AUGUST MONTH END SUMMARY AND LOOKING AHEAD TO SEPTEMBER
August Performance: -0.34% S&P 500 August Performance: +1.98% YTD Performance: +42.38% S&P 500 YTD Performance: +11.85% Portfolio Highlights For August: - A new position was taken in PXLW at an average price of roughly 2.80 at the beginning of August. PXLW specializes in enhancing video quality, with an increasing focus on the mobile market. Fundamentally, the company possesses all the attributes I like: Cash flow positive, earnings increasing across top and bottom line, zero debt, positioned well for tech spending, niche business, insider buying, and an activist hedge fund involved. On a technical basis, the price and volume patterns are confirming the positive fundamental picture. PXLW has already achieved a 20% plus gain since initiating the position earlier this month. It is currently the largest position in the portfolio. - SPRT was re-initiated at an average of roughly 3.05. This has been the go to stock when exposure is necessary since the research report was published in late January. I have traded in and out of the company numerous times throughout 2012, each time with a double digit percentage profit. - SPNS, initiated in mid-June, managed to finish the month with a 6% gain. In August, The company reported a 91% increase in revenue and an 77% increase in net income versus Q2 2011. Additionally, they increased cash balance by $10 million over the past 6 months with zero debt. The CEO remains bullish on the prospects for the company. Who can blame him? SPNS is in a prime position to take advantage of a much needed IT upgrade cycle taking place in the insurance industry. - During the first half of the month exposure increased from 70% invested to the current level of 95%. This is in line with where I want to be at this stage of the market rally. My mechanical trend indicators are all in a bullish stance, which demands a 100% invested position. They are, however, beginning to see some signs of a reversal, which is at odds with my opinion of where the market will go over the next couple of months. Bottom line is that the mechanical trend indicators dictate my exposure levels. If they begin turning over the next couple of weeks, the cash position in the portfolio will increase and long exposure will be hedged. Portfolio Lowlights For August: - WMIH finished the month of August down 16%. This is not unusual for a company listed on the pink sheets. Volatility will be substantial until the company becomes listed on a major exchange, which I expect within the next 12 months. WMIH is a long-term holding, as stated in the research report from July....
JULY MONTH END SUMMARY AND LOOKING AHEAD TO AUGUST
July Performance: +15.65% S&P 500 July Performance: +1.26% YTD Performance: +43.48% S&P 500 YTD Performance: +9.68% Portfolio highlights for July: - AUTH was bought back on July 13th and subsequently added to on July 16th for an average price of 4.75. On July 27th Apple announced they would be purchasing AUTH for a 60% premium over the closing price, resulting in a substantial profit for the largest position in the portfolio before the announcement was made. A vast majority of the profits for the month were a result of this investment that achieved a gain of 120%+ since the research report was released on May 8th, 2012. - SYNC was sold on July 10th in the mid-14 range for a 100% plus profit since initiating the position and releasing the research report on March 29th, 2012. SYNC closed the month at 9.73 after releasing a disappointing earnings report after the close July 25th. - SPRT was sold on July 24th for a 15% profit since reinitiating the trade on June 16th. This was the second double digit percentage profitable round trip in the stock this year. - A majority of the month saw the portfolio move between 50-75 percent invested. The efficiency of the capital invested was significant this month given the outsized gains. The month closed at 70% invested of capital with a 30% cash position. - A new position was taken in restructured, post-bankruptcy shares of Washington Mutual Holdings. This is an extremely unique and potentially lucrative opportunity in the recovery vehicle for previous Washington Mutual shareholders. I have full details of the investment in the research report published on July 25th. WMIH is currently the portfolio's largest position. Portfolio lowlights for July: - GSIG was sold for a loss of 15% on July 24th. While the company presents compelling value at these levels given a combination of positive factors, I am reluctant to chase after it further given the sloppy nature of its trading. It has been in a terrible trading range for the entirety of 2012. There are better opportunities to pursue. - SPNS finished the month down 2% from where it started July. While the near-term performance in the stock price has been disappointing, the long-term fundamentals of the company remain favorable, especially in light of the positive spending cycle taking place in the insurance IT sector. Any pickup in the financial services sector going forward benefits SPNS tremendously. All details are in the research report published June 19th, 2012. - ATNY ended the month down 6% from where it started July. In listening to the conference call, following their earnings announcement earlier in the month, it seems that the...
JUNE MONTH END SUMMARY AND LOOKING AHEAD TO JULY
June Performance: +2.45% S&P 500 June Performance: +3.97% YTD Performance: +24.06% S&P 500 YTD Performance: +8.31% Portfolio highlights for June: - Went from a 70% cash position during the first week of the month to a 25% cash position by the close of the month. - Took a profit of 37% on AUTH position after initiating the position in early May. - Initiated a position in SPRT during the middle of the month. Position showing a gain of over 20% in just two weeks. - The largest portfolio position SYNC finished the month more or less flat. It is consolidating near all-time highs and looks poised for a strong month of July. - ATNY posted a gain of 15% for the month of June, mitigating a substantial portion of the current unrealized loss. Portfolio lowlights for June: - Once again managed to get whipsawed within what has turned into a frustrating range for GSIG. Initiated a position in the stock on June 19th with the hopes that the value in the name will be realized in the months ahead. If poor performance continues this would be the first position to be liquidated. A strong market backdrop in July should, at a minimum, allow GSIG to remain above 12, which is roughly the current cost basis. - A new research report was released on SPNS. The opportunity here is substantial based on the strong potential for increased spending on the IT needs in the insurance sector. There is also a value component and a restructuring component. All of this is detailed in the research report. Disappointingly, the position has suffered, showing a loss of roughly 8% currently. It is a very illiquid stock that is subject to excess volatility given the low float and tendency towards low volume/participation. SPNS is not a position that I would consider making into anything other than mid-sized given the liquidity constraints. Looking Ahead Going into July the current portfolio is roughly 75% invested, with a 25% cash allocation. A strong beginning to the month would turn my intermediate-term trend indicator bullish, taking equity allocation up to the maximum 100% allocation. I wouldn't mind and am, in fact, looking forward to increasing my equity allocation to 100%. I base this on a number of bullish drivers I see in the current market environment: 1. Seasonality/cycles - Since 1964, the 8 times an incumbent has run for re-election, the S&P has gained an average of 9.7% from Jun to Dec. We happen to be in a very bullish period for the markets from an election cycle standpoint. 2. QE/Liquidity - Fighting central bank intervention, whether European...
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,...
RISK MANAGEMENT AND WHALE RIDING
During the trading day I tweeted the following: A difficult choice to liquidate GSIG. It's a company that - barring an economic meltdown over the next 12 months - will be well above current prices. It came down to a question of the maturity of the trade, as well as how much influence the general market would have over the company. By maturity I mean that the company is well past their restructuring stage and has resumed normal operations. They do not have the same concept edge that SYNC and AUTH have. And they are not in the midst of an activist promotion in the same manner as ATNY. I also chose to keep SYNC because it has been my best performer of the 2nd quarter thus far. Holding onto winners is imperative. I'm surprised at how jittery traders get when they catch a fish in these oceans. Being afraid to get bit and releasing the fish back in the water will only get you so far. GSIG will be at the top of my list for a rebuy should my trend indicators turn back up over the next few weeks or months due to the outstanding fundamentals, cheap valuation and management team involved. Now it is all about SYNC, ATNY and AUTH. The worst performer among the bunch is ATNY. Wouldn't you know it, from a purely fundamental standpoint, ATNY is also the most attractively valued. I have no plans on adding to the position. I am perfectly comfortable holding here despite the poor showing thus far. The research on ATNY is here. AUTH I have been pleasantly surprised with given the weak market conditions. It is only a matter of time before the type of mobile security concept that AUTH produces catches on with consumers and investors. It is the type of stock that can easily create a buzz if the right set of conditions comes into play. A concept company with some very solid fundamentals much like SYNC. The research for AUTH is here. If my trend indicators were pointing upward I would be looking to add to my AUTH position on further strength. Unfortunately, I'm stalled out from adding any risk for the time being. SYNC is coming along as expected. I understand that the volatility can be unnerving at times, but it comes with the territory. What is going on with SYNC is not at all a classic pump and dump scheme as some seem to think. The concept of a pump and dump takes place with a company that wouldn't otherwise merit investment if not for the promoters creating a false demand for...