Monday, November 9, 2009

Fund Performance Period 11

As a reminder, 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]
  4. [November 2009: General Updates, Questions]

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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 while the website and portfolio began in August 2007, 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 eleventh4 week period is now complete. (Data is through last Friday's closing prices)

(click to enlarge)

This was the first negative "period" for stocks since period 2 i.e. February.  Most of the period was dominated by earnings news flow, and once again very low expectations were easily beaten as was the case 3 months earlier.  The S&P 500 stalled at 1100, then had one of the few substantial selloffs since the March lows, and the first material selloff since July 2009.  But just as with July, after breaking the 50 day moving average the S&P 500 rallied from out of the blue with 5 consecutive up sessions in the last week of the period, as "someone" was eager to buy ahead of both a Federal Reserve announcement AND a labor report.  There was no specific sector that stood out but the "inverse dollar" trade once more was dominant - this has been a theme for quite a few periods in a row and might not change for a long time. Precious metals were a darling of this time frame.  Small and mid caps lagged behind large caps for much (all?) of the period.

For the 11th "four week" period the fund returned +4.6%, versus the market's -0.5%, so an out performance of +5.1%.

On a cumulative basis the fund is now +69.5%, versus the Russell 1000's +15.6%, so an out performance of +53.9% for our "year to date" if you will.
(thus far 44 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 out performance 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

The dollar remained the only thing that mattered. [The Inverse Relationship Between the Dollar and Stocks in 1 Chart]   After jacking the prices of gold up in the previous period, Ben Bernanke's policies set to unleash oil in a similar breakout early in this period.  In a general sense in weeks 1 & 2  the fund out performed the market by about 2.5%.  The real magic was in week 3 when the market sold off strongly, including the large caps while the fund had been positioned in the highest cash exposure since inception during that week (and the week previous).  As certain technical levels were broken, we were able to benefit with some short term put options, and shorting a broad index ETF.  This allowed us to post positive ABSOLUTE performance while the market fell; a double bonus.  Since the market remained below the 50 day moving average entering week 4 of the period, we remained high in cash and the fund went sideways as the market tacked on 3%, so this was our one lagging time frame for the 4 weeks.  I would not of changed that strategy as the textbook would not of said a flurry of buying would of happened... in front of 2 major news events no less; but the textbook has become useless.  Just follow the US dollar.  Overall there was a lot of churning - up and down - but no progress; good for traders, not much there for investors.

Please note on the right margin of the blog is an archive in which you can see all these events in chronological order, clicking on any link within the sentences below will take you to that transaction - a summary below:

In week 1, we began in our "normal" positioning stance - mostly long, 70%ish cash, 5% short.  Monday we were stopped out of our Analog Devices (ADI) short which was 40% of our limited short exposure.  One of our favorite positions, Starent Networks (STAR) was acquired by Cisco Systems - so we sold all of our position for a one day 18% jump; and 39% above our cost basis.  We were stopped out of a long position in Perfect World (PWRD) as it broke support, but within days it recovered and we missed the rebound.  It happens.  We took profits in Blackstone Group (BX) as it jumped from $13s to $16s in just over a week.  We sold out of E-House Holdings (EJ) due to a pending "spin off" IPO - this was pure luck but it worked out for us as the stock sold off hard going into the IPO in the following days; better lucky than good.  Wednesday of that week, the upteempth "double top breakout" occurred, this time over S&P 1080... setting the stage to run another 20 S&P points in short order.  I began selling the next day into the rally - many stocks had surged 20-30% in 5-7 days, ASIA, GFA, TQNT.  I covered the remained of my Wynn Resorts (WYNN) short with a 12% loss. While everyone was drunk with Kool Aid, I mentioned the gap in the S&P 500 chart in the upper S&P 1070s could fill "sooner" rather than later; this set the stage for an excellent bear trade in the weeks to come. We restarted E-House Holdings (EJ) late in the week post IPO at a far lower price, and just above a resistance level so we could escape quickly if the stock broke down.  I attempted a new short in Moody's (MCO) since at that point we had been exiting just about all our short exposure.

In week 2, we entered the week with a curtailed long exposure of only 13% while still short 6%; remainder in cash.  We were quickly stopped out of our Moody's (MCO) short for a 8% loss as the "destroy the dollar, everything must go up" trade reached a fever pitch.  After Atheros Connumications (ATHR) trounced analysts estimates, we increased our exposure; while cutting much of our Myriad Genetics (MYGN) stake - the stock was not participating in a large rally; warning sign. After the Brazilians, in a desperate attempt to keep Ben Bernanke's dollars from inflating every asset in their economy, slapped a 2% tax on outside investors, Gafisa (GFA) sold off.  Since we had just taken profits the previous week we bought back a decent position. TriQuint Semiconductor (TQNT) reported after the bell Wednesday - keep in mind we had taken profits the previous week - and it laid an egg.  Mid day Wednesday, I said S&P 1100 was the line in the sand... still looking for that gap to fill in the S&P 1070s. Within hours the FIRST nasty intraday reversal hit... a 1.5% selloff in the closing 45 minutes.  A warning shot.  After the Triquint results I sold all 3 of our RF semi positions Thursday morning on the open; still like the group but all 3 had bad charts at that time. Our exposure to the group was not too bad so we did not take a large hit; mostly we gave away a +11%ish unrealized gain in TriQuint.  We were stopped out of 60% of our E-House Holdings (EJ) position that we had just restarted late the previous week, as it broke support.  Unbelievably as we hit S&P 1100 the session before ... we filled the gap at S&P 1075 in a session and a half.  The 20 day moving average was just below around 1070 so we said we'll assess based on what happens next - but we were buying some index calls and ETFs for a cursory bounce.

The gap filled perfectly at 1075; since this market has become nothing more than computers using technical measures we should at least have a cursory bounce here - Ive bought index ETFs and calls for the bounce (if and when).

That was at 10 AM in the morning; within 4 hours the S&P 500 had bounced 15 point to 1090.  I held overnight but wrote in premarket I'd be taking profits first thing at the open on Friday; I showed the whole strategy piece by piece in that post Friday morning.  We were able to exit well into the 1090s for a beautiful 17-18 S&P points in under 24 hours. I also took profits in surging CNInsure (CISG) that morning as it appeared to be making a double top - that was the right call in retrospect.  Late Friday we sold off AGAIN, marking the 2nd intraday reversal in 3 sessions; I said this was a change in character and we had to be careful.

In week 3, we were sticking to an extremely cautionary stance. Cash reached the mid 80%s, we had our lowest long exposure that I can remember - just over 10%, along with a cursory 3% short.  Mostly we were sidelined entering the week with our popcorn in hand watching.  That is ironic considering this ended up being the busiest week we had in many months.  Coming into the week we posted a chart outlining buy and sell strategies as both the 20 day and potentially the 50 day moving averages were in play. Monday opened strong (+1%) but "Holy Strange Action Batman" yet another intraday reversal down - a 2% loss mid day from the session's highs.   Another warning.  The market had tracked down to S&P 1070s again, sitting right above the 20 day moving average. E-House Holdings (EJ) continued to act poor, so we cut back our position to the bone.  After taking profits at the "double top" the previous week in CNinsure (CISG) we were able to get our exposure back 9% lower; within 1 market "day".  We sold almost all our BHP Billiton (BHP) in the mid $72s, assuming the oversold US dollar would bounce at least a bit; we placed limit buy orders at 2 gaps... first the $68s, then $65s - both hit later in the week. After the nasty reversal, we ended Monday down below the 20 day moving average.  A reader actually notified us of a tiny gap below S&P 1060 the next morning so as them market tried its normal morning "bounce" first thing Tuesday (rallying back into the low 1070s) we attacked - buying puts and shorting the a 3x long ETF (TNA).  By Wednesday the S&P had filled that gap, and we covered index longs, and sold our puts at S&P 1055.  Another wonderful short term escapade. A lot of stop losses triggered that morning at the S&P dropped so severely: Gafisa, CNinsure, Blackstone Group (BX), Discover Financial (DFS).  However we took the opportunity to buy Ultra Silver (AGQ) since it had fallen back to support and good ole Bernanke would hammer the dollar soon again.  Our first limit buy order for BHP Billiton also triggered in the $68s.

Week 3 got very tricky from there; the S&P fell all the way to the 50 day moving average in the upper 1040s; just as we had the previous week we went "long for a trade" assuming a quick bounce.   Same instruments as usual, calls and TNA ETF.  A long standing limit order for Fuel Systems Solutions (FSYS) also hit in the low $31s as the stock fell 10%.  I was disappointed in the "bounce" late Wednesday off the 50 day moving average and with GDP set to be released the next morning I decided to exit for the day with losses on the calls, and TNA.  Those losses erased our gains from the "gap fill" trade we had executed but safety first.  At 8:29 AM I looked like a genius as futures were limp and the S&P was below the 50 day moving average - dead in the water.  2 minutes later I looked the fool as the S&P futures surged like a rocket on a 3.5% print.  My calls and TNA long exposure I had bought Wednesday would of been a big winner but I would have repeated the same trade ... trying to guess an economic report AND the market's reaction to it is just outright gambling.  So instead we bid our time; we began a position in Market Vectors Small Cap Brazil (BRF) - a name I had highlighted in the summer.   AsiaInfo Holdings (ASIA) jumped 15%+ on earnings, we sold half our stake for a nice profit.  We had just bought Fuel Systems Solutions the previous day (limit order) but it also jumped 10% so we took our profits; little did I know the next week it would report fantastic earnings that would send the stock up another 30%!  We closed out a long held position in First American (FAF) after a tepid response to earnings.  Despite having fantastic earnings, Atheros Communications (ATHR) broke its 50 day moving average that Friday, so we had to respect that and sold 66% of our position to protect against bigger losses.

We had one last big trade for the week, the "GDP" bounce trade from Thursdaydied quickly... the market experienced yet ANOTHER intraday reversal so as the S&P 500 broke down yet again below the 50 day moving average we added hedges (shorts & puts) to protect against further downside in the early afternoon Friday.  At 1 PM I wrote

unless we recapture the 50 day moving average I'll be holding all short positions with a target to S&P 1020

I thought we might have a "give up the ghost" moment since there was zero support until 1020 but "the magical buyer" reappeared (like a ghost on Halloween) to protect the people at S&P 1034.  Not wanting to risk anything in the last 30 minutes, and sitting on fat profits in 2.5 hours of 'work', I once more covered my index shorts, and sold the puts at S&P 1038.   So while we missed the "GDP gamble" that bulls took, we more than made up for it on Friday in just a few short hours.  At that point I was exhausted, and Friday 4 PM could not have come soon enough.  More transactions in 1 week than most months.

In  week 4, long story short - the market looked cooked, long term trend lines had been broken; major indexes were below the 50 day moving average, we had 5-6 intraday selloffs in the previous 2 weeks; the markets closed wickedly bad the previous Friday; and 2 market moving reports were set to launch - Federal Reserve announcement Wednesday and labor report Friday.  Surely people would be cautious.  WRONG!  Buyers surfaced each and every day, the most vicious buying coming in the monring ahead of the Fed meeting and the day ahead of the labor report.  No fear... at least for the "urgent buyer".  We were positioned poorly for this situation as we stayed in our cautionary stance entering the week. Cash again mid 80%s, long about 12%, with minor short exposure.  Monday was quiet, Tuesday looked very bad with poor premarket action but ahead of the Federal Reserve buyers flooded in all day reversing the ugly premarket action.  I bought some long term downside protection, January puts - which by the end of the week already looked foolish; thankfully only a 1.5% allocation.  Wednesday morning both the NASDAQ and S&P 500 jumped back over their respective 50 day moving averages as investors were assured "Easy Money" Ben would provide punch bowls for as far as the eye can see.  They were right.  We had our normal herky jerky lemming reaction but actually closed ugly for the day Wednesday, giving up almost the entire session's gains.  Something to worry about?  Another intraday reversal?  No one cared Thursday as a flood of buyers came in - unemployment doesn't bother these people, free money from our central bank is all that matters. Just ahead of the Fed announcement we sold 1/3rd of our Ultra Silver (AGQ) as it was up 15% in a session and a half.  We closed what remained of our remaining Myriad Genetics (MYGN) position as earnings failed to provide any spark and the chart continued to be poor.  And by Thursday another V-Shaped bounce was well on its way as veteran traders continue to scratch their head at the way this market acts. The labor report Friday was poor, but I said this is just a signal that the Fed would do nothing to stop the spigot of US dollars shooting in every direction... so I was a buyer.  We did our normal index long plays.

So after an initial hit to the jaw, just as we saw a month ago as people are staggered that things are not improving... speculators should go back to joy within hours or by early next week as they realize - in their world - life is good.  Main Street is an afterthought...  the market should come to its senses shortly and realize everything is on "track".

The conclusion to that trade will obviously hit in the "next" period... but I can tell you, it was "good".  I also expanded some equity positions Friday in 4 names to the tune of about 4%: Blackstone Group (BX), Gafisa (GFA), Atheros Communications (ATHR) and AsiaInfo Holdings (ASIA).  All names, after breaking below support the previous week, were now able to recapture those levels - so we had nice risk/reward levels to make new purchases.

[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]
[Sep 14, 2009: Fund Performance Period 9]
[Oct 13, 2009: Fund Performance Period 10]

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