Macro Tsimmis

intelligently hedged investment

Aug 08 Intelledgement Speculative Opportunity Portfolio Report

Posted by intelledgement on Sun, 14 Sep 08

Position Purchased Shares Paid Cost Now Value Change YTD ROI CAGR
TMY 03-Jan-07 300 3.30 998.00 0.34 102.00 -32.00% -82.74% -89.78% -74.82%
VRTX 18-Apr-07 57 31.65 1,812.05 26.86 1,531.02 -19.15% 15.63% -15.51% -11.60%
NBIX 22-May-07 158 11.33 1,798.14 5.17 816.86 9.58% 13.88% -54.57% -46.19%
BQI 13-Jul-07 565 3.35 1,900.75 4.15 2,344.75 -30.11% 1.72% 23.36% 20.40%
GSS 19-Jul-07 451 4.19 1,897.69 1.53 690.03 -41.60% -51.58% -63.64% -59.66%
GSS 24-Aug-07 613 3.08 1,896.04 2.62 1,606.06 -41.60% -51.58% -50.53% -49.99%
SLT 5-Oct-07 111 19.75 2,200.25 14.22 1,578.42 -8.44% -45.45% -28.26% -30.84%
BZP 19-Nov-07 245 9.77 2,401.65 19.70 4,826.50 -26.63% 76.21% 100.97% 145.38%
BZP 30-Jan-08 186 11.27 2,104.22 19.70 3,664.20 -26.63% 76.21% 74.14% 160.03%
WB 1-Feb-08 -57 39.99 -2,271.43 15.89 -942.21 -50.19% 58.22% 58.52% 122.84%
BZH 24-Mar-08 -214 10.99 -2,343.86 6.96 -1,489.44 -82.20% 6.33% 36.45% 105.14%
cash -2,393.50 10,519.71
ISOP 03-Jan-07 10,000.00 24,579.73 -21.40% 12.52% 145.80% 77.05%
Global HF 03-Jan-07 10,000.00 10,645.30 -1.27% -4.21% 6.45% 4.05%
NASDAQ 03-Jan-07 2,415.29 2,367.52 1.80% -10.74% -1.98% -1.26%

Position = symbol of the security for each position
Purchased = date position acquired (for long positions) or sold (for short positions)
Shares = number of shares long or short in the portfolio
Paid = price per share
Cost = what portfolio paid (including commission); note for short sales, the portfolio gains cash
Now = price per share as of the date of the report
Value = what it is worth as of the date of the report (# shrs multiplied by price per share plus—or minus for short positions—the value of dividends)
Change = Change since last report (not applicable for positions new since last report)
Year-to-Date = Change since 31 Dec 07
Return on Investment = on a percentage basis, the performance of this security since purchase
Compounded Annual Growth Rate = annualized ROI for this position since purchase (to help compare apples to apples)

Notes: The benchmark for the ISOP is the Greenwich Alternative Investments Global Hedge Fund Index, which historically (1988 to 2007 inclusively) provides a CAGR of around 15.1%. For comparison’s sake, we also show the NASDAQ index, which over the same time frame has yielded a CAGR of around 10.1%. Note that for the portfolio, dividends are added back into the value of the pertinent security and not included in the “cash” total (this gives a more complete picture of the ROI for dividend-paying securities). Also, the “Cost” figures include a standard $8 commission and there is a 2% rate of interest on the listed cash balance.

Transactions: None.


Comments: GAK! If you thought our up-till-then worst month ever in July, -8%, was bad, check out August: a minor catastrophe at -21%. We were murdered by both the NASDAQ (+2%) and the Global Hedge Fund Index (-1%); overall after 20 months of operations, the ISOP is now +146% compared with +8% for the hedgies and -4% for the NASDAQ.

Given the almost unanimous meltdown on the part of every holding in the portfolio this month, it’s a little tempting to claim that we purposely engineered big losses in order to prove our point that speculation is a high-risk activity. That’s not the case, but if we had tried to do that, we could hardly have done better than these results achieved by accident. While overall, the market was more optimistic in August, commodity prices were generally down. Thus we suffered from a double whammy: our real estate and banking shorts soared in price (which meant we lost money) while our miners and energy plays declined in value. BZH was up 82% and WB up 50%—we are short both of them—to headline our losses. Our energy plays were all hurt bigtime, with TMY -32%, BQI down -30%, and BZP -27%. Our miners were also down; GSS -42% on continued production cost issues and SLT -8%. Our biotechs were mixed, with VRTX -19% and NBIX +10%.

We believe that this month was an anomoly. If our macro analysis is correct—we are due to pay the piper for years of overspending and the central banks’ easy money policies are merely postponing (and making worse) the eventual day of reckoning—then it makes sense for commodity prices to head south here, as demand will rapidly shrink, but it makes no sense for BZH and WB to be increasing in value (and the market to be moving north overall, as it did this month). On the other hand, if we are wrong, and the credit infusions do rescue the economy, then fine: it would make sense for BZH and WB—and the market overall—to prosper, but there is no good reason in that scenario for commodity prices to decline.

So lacking any clarity in where things are headed in the immediate future, we are standing pat here. While we expect the real estate and finance sectors to continue to decline, the best bet continues to be that the Fed holds things together with the markets in general through November’s USA elections. Having said that, however, the Olympics are over now, so the Chinese government is likely to lose some interest in the collective efforts to apply lipstick to the pig (or, in this case, bear). Therefore, the risk of a serious downturn is now greater and we will be watching closely for signs of same.

Even if we do make it to November relatively unscathed, then it will be time to seriously reevaluate the port and consider more of a short bias.


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