Friday, December 10, 2010

2010 Fund Performance Period 12, and Final Wrapup

I don't have time to do a full overview as I normally do of period 12, so I'm doing a slim version for the last wrapup of 2010 performance.  All historical data (including major trades) is found on the website in the right column under archive so if curious on the week by week transactions that I normally break out itemized in this report, please go there.

If interested in the future mutual fund, please see Fund FAQ/Pledge tab on the website for details and progress report.


Total Portfolio Value, as maintained by 3rd party has been maintained at the past 2 years. (starting value $1,000,000 or $10.00 NAV)

I have posted an update of performance versus the Russell 1000 every 4 weeks; we moved to a new tracking system in 2009 ( as the old tracking system used from summer 2007 to fall 2008 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 thru fall 2008, as well as 2009, [Jan 7, 2010: 2009 Final Performance Metrics] can be found on Performance/Portfolio tab.

For 2010 our twelfth 4 week period is now complete. (Data is through last Friday's closing prices)

(click to enlarge)

Period 12 was a good period for the fund, but tough for the market until an enormous run in the last week, as stocks surged on the first day of December and ran hard for 3 days straight to finish flattish for the period. Our outperformance versus Russell 1000 was substantial up to that 3 day period (I believe the market rallied some 3%+), but still ended very good.  After a straight up run from late August to early November the market actually fell for a few weeks during period 12, allowing our cash position and hedging to actually create some distance from the indexes. 

For the twelfth "four week" period of 2010 the fund returned +4.3%, versus the market's +0.3%, so an outperformance of +4.0%.

On a cumulative basis in 2010 the fund return was +69.6%, versus the Russell 1000's +10.9%, so an outperformance of +58.7% for the year to date. (48 weeks)

Period 12 was a period of absolute outperformance (making money) and relative outperformance (beat the market). The yearly goal of beating the index by 15% was successful.

As noted. all positions were closed as of December 3rd to focus on work necessary to launch mutual fund in first quarter 2011.


*** Long/Short Fund Discussion below

Portfolio Overview:  See archive on far right of website for week by week discussion of this period.

History of 2010 and 2009 below

[Nov 11, 2010: Fund Performance Period 11]
[Oct 14, 2010: Fund Performance Period 10]
[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]


Yearly Overview

Overall, this was the best year I believe I've had adjusted for risk.  I did better in 1999 but I was a stupid investor then who put my marbles on risky things, bought every dip, and had zero discipline. I had no system - everyone was getting rich in 1999.  We threw darts - and everyone was a genius. Until 2000. Many lessons were learned, and real strategies developed and employed on a personal level post 2002.  In 2009 the fund portfolio had a better return than in 2010 but I had some bad periods of negative returns when I was fighting the Fed in spring 2009.  Hence some substantial losses were incurred before rebounding later in the year.  So considering drawdowns, it was a weaker year in relation to the much smoother 2010.

While I am happy at the outperformance versus my index (the Russell 1000) in 2010, the fact no 4 week period ended in a negative return was truly the best attribute of the year as a risk manager.  The fund strategy I am using should provide outperformance in down markets and potentially sideway markets, but sometimes lag in up markets.  Overall, I think we followed true to this as I lagged during some of the 'straight up' moves this stock market exhibited in 2010.  But by preserving capital during downturns we were able to keep the NAV near highs all year, and hence required less risk taking during the good times to 'keep up with the Joneses'.

In retrospect my caution on the economy and all the interventions by federal government and Federal Reserve in every arm of the economy and markets was a deterrent.  I was too cautious overall and returns should have been even better if I believed the lengths that the government and Fed would take to avoid reality and kick the ever growing imbalances down the road.  This will create even more pain down the road, but it is a lesson to learn for future crisis periods.  Desperate officials will do anything to create upside.

Specific to the portfolio, stock selection for 2010 was excellent - we had many of the top performing stocks in our portfolio on and off all year - indeed of the 50 best performers in my entire universe, we participated in 8 - that's 16%.  [Oct 28, 2010: 50 Best Performing Stocks Year to Date] Considering my stock universe is roughly 2000 stocks, have 8 of the top 50 for substantial periods of time is a home run.   I could not be happier on stock selection.  However, many of these positions were culled too early or sold out of the portfolio, whereas a 'buy and forget' strategy would have served better in 2010.

In a real world environment the 69.6% return for the year is reduced by 2%ish for expense ratio, and then maybe 1-2% for performance drag/friction dealing with actual equities (i.e. inability to find a stock to short, or moving the stock price slightly on a less liquid name).  That said, I focus on the $500M to $25B market cap range with stocks that trade at minimum 200,000 a day so as a $10M, or $50M fund performance drag should be very minimal.    To make it simple I'll call it a 65% year.

As always past performance has nothing to do with future results... but I'm pleased with past performance all things considered.  People have been able to follow along and see my daily moves day by day, week by week, month by month, year by year in an open and transparent format for 3.5 years.  Hopefully similar success is enjoyed in the years to come.

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