MAY MONTH END PERFORMANCE SUMMARY AND REPORT
May Performance: +6.44% May S&P 500: -6.29%
YTD Performance: +21.09% YTD S&P 500: +4.19%
*There are some portions of this report that are for investors only so I cut them out. It may seem choppy because of that fact.
May performance was led by a combination of good stock picking and disciplined money management. The very simple act of cutting out losers, while allowing winners to ride without any preconceived targets in mind paid off during May.
In particular, the investment in SYNC (originally initiated in March) has blossomed into the first 100% gainer in the portfolio for the year. Small-cap strategies, at their essence, seek out opportunities like SYNC because of the potential for this type of return. To get in the way of such an opportunity simply because you are paranoid about the possibility of a profit disappearing is an amateur's game.
My philosophy with respect to investing keys off of building gains early in the year, in order to be able to leverage those gains as the year progresses. The attitude of pulling back once a respectable target is achieved should not be considered within the framework of this philosophy. Instead, a responsible attitude towards risk is taken that allows the fund manager to take on concentrated positions in well thought out investments.
What is important to realize about the gains in May is that they were achieved within a portfolio that was in a 75% cash position for the majority of the month, ending the month at an even more conservative 50% invested of capital.
The possibility remains reasonably high that before the end of June the portfolio could move to a 100% cash position should current market weakness persist. My long-term trend indicator is fairly close to turning negative, joining the intermediate and short-term indicator on the bearish side. These are essentially volatility guards or risk cushions that allow me as a money manager the peace of mind to know that regardless of the market situation there is a mechanical side to the portfolio that simply overrides my feelings for a stock or an entire portfolio of stocks. This is an important component that is unfortunately missing from the repertoire of a majority of fund managers today.
With respect to opportunities in individual names, over the past week especially, a number of companies have popped onto my radar screen that I would be allocating money into right now if market conditions were solid. Given the unstable environment, I am putting these names on ice, so to speak, for enjoyment at a later date.
Through the journey of professional self-discovery I am finding that the more I ignore the macro picture, the better I do as an investor. Being able to solve complicated macro puzzles is a sexy game to play. It is also a game that is difficult to stay ahead of over the long-term. There are scenarios that take place with increasing frequency that lie so far outside the normal realm of possibility that few are able to profit and most end up walking away bruised and battered from the beating they take as a result. Not interested.
My focus is now more pinpointed than ever. Not only does small-cap stock picking take precedent over all else, but I refuse to look too far outside the technology sector in order to find opportunities. Energy has too many unpredictable macro components. Biotech is the equivalent of attempting to read a romance novel in Chinese. Metals are reliant on outside factors that I am not interested in keeping track of.
As for opportunities over the next few months, they may very well be in sitting out of the market for the most part, with a focus on getting very aggressive towards the latter part of the 3rd quarter. I intend on providing up to date views, research and opinions the entire way through.
Sincerely,
Ali Meshkati
