Thursday, September 16, 2010

2010 Fund Performance Period 9

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  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 moved to a new tracking system in 2009 ( 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 "began anew" in terms of performance with portfolio "B" as of early 2009. Detailed history on latter 2007 and 2008, as well as 2009, [Jan 7, 2010: 2009 Final Performance Metrics] can be found on the above mentioned tab. For 2010 our ninth 4 week period is now complete. (Data is through last Friday's closing prices)

(click to enlarge)

Period 9 was much like period 8 in that it was difficult to separate from the market.  Finding any 'big kills' to really create performance was not in the cards.  Correlations remained at extreme levels, and almost all performance mattered more on directional change of market rather than individual stock selection. The S&P 500 remained locked in a range of nearly 5 months, most of which has been 90 points between S&P 1040 and 1130.  The first 2/3rds of period 9 were marked by a struggling market that looked to be set to break down below S&P 1040, as economic data came in quite weak - whereas the last 1/3rd was met with still murky economic data but sentiment had gone so sour that even "ok" data like the monthly jobs report was able to set the market on fire.  Most of the damage upward was on Sept 1 as the 1-2 touch of slightly expansionary Chinese PMI and US ISM set the market ablaze.  Leadership stocks dominated as a group of 'cult' stocks centered around the 'cloud' (as one example) led; precious metals also rebounded as silver took the reigns from gold.  Talk of QE2 by the Fed also led to some happiness by the speculator class.  The U.S. dollar stunk, while the yen surged... bonds were in complete inverse to the U.S. market.  China's market rebounded but nothing spectacular, while India's market surged.

For the ninth "four week" period of 2010 the fund returned +2.6%, versus the market's +3.0%, so an underperformance of -0.4%.
On a cumulative basis in 2010 the return is +55.4%, versus the Russell 1000's -0.2%, so an outperformance of +55.6% for the year to date. (thus far 36 weeks)

Period 9 was a period of absolute outperformance (making money) but relative underperformance (did not outperform the market). The yearly goal of beating the index by 15% is on track.


*** Long/Short Fund Discussion below

Portfolio Overview:  Much like period 8 this was a tough period to stand out... while the stocks we did hold were mostly great performers, we were (rightly) underweight on the way down and (wrongly) underweight on the way up.  Sentiment turned on a dime this period... S&P 1040 was tested three times in a matter of days and many (including me) thought it would break, setting up for more downside.  But what I'd consider very average mfg data out of China saved the day Sept 1 as a big surge in premarket futures was matched by a 2nd leg as U.S. ISM manufacturing data caught everyone by surprise. I did throw on a very short term SPY call option play when U.S. ISM came out, and that provided a little juice for the period but overall it was mostly up to stocks.  Our "cloud" stocks (even if some are barely cloud related) continued to be winners and I was very happy with stock selection, although some days it is very difficult to tell how much selection meant as we had many 90% up or down days.  But in general most of our names held in well despite the heavy selling in the first part of the period, and then zoomed during the latter portion of the period.

Below is the chart for period 9:

Week 1: Entered the week: Cash 73%, Long 23%, Short 4%

The market had just broken down below support the previous week, so a time for caution as I 'de-risked'.  

On the long side:

  • Monday morning we were greeted with good news - BHP Billiton (BHP) made an unsolicited bid for fund holding Potash (POT).  While I thought Potash could run more over time, the big surge was enough for me and I closed out the position securing a nice gain but wishing of course our position size was larger. 
  • Nextflix (NFLX) continued an intense run so after taking some profits on it last week, I sold almost all shares Monday in the upper $130s as the stock was immensely overbought.  Within 48 hours I was able to buy back our shares (plus some) for a 9% discount as NFLX fell to the 10 day moving average - despite two days of rallying in the broader market. 
  • Riverbed Technology (RVBD) was bought on a limit order the previous Thursday; it had rallied close to 10% in just a few sessions so I took half off the table simply to lock in gains since the overall market was in weak position and the bounce had come so fast in this name. 
  • Thursday, I cut (CRM) by 2/3rds ahead of earnings.  The report was good, but the market reaction was unusual to me - the stock skyrocketed Friday, at which point I sold almost all remaining shares.  I believe this had to be a short squeeze since the results were not "super". 
  • Friday, I closed Cirrus Logic (CRUS) as the stock had been acting weak and broke a key support, took a 12% loss. 

On the short side:
  • Tuesday as the market ran towards 1100, I was stopped out of a short of Gentiva Health Services (GTIV) for a 3% loss.  I replaced the name with Henry Schein (HSIC) - however that was stopped out the next day for a 1.5% loss. 
  • As the S&P 500 ran into resistance near 1100 I put on a modest 2% short on TNA ETF. I closed this out Thursday morning for a quit profit after poor weekly jobless claims figures, as the S&P 500 fell back to the support/resistance of the 50 day simple moving average near 1088.
  • After the Philly Fed report hit later Thursday morning, I put the TNA short back on plus some BGU (still modest sizes at 2%+2% = 4%) under S&P 1080, hoping to see 1070 or lower.  The market did fall to 1070 but I was torn on whether this would be the break or we'd bounce yet again.  Of course the index bounced and I took profits as the market was rebounding so the gains were small.
  • Friday, I tried the same trade as Thursday as the S&P 500 broke key support at S&P 1070 - shorting with both BGU and TNA - instead the market did a U turn and rallied right back for no apparent reason, and I covered for losses.

Week 2: Entered the week: Cash 80%, Long 18%, Short 2%

I was looking (correctly) for more downside as the market was weak, and the 'generals' (leadership stocks) had not broken.  A key support of S&P 1070 broke this week which led to more downside, with next target 1040.  That said I was making some selected purchases here and there as stocks came in.

On the long side:

  • Tuesday as the market continued to selloff, I began to rebuild a position in auto supplier BorgWarner (BWA) which had been sold off for good profits.  The stock came back down to the 50 day moving average, allowing us a sensible place to purchase. 
  • Polypore International (PPO) similarly fell back down to the 50 day moving average, letting us have a chance to begin to rebuild a position we had sold higher to lock in profits. 
  • Once the S&P 500 fell to 1056, I tried some index plays (TNA/BGU) long hoping for a quick oversold bounce - when this did not happen I quickly sold out for a small loss. 
  • Wednesday, I started another auto supplier position - one of the most impressive earning reports of the previous period, Magna International (MGA) as it fell back to near its 50 day moving average. 

On the short side:

  • As I tried the previous week (unsuccessfully) once S&P 1070 broke Monday, I put some index short positions on (TNA/BGU) with a target of S&P 1056.  This was all based on Fibonacci levels - a move from the 50% retracement to 61.8%.  It worked to perfection as I covered most the next day in the mid 1050s.  I kept some very small positions as placeholders.
  • Wednesday I covered a short in Global Payments (GPN) for a nearly useless 1.5% gain.  This was supposed to be one of my hedges for a market selloff; the selloff came but this specific stock did not give up much of the ghost. 
  • Thursday, with the market quite extended to the downside I decided to focus on individual stocks with poor charts - which led me to a basket of Toll Brothers (TOL), Burger King (BKC), and Symantec (SYMC) - utilizing a 7.5% exposure in total.

Week 3: Entered the week: Cash 71%, Long 21%, Short 8%

This was the inflection week, as I entered the week worried about a break of S&P 1040 and a negative private payroll figure which would break the index down through support and cause havoc.  Instead mid week markets had a huge reversal, catching me underweight equities.  I was very lucky in 1 short position as I covered Burger King (BKC) a day before a private equity buyout was announced.

On the long side:

  • With Riverbed Technology (RVBD) up 23% since I bought it on August 12th, I took another round of profits Tuesday. 
  • I closed the position in Monsanto (MON), as a narrowing of guidance, punished the stock and it broke support on the charts. 
  • Wednesday, when ISM Manufacturing came in better than expected I quickly bought a 3% allocation in SPY September 107 calls anticipating a positive reaction; in part this was to offset the losses in the SPY puts (1%) allocation I was holding.  This happened around S&P 1070 and my target was S&P 1081 which was where the 50 day simple moving average had fallen to in the first half of the week.  I sold this in 2 batches, first (same day) at 1078 and then Thursday morning around 1081. 
  • Thursday, I sold 30% of (AMZN), and half of Magna International (MGA) as both were stretching into overbought territory. 
  • Friday, I continued to sell things that were overbought - 50% of Netflix (NFLX), Acme Packet (APKT) and 40% of BorgWarner (BWA)
  • I took some of the monies in names I had taken profits in and moved them into 3 new names that had lagged on the hopes if the market continues up these would 'catch up': Gafisa (GFA), Titanium Metals (TIE), and Power-One (PWER)
  • I began a modest rebuild (1%) of F5 Networks (FFIV)

On the short side:

  • As the S&P 500 tested 1040 for the 3rd time in 5 sessions, I opined (wrongly) that the more times you test a level the more you are likely to break it.  Traditionally this is how it works out, but all that gives you is increased probability, not a crystal ball.  I bought a 1% exposure of October 104 SPY puts as 'portfolio insurance Tuesday, thinking I'd hold it for 7 weeks in case 1040 broke.  Instead I ended up selling them the next day as the viciousness of the rally meant these would lose a lot of money (in % terms) if the market kept going up. 
  • I covered a short in Burger King (BKC) for a quick 3.5% gain from an entry point late the previous week; this was a very lucky transaction as overnight Wednesday the stock was rumored as a PE takeover candidate, which was confirmed late in the week.  
  • A stop loss on the short of Toll Brothers (TOL) triggered at a 3% loss on the surge on ISM Manufacturing Wednesday. 
  • Friday's gap up on employment data finally triggered a stop loss in the short on Symantec (SYMC) at 3%.

Week 4: Entered the week: Cash 71%, Long 28%, Short 1%

Entering the week obviously very net long (but 'too much' cash) but spent the week selling down exposure and trying to become more hedged as a lot of our stocks went from oversold to overbought in a period of 7-8 days.  I took profits at what appeared to be overbought conditions on their charts.  I put on some synthetic shorts via volatility and long bonds but did not really bet much against equities other than a few selected stories.

On the long side:

  • Wednesday, I bought back decent sized exposure in the 2 auto suppliers as we had a typical 90% day, and these were the only 2 stocks in the portfolio down.  The sector was downgraded, so I got back some Magna International (MGA) and BorgWarner (BWA) that I had sold off for profits at higher levels. 
  • As gold retested old highs, I cut back Powershares DB Double Long Gold (DGP) to lock in profits. 
  • Thursday, I sold some modest sized index longs (TNA) as the S&P 500 rallied on the weekly jobless claims number and rallied to S&P 1110. 
  • Thursday, I took a sledge hammer to some names as they had reached extreme overbought levels - mostly these were 'the generals': Acme Packet (APKT), Netflix (NFLX), Tibco Software (TIBX), Riverbed Technology (RVBD), Cleveland Cliffs (CLF), and (AMZN)
  • I closed a position in Titanium Metals (TIE) which I had just started the previous week as it had not been participating in the rally 
  • Friday, I added back a very modest amount of Spreadtrum Communications (SPRD) as it finally fell to some minor support. 

On the short side:

  • Tuesday, I shorted Monsanto (MON) as it had broken support the previous week, and had rallied back into its support/resistance area of the 50 day moving average. 
  • Thursday, I shorted Texas Instruments (TXN) as the semiconductor group had been lagging.  I was fortunate in the stock narrowed guidance a few hours after I shorted, and I was able to take a quick 2.5% profit on half the position Friday. 
  • For some higher beta exposure, I shorted NASDAQ OMX (NDAQ) and Intuitive Surgical (ISRG)
  • I began positions in iPath S&P 500 VIX (VXX) and iShares Barclays 20+ Year Treasury Bond (TLT).

[Aug 18, 2010: 2010 Fund Performance Period 8]
[Jul 20, 2010: 2010 Fund Performance Period 7]
[Jun 24, 2010: 2010 Fund Performance Period 6]
[May 26, 2010: 2010 Fund Performance Period 5]
[Apr 28, 2010: 2010 Fund Performance Period 4]
[Apr 1, 2010: 2010 Fund Performance Period 3]
[Mar 2, 2010: 2010 Fund Performance Period 2]
[Feb 2, 2010: 2010 Fund Performance Period 1]
[Jan 7, 2010: 2009 Fund Performance - Final Edition]

For previous years please see tab 'Performance / Portfolio' (we were using other tracking mechanisms at the time)  

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