Monday, March 2, 2009

Fund Performance Period 2

Please note all data is through last Friday's closing prices....

For those who read the content of the website via email or RSS reader, you can come to the website at any time and click on 'Performance/Portfolio' tab in the menu bar to get updated positions (weekly) and performance.

Total Portfolio Value, as maintained by 3rd party, can be checked here each day with 20 minute delay vs real time (starting value $1,000,000 or $10.00 NAV)

I will post an update of performance versus Russell 1000 every 4 weeks; we've moved over to a new tracking this year as the old system would not allow individual shorting among other "technical issues" that often came up. Hence we're "starting over" in terms of performance with portfolio "B" as of early 2009. Detailed history on on the first year and a quarter can be found on the above mentioned tab.

Under the new tracking system, our second 4 week period is now complete.

(click to enlarge)

Overall for a mutual fund (rather than individual trader perspective) I'm pleased with how we've done in the period. The Russell 1000 was down 10.7% whereas we were down 2.0%, so we outperformed by 8.7% for the four week period. Over the 8 week period since we switched to this new tracking system we are beating the index we track against by 19.2%. That's an enormous gap and it won't stay that wide because eventually we are going to see a slingshot rebound in the market and being hedged we won't participate in all of the upside. Just as this hedging has protected us as the market has fallen. If we can catch half the upside when it happens I'll be ok with that. Further a 19.2% outperformance in 8 weeks would annualize to 123% a year - keep dreaming kiddo. That discussion is "relative performance"; I'd also like to do well on "absolute performance" which is simply how we do versus where we started from (so far -1.8% in a brutal market)... on both fronts (absolute & relative) we are smashing our peer group, although I think we left a lot on the table and if I executed some trades better we should have been up in this 8 weeks.

***** Long/Short Discussion below

As you are clearly aware almost this entire four week period has been "down" for the market - this was the 2nd worst February (by % loss) in the 113 year history of the Dow. On the long side of the portfolio I am actually happy despite the losses. Since we don't have a crystal ball we are never going to be 0% long but we have limited our position sizes and cut back on many positions as they broke support, limiting losses in individual names. There simply were no real ways to make profits on the long side holding most stocks longer than a few hours or occasionally a few days; so for our time frame there simply was not a method to win on this side of the ledger.

We were able to offset the majority of the losses on the long side with our short exposure but despite making money with our shorts (overall) and losing money on our longs (overall) this period, I am far more disappointed in the short performance. Many missed opportunities and the main reasoning was (a) type of stocks we were shorting and (b) unwillingness to chase a move down. For point "a" we spent most of the quarter shorting strong stocks after large moves up, expecting some reversal - it worked moderately in most cases but only because the market was so awful. These were "scalps" (short term trades - in & out) rather than fundamental shorts (stocks we don't like for business reasons). The reason we did that was point "b" - I prefer to enter short positions near a resistance level on a chart - this way if I'm wrong I can get out with a predefined area that screams loud and clear.

Most of the stocks we dislike were in complete freefall all month after a terrible January so shorting them felt like "chasing" a stock after it already made a huge move. In retrospect the month was so awful the correct thing would be to "chase" - because rebounds in the sectors we dislike were impotent. For example, at the tail end of the month we shorted a company we dislike for fundamental reason: Capital One Financial (COF) - and within 24 hours made 15%. Whereas the names we shorted most of the month were stocks that are actually quite solid but we were looking for a pullback after a large run. So we underperformed on the short side versus potential, and this should of been a month we made more money shorting versus what we lost on the long side. Specifically with the trades we DID put on, we left two trades that could of been big winners for us 1-5 days early. Mobile Telesystems (MBT) we covered and the next day it fell 20%; Geron (GERN) we covered and within a week it was down 25%+. Two missed opportunities.

It remains a market where investing is useless, and we've had to hide in relatively rapid trading esp. on the long side of the ledger. Cash remains high and will remain so until the market treats investments better over intermediate time frames (i.e. months) We're not daytraders so this is not the market for us to get aggressive into.

We'll check back in four weeks with a new update.

[Jan 30, 2009: Fund Performance Period 1]

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