Comments on Fund My Mutual Fund: Today was a Blah Day

I didn't answer this part - sorry I missed it*****...

2008-01-08T10:12:00.000-05:00

I didn't answer this part - sorry I missed it

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In different market cycles, such as the one I believe that we are beginning, would you modify your process? How would you anticipate performance in a market led by value stocks?
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I believe at times value investing is more in vogue and at times growth investing... but I believe correct stock selection will work in any market. I do believe in reversion to mean but more along market cap - i.e. we had large cap outperformance in late 90s, then small cap from 2002-2006, and now with the slowing domestic economy I believe multi national exporters will "RELATIVELY" outperform - but I believe a shoe will also fall there as global economies slow.

And yes I have been modifying due to macro trends - I have bought some health care stocks i.e. MedcoHealth Solutions, I have been buying some companies FCN and HURN which are consultants who have arms of their business that specialize in bankruptcies. However, the lion's share of companies I buy are areas I believe will be above the US recession or a value vs growth market - I am seeking people with deep pockets - those countries with deep trade surplus or petrodollars. Many of my top holdings are based on those customer bases... I think that will hold up in a value or growth market et al.

Hi arclaw, thanks for your comments/questions#1 I ...

2008-01-08T10:08:00.000-05:00

Hi arclaw, thanks for your comments/questions

#1 I try to post links when possible to outside sources of information. Much is aggregrated for multiple sources read over years of studying so it is not necessarily one area

#2 In retrospect it looks like I am jumping on hot sectors. In fact I am trying to get into sectors before they are discovered as "hot". I encourage you to look at my postings on coal, click on the link for Peabody Energy and you can see I was "hot" on the sector before it became sexy the past 3 months. Further, this blog/and mutual fund started 5 months ago so that is my "public history". My thoughts run far before that of course. For example I was investing in solar 1 year ago. Before people jumped on the bandwagon. I have a few readers here who can vouch for me, since they followed me to this blog from my message board postings... i.e. I was investing in Suntech Power (STP) when it was $28. So what looks like bandwagon jumping are thesis' that started much earlier. Food inflation and fertilizer is another one. I have been investing in those areas before the blog started.

On the flip side to that I have had very little exposure to RIMM, GOOG, BIDU since the fund started - only in the last week did I start buying RIMM in scale. Those are "hot sectors" which I felt overplayed or with risk. Etc.

With that said, yes I believe in relative strength - reason being is I can be correct on a thesis but if the entire market ignores it for a year, it creates dead money for my personal account and this fund. So I develop the macro and micro theories, and then develop my watch lists of stocks. Then when I see the market moving towards agreeing with me, I start buying positions.

So let's look ahead - a recent post of my mentioned investment banks, retail and homebuilders. I plan to invest in all those areas in the coming year(s). Probably investment banks latter 2008, probably retail, homebuilders 2009. But not until washed out further and not until the market begins its first inkling of moving back to this area. Bill Miller was saying to buy homebuilders and financials in 2007... I think thats far too early. We would both be right, eventually. I just think he will have larger losses or dead money at best before he is correct. Further these are not typical growth stories aside from say a Gamestop or Under Armour in retail, so they are not 'secular growth' stories either, so not really my style (much). But something like a Goldman Sachs in latter 2008 I could see part of the portfolio.

For your last question, I don't have an exact answer but I'd say about 90% of my return is stock selection and 10% is trading around the core position. When I sell off positions I typically am only cutting out 10-25% of a position, and then buying back that 10-25% position. This is different than trying to time exactly and cutting a position down by 75% and then trying to buy the 75% back. I am a gradualist, and hence why I think only 10% is due to the trading on the edge. Of course within more volatile sectors I think its more than 10% but with something like a Mastercard or the fertilizer stocks its been probably less than 10% of my gain - just picking the right stock/sector is the vast majority of the gains.

Would you mind sending me more info via email on your last point? What is "preferred" by institutions etc. Thanks for your comments and if i did not answer you completely please send another message or email me. Mark

Mark--I first discovered your blog today and find ...

2008-01-08T06:27:00.000-05:00

Mark--I first discovered your blog today and find your commentary interesting. By providing links to other sites, readers have an opportunity to assess the scope and quality of some online materials that inform your analysis and investment stategies. This may prove helpful when deciding to invest under your management.

Based only on what I have read so far, my sense is that your long positions typically fall within those industries that have had the highest relative strength in the back half of 2007. I also note that you trade around these long positions to a considerable extent.

I am interested in your thoughts on a few things that occurred to me when looking at your trading log. Nothing is intended to be critical, by the way.

1. You mention that your fund will invest in areas of secular growth. Widespread agreement on favorable, secular trends in a handful of industries is a cyclical phenomenon that gives rise to UNRECOGNIZED overvaluations. The risk of loss is aggrevated by narrow leadership, such as now. Assume that industry group has historically shown a positive, yet weaker correlation to portfolio performance compared to 2007. In different market cycles, such as the one I believe that we are beginning, would you modify your process? How would you anticipate performance in a market led by value stocks? If the market was in an uptrend, was not clearly favoring a particular style, and trading detracted from return, is it possible for a person to consistently outperform?

2. I agree that trading around positions is more likely than not to improve performance under a variety of market conditions. Do you know what portion of your fund's total return is attributed to trading an EXISTING position that you repurchased at a lower basis? This is relevant if you intend to manage institutional or HNW accounts. More important right now, diverges in these data can serve as an early alert to changes in market behavior that are directly related to your own particular process. If you want more information on this, email me.