhyme, no reason. Since individual stocks are acting completely without regard for fundamentals we're focusing on index or sector ETFs - but the timing on these has to be precise because when they move against you, you lose a lot in a short amount of time. Just today, that last +2% move in the closing 40 minutes knocked well over a percent of gain from the fund as the Ultrashorts fell off a cliff. Shorting individual equities would be a superior strategy in most cases.

As we entered the week I wrote of certain ranges; S&P 850 (floor) to S&P 970 (with a breakout over 985) being the main one we were in and had to focus on. We entered the week at the top of the range - broke our head through Tuesday (985 was our key) but did not confirm it Wednesday (and how). This led to a two day loss of 10% which took us back to the middle of this wide range. As we end the week really nothing has changed except we're in a different spot in our range. If we can get north of this 985 level and hold it we can make a run for the 50 day moving average, which has now fallen from 1070 to 1050 during the week. Which means even if we break "up" our ceiling (stronger resistance) is closing in on us at a rapid rate. The line in the sand to downside is a very obvious S&P 850. In between these levels it is really just white noise and trading.
The economic news was horrid this week - as always the questions are how much is priced in? I expect the news to get much worse in the half year ahead but the bulls will grasp any positive piece of data as "the turning point!" so expect some 180 degree turns (in pre market of course) as somewhere in the ocean of reports coming will be an outlier that can be used to thrash the short side. The greater trend is obviously still down and within that trend will come some short lived, but strong, rallies - but only the nimble can even attempt to bother. Friday alone the nimble with a crystal ball could of made 2 full round trips in and out. For most it won't be worth trying to tempt fate because if you bite on the cheese for even a day too long you get stuck in a trap. This remains a black hole for investors and longer term oriented traders; the Wild Wild West is left in the hands of the daytraders and HAL9000.

The S&P 500 lost 3.9% and the Russell 1000 lost 4.2% on another week of wicked volatility. Rising Tide Growth gained 0.4%. Obviously we don't print our NAV daily but we had a very muted price performance each day - the Ultrashort ETFs protected us on the 2 huge down days and hurt us on the up days. But we had very little volatility versus the indexes. We actually entered Friday beating the market by 8% for the week and just in the span of 1 day you can see how volatility can change things. We are having a very strange few months - in the "old days" we'd out or under perform the market by a percent here or two percent there. Nowadays, it's 4-6% swings versus the market almost every week.

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

Year 2 Metrics

Price of Rising Tide Growth: $7.936
Year 2 Performance to date (vs Aug 1, 2008): -27.93%

Comparable S&P 500: 931.0 (-26.1%)
Comparable Russell 1000: 501.2 (-27.4%)

Fund return vs S&P 500: -1.8%
Fund return vs Russell 1000: -0.5%

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