Monday, March 30, 2009

Fund Performance Period 3

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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 shorting of individual stocks, 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 third 4 week period is now complete.

(click to enlarge)


This four week period differed from the first two in that it was the complete inverse. In period 1 the Russell 1000 was down 11.6%, and in period 2 down 10.7%; this period it was up 11.0% so in our "student body left, or right" horde trading world - we experienced a completely different dynamic. This was a great test for us. As a "mutual fund manager" I am extremely pleased with how things turned out.

For the third "four week" period we booked a +17.3% return, versus the market's +11.0%, so an outperformance of +6.3% during the past four weeks. On a cumulative basis we are now +15.2%, versus the Russell 1000's -12.4%, so an outperformance of +27.6% for our "year to date" if you will. (thus far 12 weeks)

Please note we did not start on Jan 1st... so this is not an apples to apples "year to date" performance but close.

Two things pleased me the most: (a) in both the downtrend periods and uptrend period we were able to outperform the market and (b) our "risk adjusted" return is off the charts; that being due to the fact about half the portfolio [or more] has been in cash for all 3 periods. So we have been able to provide an absolute return of +15.2% using roughly half our capital, and even in a strong upward move we were able to keep pace with the market with half our cash stashed. With this very cautious portfolio positioning my goal was to try to stay "flattish" in return during a downturn, and yet be able to turn and capture 50-66% of the gain on the upside when we reversed - expectations were exceeded by a long shot.

On the negative side, the "trader" in me felt like I left gobs of money on the table. I've missed some excellent trades on both the long and short side, and even in winning trades my position sizes have been poor - my % gains have been very good, but with 1-2% type of allocations it has not affected the overall portfolio enough. I see I need to offset this high cash position with larger position sizes with what positions I do carry. So I'll slowly try to adjust that. To offset that I've kept dollar losses manageable, and have not yet woken up to the invariable -35% overnight loss due to earnings miss that will hit us sooner or later.

***** Long/Short Discussion below

While I am pleased with performance we've had to turn away from our preferred style of investing as described in the "About Me" tab. At heart, I like to buy good stocks (and short bad ones) - build a core position and trade around, harvesting profits after nice runs and try to buy back on pullbacks. This market moves so violently and is so news driven - with such an absence on individual company specifics specific stock selection has lost a lot of meaning. Most stocks in a sector move together nowadays, and "thesis" driven "in and out" quick action is the dominant situation. At the heart of it, my job is to try to make money or at minimum try not to lose a lot of it; so I've adapted to this situation but it's a world of trading, not investing. Anyone who says otherwise is just lying to you.

While I've kept 35-45%ish of the portfolio in my core strategy, to take advantage of some of the hectic swings I've overlaid going short/long some of the levered ETFs with 5-10-15% of the portfolio relatively often. Some of the levered ETFs are held just for hours, some for a few days - but due to the construction of these ETFs they are horrible long term holdings, hence we cannot hold them for lengthier durations. But by doing this we can squeeze a bit more return out (if we are correct in the daily "mood swings") and compensate for keeping such a huge portion of the portfolio in cash. Until we return to a primary bull market, I don't see myself unleashing the cash horde. My main hope is we return to more periods like December 2008 where violent daily actions become less common and individual stock fundamentals matter more rather than "buy anything; the market is flying" or "dump everything; the market is crashing". But we're trying to adapt to the market we have, not what we wish for. I doubt we'll get the market we wish for anytime soon; but hope I am wrong.

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

[Jan 30, 2009: Fund Performance Period 1]
[Mar 2, 2009: Fund Performance Period 2]

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