PORTFOLIO UPDATE: FIRST LEG OF ADJUSTMENTS COMPLETE
During the trading day Thursday, I tweeted the following: The decisions I make with respect to allocation are 100% systematic in nature. I feel it necessary to constantly remind readers of this fact so that you don't think that I suddenly wake in the morning and decide that the portfolios need to be positioned more defensively. The discretionary aspect of my reducing or increasing allocation has to do with what I choose to reduce or increase. In this most recent case, the reason I chose to eliminate SBCF had to do with two factors: 1. Liquidity: SBCF was a small position to begin with and had ample liquidity to absorb any selling 2. Exposure: The position rounded out the financial exposure I had in the portfolios with WMIH and HMPR. WMIH is a large position and HMPR a mid-sized position. I didn't mind reducing my overall net exposure to the financial sector just in case. I trimmed away very small bits from other positions to get to the desired target of 75% long and 25% short via TZA. The 75% long exposure is in WMIH, CIDM, HMPR, JMBA and IWSY. Compact, focused and concentrated. Just the way I like...
PERUSING THE LABYRINTH OF LEAKS THAT INVESTORS ENJOY
In the portfolios that I manage my concern, focus and energy is consistently on the equity curve that my strategy provides. A sloppy equity curve is a reflection of an inconsistent strategy. Think of it logically: The equity curve of your account reflects the sum total of your decisions as judged by the most accurate, unbiased judge of all....the financial markets. There is no identity in this dark pool of self-serving personalities who are chasing dreams in various stages of completion or degradation. The markets don't care about your skin color or hair color. They don't care if you walk like a monkey or stand upright. They aren't concerned with who you slept with last night or if you've never slept with another human being in 46 years. The only concern of the financial markets, as expressed through the creation of monetary success, is if you have made the correct investment decision at the correct time. When both of those factors - investment decision and timing - manage to be in sync then truly wondrous, beautiful things can take place within an investment portfolio. BUT...the issue of investment decision and timing must be expressed with a consistent output. When it is not, then an erratic equity curve becomes the result. Something along the lines of what you see from a Richter Scale during a 7.1 earthquake off the coast of Indonesia. Consistency in strategy, execution and mental state are the three factors that will result in a consistently upward slopping equity curve. Anytime your strategy starts switching from A to B to R to Z then your equity curve will show the result. This is a leak in your game and your equity curve exposes it. Anytime your execution begins to suffer as a result of indecisiveness built on the foundation of a lack of confidence then your equity curve will show the result. Another leak in your game that your equity curve will strip naked so that you can see all the lurid details of your inefficiencies. Anytime your mental state moves from a place of peace to chaos your equity curve will show the result. Paul Tudor Jones recently said in an interview that if one of his traders is going through a divorce he will yank his money. Mental state matters perhaps more than anything else. I recently visited with an old friend who was attending the Altegris Investment Conference in Carlsbad. He used to manage outside funds but now manages his own money exclusively. He told me that when he managed outside funds he would purposely employ buffers between him and his clients so that...
PORTFOLIO UPDATE: SUMMER REMIX
During the trading day, I tweeted the following: The initial position in TZA was taken at 32.50 on May 23rd. This addition takes TZA up to a large sized position. At the same time, I am in the process of reducing long exposure slightly down to 75% from the 85% long exposure that I started the month with. Details of the transactions will be posted on Friday. This is certainly not a point in time during the raging bull market that has been 2013 to gallivant around without any concerns whatsoever for risk. People seem to have a short memory of how terrible the pain of getting caught in a dramatic change of trend in the markets can be when you are overexposed and under-prepared. My only focus here is to make sure I do not fall in the overexposed and under-prepared category. Thus far, I have been perfectly content with the portfolio performance in the face of early June weakness. An initial sign that the overall construction of the portfolios matches up well with the current intent of the markets. My goal during bear trends, regardless of the length of the move, has always been to protect assets as opposed to generating pure alpha from the short side of the market. It has been my experience that psychologically there a rare few investors who can adapt to both sides of the markets allowing for profit to ensue regardless of the circumstance without getting their signals crossed at some point in time. In other words, attempting to profit equally well during both bull and bear trends leads to an anxious tendency to flip from one side to the other prematurely. I'm not saying it can't be done. There are better ways to exert one's creative energy in finance, however. My own energy is better served looking for the risk/reward opportunities in misunderstood companies with tremendous upside and minimal risk. Everything else is lunch money. With that said, the portfolios are: - 75% long in WMIH, CIDM, IWSY, HMPR, SBCF and JMBA - 25% short via...
4 LONG-TERM CHARTS THAT WILL GIVE YOU A WONDROUS SENSE OF PERSPECTIVE
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MAY PERFORMANCE SUMMARY AND LOOKING AHEAD TO JUNE
*This is a copy of my letter to investors summarizing the month of May. April monthly report can be found here. 2012 Return: +58.61% 2013 Return: +4.89% Portfolio May Performance: +13.22% S&P 500 May Performance: +2.08% Portfolio YTD Performance: +4.89% S&P 500 YTD Performance: +14.34% Total Return Since Inception (1/1/12): +67.33% vs. S&P 500 +29.67% Portfolio Highlights For May - SPNS was liquidated from the portfolios completely, in a process that started in April. The company was held in the portfolios for roughly 11 months. In that time the stock gained 40% from the time the position was taken in June of 2012. On a pure risk/reward basis SPNS no longer justified remaining in the portfolios when an increasing number of well defined risk/reward opportunities are becoming evident. It should be noted that from the point SPNS was completely liquidated from the portfolios, the stock has come down 7% as of the close Friday, further confirming that the decision to sell was a prudent one. I will revisit this name over the coming months as I continue to believe that the fundamental opportunity for long-term growth remains intact. - WMIH has now been held in the portfolios for nearly 11 months, fluctuating between a mid to large sized position the entire time. Since the position was initiated in July of 2012, it has gained 76%. Perhaps more importantly than pure appreciation, the market for the stock seems to be developing recognition as monthly volume in May was eight times the amount of volume as July 2012. For the month of May, WMIH gained 47% contributing greatly to overall performance. The stock ended May as a large position due to both additions to the stock made early in the month and appreciation. During the April summary, I pointed to the increasingly rich environment for mortgage insurers/reinsurers. The attention being paid to these names only seems to picking up steam as there are increased reports that some of the largest hedge funds are making significant moves into the space. Specifically, here is a Bloomberg article from May 20th outlining moves Paulson & Co, Maverick and Soros, among others, are making into the mortgage insurance/reinsurance space. The consequences of this increasingly affable trend towards this sector does make a positive outcome for WMIH, whose only operating entity is a mortgage reinsurance company, that much more likely. The chances are becoming increasingly slim that the mortgage reinsurance company contained within the holding company that is WMIH will only serve as an entity that is meant to "runoff" prior obligations. The present Board of Directors is being handed a favorable operating environment for their sole possession on a proverbial golden platter. To...