Monday, September 14, 2009

Fund Performance Period 9

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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 latter 2007 and 2008 can be found on the above mentioned tab.

Under the new tracking system, our ninth 4 week period is now complete. (Data is through last Friday's closing prices)

(click to enlarge)

Another stellar period for stocks; one begins to sound like a broken record. Unlike the previous period when 18 of the 20 days were up or with no loss greater than 0.5% on the S&P 500 these 3 weeks were marked by an inverse "V" shape, and then a hockey stick rally in the last week. The first week had a moderate rally (Monday of that week marked some consolidation), and then week two was flattish - but most of the action these 2 weeks were in a small select group of government supported financials; some days 33-40% of the trading volume on the NYSE was in the AIG, C, FNM, FRE, BAC's of the world. By the end of week two we were in the throes of a 7 week rally that commenced in mid July. Finally some air was let out the following week, as worries about China and consumer confidence mattered... for a few short days anyhow. A 4%ish rally (let's call it a pitstop) simply laid the groundwork for yet another rally late in week 3, and through the Labor Day shortened week 4. Gains in the last week were broad based as no one sector dominated as we've seen in previous periods.

For the 9th "four week" period we returned +6.8%, versus the market's +4.0%, so an out performance of +2.8%.

On a cumulative basis we are now +47.9%, versus the Russell 1000's +13.0%, so an out performance of +34.9% for our "year to date" if you will.
(thus far 36 weeks)

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

Our yearly goal of beating the index we track against by 15% has been reached, and we're now at the highest level of outperformance versus the market for the year. Both absolute performance (making money) and relative performance (outperforming the market) were achieved in the period - which is always the best outcome.

*** Long/Short Discussion below

This period from a 40,000 point of view we lagged in the first two weeks as we had let go of a lot of realized gains in the previous period and were looking for some (even minor) correction as a long in the tooth rally reached week 6 & 7. That did not happen, instead the dominance of government supported financial institutions was the main theme in these weeks. While gaining about 1% the first two weeks of this period, the market was up 2%. The majority of our absolute performance and all of our relative (versus the market) performance came in the latter half of period 9. The swift 4% correction in week 3 allowed us to realize gains (some of which were locked in) on the short side of our portfolio, while adding incrementally to some long exposure. We quickly went from a 2:1 short/long book to 1:1. Cash remained high throughout the period. Despite this balance we lost some performance at the beginning of week 4, but had a big day last Thursday with our top 2 long positions (SWKS RFMD) pre-announcing / saying positive things in conferences and a SPY call option short term strategy with about 10% of the portfolio that was held for about 15 hours with 5%, and a few hours (intraday) with the other 5%. Despite our ambivalence on the economy as a whole, layered onto an epic rally - short positions were not expanded materially as a flood of liquidity in 1999 taught us how out of hand things can get. While these periods end badly, until they end a lot of people on the short side will take immense damage.

Specific transactions this period were a lot more limited than some of the previous time frames - frankly the market had gotten extremely boring as the same intraday patterns had been emerging with almost all the action in the opening 90 minutes and closing 30 minutes. I call this the "Dead in the Middle of the Day" market, or Siesta Market.

Early in week 1 (Monday) the SPY ETF filled a "gap" we were waiting for at 98 (i.e. S&P 980); not being able to expect much more than that these days we quickly moved to cover some short exposure (including closing out a 4% ValueClick short allocation), and add some long exposure in 2 Chinese names Longtop Financial (LFT) and E-House Financial (EJ). I said the easy short trade had been made; which proved prescient in retrospect. The next day we were stopped out of the very volatile Longtop Financial - the company was to report the next day so we would of moved to the sidelines either way. Tuesday, AsiaInfo Holdings (ASIA) had a 10% spike so we jumped out of our position which has been newly started - since then the stock has gone nowhere. ValueClick rallied by mid week so we were back in our short. After touching 980 early in the week, the rally was on and by late in the week S&P 1020 had been breached. Blue Coat Systems (BCSI) had been acting weak despite a bounce in the tape, and we were stopped out.

The following week was extremely quiet - probably our least amount of movement in many a month as the Siesta market, dominated by the zombie financial institutions took over the stage. We were stopped out of Quality Systems (QSII) which has since recovered to move back over some key moving averages. We attempted to short Shanda Interactive (SNDA) but put our stop loss a tad too closely and by the end of the week we had been stopped out; if we had a slightly looser collar we would of eventually made good money on the short, which ended up working within a week. We closed our Allegiant Travel (ALGT) position which has since rallied; more importantly than the recent move - we have been in this name for a long time and it simply moves to its own drummer; technical analysis which is our mechanism for attempting to know when to enter/exit, add/remove exposure simply seems moot with this name.

Week 3 finally gave us a sell off to work with, as China corrected (recall, Shanghai "filled a gap" before boucing back from an oversold condition later in the period). When that gap filled, we added back to our Morgan Stanley China A Shares (CAF) which we had cut back sharply in late July. I thought China potentially had more downside so I did not put on a full position, but instead we saw a U turn once the gap completed. Our limit order for CNinsurance (CISG) filled at a very advantageous price of $16. We covered the ValueClick (VCLK) short yet again for a nice gain in under a week. The first reversal intraday to the downside in many moons gave much hope to the bears on Tuesday of that week; but we were not convinced - in normal markets that would be very worrying - these markets have not struck me as "normal" in quite a while. We covered 90% of our Riverbed Technology (RVBD) short into that reversal down. We mentioned silver had been perking up but in error did not add a silver position, or add much to our gold exposure - these instruments rallied strongly late in week 3. We closed out long position O'Reilly Automotive (ORLY) as we had a multitude of limit buy orders which we thought might hit (other than CISG none did) - however ORLY has been very weak since we sold it. Brazilian homebuilder Gafisa (GFA) was downgraded on a potential share offering - we took the opportunity to add some exposure but the stock has exploded higher since; wish we had more. By late in the week the market had rebounded to a degree and I mentioned a potential retest of recent highs could be in the offing; unfortunately I did not put money where my mouth was - some SPY calls or a levered long ETF should of been added at that point. With the jobs report looming Friday I did not want to be exposed too heavily one way or the other but I forgot that all economic news is now good news. We had a good week, but 2 missed opportunities (precious metals, adding index exposure anticipating at least a revisit of recent highs) left some profits on the table.

Week 4, we sat tight early in the week and lost some ground as we were fully hedged and the market rallied. We added a short of Costco (COST) Monday, and re-expanded our Riverbed Technology (RVBD) short after taking profits on that position the previous week. Finally on Wednesday as we saw the market approaching "test time", it was clear that worst case we were going to revisit recent highs and create (at minimum) a double top, so I added a 5% exposure in SPY calls - those were sold the next day for a near 60% gain as true to form we rallied to (and through) S&P 1040 which were highs from a few weeks earlier. On that breakout we also added another 5% exposure which were sold within hours for about 24% gain. These were September calls so with expiration coming the following week, that was another reason to let go of the exposure. We also added to our long book - 3 names: Skyworks Solutions (SWKS), Triquint Semi (TQNT), and Blackstone Group (BX). Skyworks, which is currently our top position, promptly raised guidance after the bell and was a big performer the following day. RF Micro Devices (RFMD) which was our 2nd largest position similarly said good things at a conference and also had a good day on Thursday. Blackstone Group was upgraded by Goldman Sachs the day after we bought. We took profits on our Chinese exposure added the previous week - both in the Morgan Stanley China fund and CNinsurance - the former had rallied 10%, the latter 20%. I am not going to turn that down for 1 week's "work". Late in the week we began a position in Atheros Communications (ATHR) - despite a gap in the chart (lower) we are hoping to see filled, it's been many months since stocks have been going back to retrace yawning chasms in their charts so we decided to bite the bullet after stalking this name for a long while and get started. To end the week we closed a PPG Industries (PPG) short for a loss.

Frankly as I skimmed the news items the past 4 weeks it is surreal in the face of this rally - poverty surging, FHA loans going bad as the taxpayer prepares to take a hit in a few years, cash for appliances, cash for clunkers, $16 billion handed in cash for housing clunkers (nearly $3B directly to realtors pockets), US credit contracting at a 10% annual rate, continued job losses. But in the government/Fed subsidized economy (and market), all one needs is more (and more) liquidity and we are getting it in spades. Further we have built a system where corporations can prosper without consumers needing to - the government makes up the difference. Having lived through 1999 in a much more naive state, I am going to use that experience as my playbook from here. We can party for a long time; and one day we'll pay the piper in a big way; all those warning about the piper will be deemed naysayers, doomsdayers, and losers by the party animals. Unlike 2000, I will be playing both sides of this reality - not just the naive, happy go lucky "NASDAQ to 5000, it's different this time" side. ;)

[Jan 30, 2009: Fund Performance Period 1]
[Mar 2, 2009: Fund Performance Period 2]
[Mar 30, 2009: Fund Performance Period 3]
[Apr 27, 2009: Fund Performance Period 4]
[May 28, 2009: Fund Performance Period 5]
[Jun 21, 2009: Fund Performance Period 6]
[Jul 20, 2009: Fund Performance Period 7]
[Aug 17, 2009: Fund Performance Period 8]

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