Monday, April 27, 2009

Fund Performance Period 4

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 the market was continuing a quite epic run from the S&P 666 bottom. Lower quality stocks on the long side did well, generally of the $15 or below stock price - along with high beta household names. While we were positioned pretty well for a turnaround off the bottom, the first 3 weeks of this rally fell in Period 3 (which we caught), and I expected some sort of breather than never really came - weeks 4-5-6 capped off a 6 week rally and last week, while the S&P was slightly down - the fact there was still no meaningful correction after such a huge run was as good as continuing an upward slope. In a word our performance was poor in period 4; although I have much stronger words to describe it mentally.

For the fourth "four week" period we booked a -6.6% return, versus the market's +6.6%, so an under performance of -13.2% during the past four weeks. On a cumulative basis we are now +7.6%, versus the Russell 1000's -6.6%, so an out performance of +14.2% for our "year to date" if you will. (thus far 16 weeks)

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

Taking a step back if you would of told me 16 weeks into the year we'd be beating the market by 14% I'd be very pleased. My mental goal is to try to beat the market by 15% a year (which over the long term only a handful of the elite hedge funds have done) So we're off to a great start in relation to our goal, but considering where we were as of the end of Period 3 it is not fun to give that much out performance back. That said, the pace we were on through the first 3 periods (beating the Russell 1000 by 27%) would of prorated to beating the market by 117% over a year, which I was saying was not feasible with the type of system I run in a pseudo mutual fund and we should expect to come back to Earth in due time. I just had hoped the retracement from orbit would not all come in such a short amount of time.

Of the -6.6% for the period, we literally lost 4.6% of it in 1 hour Thursday, and 2+ hours Friday morning of last week, so a more palpable -2%ish for the period was on the plate late Thursday until a surge out of nowhere took us from S&P 841 to S&P 87os. That added 3.5% to the indexes and took away over 4.5%+ from the fund - netting out to a 8%+ loss versus our index in literally 3-4 hours of work. It can turn that quickly on you.

***** Long/Short Discussion below

The story of the period was quite simple - most of the stocks we owned did ok, but people were moving away from leadership stocks and moving to low(er) quality type of speculative stocks - our main top performers were in fact of these types: the Lennars (LEN) [due to trading], Excel Maritime (EXM), Gafisa (GFA) ... a lot of low priced beaten down stocks of variable quality. But that is not the main part of our long portfolio. What is ironic is we were not really pressing shorts as our eventual target on the S&P was 870 to 875 - many times during these 4 weeks we were positioned anywhere from 2:1 to 4:1 long v short, with 50%ish in cash yet that overweight skew to long was destroyed by the rampant moves up in our short bucket. Many names we had bet against had one day gains of 20-30% (multiple times) in commercial real estate, credit cards, casinos, consumer discretionary and the like. Charts meant nothing in these groups as resistance lines were sliced through as if they were not there - so it really felt like investing with the knowledge base I had 7-8 years ago. i.e. nearly blind. Fundamentals meant nothing and then technicals also meant nothing. Most of the day to day gains was based on betting on the "student body left" direction of the day (mostly up), and many gaps up (and a few down) started almost every day - along with crazy action in the last 30 minutes (mostly up again). So that was the story of the quarter - the much underweight short exposure completely trounced any long side gains even though our scale of long to short was indeed, correct.

Taking a step back, while smarting from these recent kicks to the teeth - we are still up for the year, and doing better than most mutual funds. But 4 weeks ago I would of imagined we'd of been the top mutual fund in the land - and that has a much nicer ring to it. The "long only, 100% invested" guys have been romping the past 2 months and "catching up" to us. No system works in every time frame, and this was not the time for us to prosper. Effectively we've washed period 1 out, when we beat the market by 12% with period 4, when we trailed by 13% and we'll go from here. We have our capital intact, we are not down on the year like many funds, and frankly unlike 99.8% of funds out there we will be able to hedge or perhaps make money on the next downside. If there ever is another one ;) So when day day (if ever) comes we'll hopefully pull back away from both the index and our competition. At this point, until things start making more sense to me I am going to have smaller exposure to the market until / when / if I am seeing some patterns that begin to utilize many years of experience, rather than a craps shooting table.

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]
[Mar 30, 2009: Fund Performance Period 3]

As always, if you are interested in this type of fund as a worthwhile consideration for future investment, please consider reading why this blog exists.
  1. [Jan 7, 2008: Reader Pledges Toward Mutual Fund Launch]
  2. [May 26, 2008: Frequently Asked Questions]
  3. Our story in Barron's [A New Kind of Fund Manager]
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