Thursday, October 14, 2010

2010 Fund Performance Period 10

If, after reading the blog content you might have an interest in participation for the mutual fund, please consider reading why this blog exists. Conditional launch date should be November 2010.

  1. [Jan 2008: Reader Pledges Toward Mutual Fund Launch]
  2. [May 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 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 tenth 4 week period is now complete. (Data is through last Friday's closing prices)

(click to enlarge)

Period 10 was another ho hum period for the fund, whereas the market was in continues melt up state.  Long exposure was in the right stocks until late in the period when certain 'cloud type' entities crunched performance a bit, whereas all short exposure was damaging.  This was a period of QE2 anticipation, dollar destruction, and every asset on earth rallying in concert.  Other than 1 selloff that last a few days (after a spike) it was mostly up or sideways action during the period.  Chinese stocks continued to lag while other emerging markets sang; commodities continued to shine.  

For the tenth "four week" period of 2010 the fund returned +0.5%, versus the market's +3.6%, so an underperformance of -3.0%.
On a cumulative basis in 2010 the return is +56,2%, versus the Russell 1000's +3.3%, so an outperformance of +52.9% for the year to date. (thus far 40 weeks)

Period 10 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:  The manager's performance continues to be "lacking" as buy and hold (and never sell) takes over the reigns during this period and much of the last.  A lack of long exposure, and hedging techniques both created under performance.  Correlations dissipated a bit so that was a positive - except a new correlation took over.  Dollar down, everything else up.  QE. QE. QE.  Our "cloud" stocks (although a much smaller portion of the portfolio than period 9) took a hit late in the period; multiple attempts at shorting individual equities were stopped out at 3-5% losses.  Las Vegas Sands (LVS) was a star, as were auto suppliers.  While happy to make some money even when ill positioned, the first half of 2010 was much more suited for our style - right now the "balls to the walls, cash is trash, buy anything that moves, everyone is a genius" style (circa NASDAQ 1999) of investing is dominant.

Below is the chart for period 10:

Week 1: Entered the week: Cash 67%, Long 19%, Short 14%

Entering the week the market had just broken over the 200 day simple moving average, and the S&P 500 was testing early August highs around 1130.  It was either a 'double top' or a breakout situation.  Obviously it was the latter.  Economic news was very light - mostly just housing data but everyone was focused on QE.  After a big run I began taking profits in some positions - in retrospect, far too early.

On the long side:

  • Monday, as Indian markets continued their recent surge, almost all remaining shares in Indian bank HDFC (HDB) were sold as the stock hit 30x forward PE. 
  • The last of 3 tranches of (AMZN) was sold as the stock hit extreme overbought levels.  Only a 0.1% exposure was kept.
  • A good sized amount of Spreadtrum Communications (SPRD) was sold, even though the position had just been upped the previous Friday.  With the stock up 10% in 1 session it was too good to pass by and more importantly I had placed a limit sell order at the 10% gain, which immediately hit.
  • Tuesday, a 1% exposure was added back to Cleveland Cliffs (CLF) as the stock pulled back to its 20 day moving average.
  • A modest 1.4% position in Thoratec (THOR) was restarted as the stock broke above multiple resistance levels.
  • Tuesday afternoon it appeared the market was finally going to break out so I bought some SPY 113 October calls... but with no follow through these were immediately sold.
  • A quarter of Gafisa (GFA) was sold as it was up 7% from entry.
  • Thursday, Power-One (PWER) broke support and seemed intent on staying there, so with a 17-18% loss the position was closed
  • Friday, Rovi (ROVI) was reduced by 55% as it broke support intraday. 

On the short side:

  • Monday, the stop loss in Monsanto (MON) was triggered at about 4% loss. 
  • I had started a of Texas Instruments (TXN) the previous week, and one half was covered for a quick profit.  I reshorted that half position Monday.  After entering a stop loss, I realize I had a 'fat finger' and placed a limit cover instead so I lost the position.  Tuesday morning it was reshorted.  Mid day Thursday this position was covered for 'flat' - good timing as the company announced a stock buyback in after hours. 
  • Another batch of iShares Barclays 20+ Year Treasury Bond (TLT) was bought as the ETF came back down to the 50 day moving average.  I treat this as a 'short' even though it's not technically ... but it has moved inversely to the market for much of the past few years. 
  • Caterpillar (CAT) was at the top end of its range, so if the market could selloff it seemed ripe to book some profits on the short side - I shorted it Tuesday but had covered for a 1% loss Friday.
  • Wednesday I added some iPath S&P 500 VIX (VXX) exposure as well as minor index short shorts (BGU/TNA) as the market kept teasing the top end of the range. 
  • A short on Intuitive Surgical (ISRG) was covered for a 4% loss as many of the laggards in this rally finally showed some life.

Week 2: Entered the week: Cash 74%, Long 17%, Short 9%

QE. QE. QE. US Dollar down.  QE. QE. QE.  That summarizes the week.  Made a nice entry in Las Vegas Sands - that was the major positive move of the week.

On the long side:

  • Monday, half of F5 Networks (FFIV) was sold
  • Wednesday, the majority of the remaining Rovi (ROVI) was sold after a big surge due to Apple partnership.  A limit order to purchase shares at the 'gap' from which it surged will be the plan to rebuy shares. 
  • Thursday after the market bounced hard for reasons no one could find after dropping on bad european levels, I went long some SPY calls.  The market reversed back down within hours, through S&P 1131, causing frustration and losses
  • Las Vegas Sands (LVS) was noted as a chart with a multi week base building; when the stock jumped outside of its range, the position size was increased materially (+3%).
  • Friday, because I appeared to be the last man on Earth not buying stocks I added to Thoratec (THOR), VMWare (VMW), Spreadtrum Communications (SPRD), and Riverved Technology (RVBD)
  • A new position was created in "shapewear" name Maidenform Brainds (MFB)

On the short side:

  • Wednesday, Best Buy (BBY) was shorted as it kissed the 200 day moving average for 3 straight sessions.  This was covered the next day for a 2% loss as the stock broke over resistance.
  • Thursday, "good" existing home sales (the numbers were awful) rallied the market after bad european news led to a rarity - a premarket downdraft.  Index shorts (TNA/BGUwere shorted just below S&P 1130, but the market bounced for no particular reason during the day causing a forced cover.  Then late in the day the market plunged but our position was already gone.
  • A longer term 'insurance policy' was bought with a modest SPY put position - Dec 110 puts, hoping for a fill of S&P 1090 sometime in the next 3 months. 
  • Intuitive Surgical (ISRG) and Whirpool (WHR) were shorted. (reason: stocks nearing resistance)
  • Plantronics (PLT) was shorted as the stock was at a make it or break it level - a double top or not.  In this case - not.  The stock was covered the next day for a 2.5% loss. 
  • Friday, the 'best' short of the past few weeks - NASDAQ OMX (NDAX) finally broke over resistance, causing a 4% loss as we were stopped out.  The stock failed to rally with the market for weeks but finally succumbed in the "David Tepper" rally. 

Week 3: Entered the week: Cash 64%, Long 26%, Short 10%

Dollar down, everything up. QE. QE. QE.  Almost all short exposure was not in individual equities but 'long bond, long volatility' and I started a long dollar trade as a hedge.

On the long side:

  • Monday, started Chinese Home Inns & Hotel Management (HMIN) on a technical breakout - if I was a very short term trader I could have been in and out of this position with a quick 6% gain, as the chart had laid out.  But once it did that, it stalled and fell back. 
  • Tuesday, Cleveland Cliffs (CLF) was sold as it was stalling.  However, as speculators moved into lagging names the stock ran with the 'energy' complex late in the week so thus far a bad sale.
  • As the S&P 500 fell back to 1131 area of support, I bought some SPY Calls with intent to sell 10-15 points higher (from 1133).  This played out very quickly, indeed within hours - but my fill price on the options was horrid and a 30%+ some gain was barely double digits. 
  • Added to Spreadtrum Communications (SPRD) on a sharp pullback to the 20 day moving average.
  • Thursday at the open, closed out 3 "market general" positions in Netflix (NFLX), (AMZN), (PCLN).  In retrospect shorting all 3 would have worked out quite well, but you never know when these sort of stocks will finally exhaust themselves... 
  • Closed Thoratec (THOR) for non performance and reversing a breakout. 
  • Sold 20% of BorgWarner (BWA) to lock in gains, and 66% of Powershares DB Double Long Gold (DGP) as the commodity has been on fire. 
  • Added to Acme Packet (APKT) on a pullback to the 20 day moving average. 
  • A limit order for (CRM) hit at a "gap" which coincided with the 50 day moving average; a tight stop loss was put in in case this is part of a larger move down.

On the short side:

  • Goldman Sachs downgraded Intuitive Surgical (ISRG), so Monday half the position was covered, and Tuesday the other half - together about a 3% gain.  Not much but in this market it's a victory to make money on anything on the short side. 
  • Wednesday, shorted a second leg in Whirpool (WHR) as the stock reached closer to resistance levels.  The company actually warned on the year the next day, but speculators did not care as the stock barely budged. 
  • Restarted a position in the much hated U.S. dollar with Powershares DB U.S. Dollar (UUP) - this is being used as a hedge and for a trade, not a long term position.

Week 4: Entered the week: Cash 63%, Long 25%, Short 12%

Entering the week ISM Services and the monthly employment data were risk factors - but despite coming in "meh" no one cared.  QE was coming and everything else was just details. A breakout over key level 1150 led to some index plays, but the rally was short lived as Equinix (EQIX) warned on revenue, causing damage the next day especially in the leadership categories.

On the long side:
  • Monday, took 1/3rd off of Las Vegas Sands (LVS) position after a 10-11% gain in 2 weeks on a sizeable trading position. 
  • Took a good chunk of Gafisa (GFA) off the table, after a 15% run the past month.
  • Tuesday, on the ISM release and a clear of technical resistance at 1150, TNA ETF and SPY Calls were bought for 'breakout' reasons (short term); at end of day 1/3rd of the SPY Calls were sold for roughly 35% profit.  The next day I sold the rest of the long exposure for much smaller profits as the market sold off.
  • Wednesday, an analyst downgraded Maidenform Brands (MFB) which acted like a stock in very weak hands, a tremendous selloff occurred, causing us to stop out as the 50 day moving average was punctured.
  • The "cloud computing" selloff had VMWare (VMW) break through key support, so this name was closed out.
  • A good size batch of (CRM) was bought late last week at $111s area; with the "cloud computing" selloff, our stop loss of $107.50 was triggered so all the exposure bought last week, went right back out the window.
  • Thursday morning, bought back some exposure in F5 Networks (FFIV) and Riverbed Technology (RVBD) as they had come in with the 'cloud' plays - unfortunately the next morning Goldman downgraded FFIV causing pain, causing us to cut back until we saw if the name could recapture support quickly.
  • Cut back 75% of Acme Packet (APKT) as the cloud / momo plays continued to suffer Thursday morning.
  • Thursday, sold the majority of the remainder of Gafisa (GFA) (to lock in a 17% gain) and 1/3rd of Polypore International (PPO) - locking in a 21% gain.
  • Similar to a few other names this week, Mercadolibre (MELI) broke through some support levels - so the position was closed.
  • Sold 25% of Magna International (MGA) as the stock has run nicely the past 3 weeks.
  • Went long SPY Calls Friday afternoon as the market was impervious to selling off, and Monday morning melt up awaited

On the short side:
  • Tuesday, a short on Whirlpool (WHR) was stopped out at 5% loss.   Reshorted it Thursday, as the stock fell back below resistance.
  • Shorted 3 technically weak charts Thursday - Prudential Financial (PRU), Shanda Interactive (SNDA), and China Automotive Systems (CAAS).
  • Shorted OpenTable (OPEN).

[Sep 16, 2010: Fund Performance Period 9]
[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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