Macro Tsimmis

intelligently hedged investment

Sep 08 Intelledgement Speculative Opportunity Portfolio Report

Posted by intelledgement on Sun, 12 Oct 08

Position Purchased Shares Paid Cost Now Value Change YTD ROI CAGR
VRTX 18-Apr-07 57 31.65 1,812.05 33.24 1,894.68 23.75% 43.09% 4.56% 3.11%
NBIX 22-May-07 158 11.33 1,798.14 4.69 741.02 -9.28% 3.30% -58.79% -47.87%
GSS 19-Jul-07 451 4.19 1,897.69 1.52 685.52 -0.65% -51.90% -63.88% -57.14%
GSS 24-Aug-07 613 3.08 1,896.04 1.52 1,606.06 -0.65% -51.90% -50.86% -47.48%
BZH 24-Mar-08 -214 10.99 -2,343.86 5.98 -1,279.72 14.08% 19.52% 45.40% 105.36%
BAC 8-Sep-08 -69 34.73 -2,388.37 35.00 -2,415.00 n/a -15.17% -1.11% -16.99%
GS 8-Sep-08 -14 169.73 -2,368.22 128.00 -1,792.00 n/a -40.48 24.33% 3617.53%
HBC 8-Sep-08 -30 79.11 -2,365.30 80.83 -2,424.90 n/a -3.44% -2.52% -34.54%
DUG 10-Sep-08 56 42.83 2,406.48 38.85 2,287.71 n/a 7.98% -4.94% -60.32%
BBY 19-Sep-08 -58 41.49 -2,398.42 37.50 -2,175.00 n/a -28.77% 9.32% 1824.79%
MA 19-Sep-08 -11 225.18 -2,468.98 177.33 -1,950.63 n/a -17.60% 20.99% 55900.91%
WMT 19-Sep-08 -40 59.70 -2,380.00 59.89 -2,395.60 n/a 26.00% -0.66% -19.62%
CAB 19-Sep-08 170 14.08 2,401.60 12.08 2,053.60 n/a -19.84% -14.49% -99.45%
cash 14,501.15 28,890.43
ISOP 03-Jan-07 10,000.00 23,051.87 -6.22% 5.52% 130.52% 61.55%
Global HF 03-Jan-07 10,000.00 10,032.13 -5.76% -9.72% 0.32% 0.18%
NASDAQ 03-Jan-07 2,415.29 2,367.52 -11.64% -21.13% -13.39% -7.92%

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: Well, following three months of almost no activity transaction-wise, the market has been crazy, with valuations all over the place—but trending down, big time—and consequently we felt constrained to make major adjustments to the portfolio, mostly moving to the short side. First we shorted a bunch of financial company stocks. Then we sold all our oilers and our one mining stock and bought an ETF that goes up when the price of oil declines. Then we shorted a cohort of retail-related stocks, and—partly as a hedge—bought a fourth retailer. Finally, we covered the WB short. Not surprizingly, the month set a new portfolio record for the most transactions ever: fourteen (the previous record was five)!

News:

Comments: Sheesh…this month required an awful lot of work to produce a 6% loss! The silver lining was that the hedgies also lost 6% and the NASDAQ was down 12%, so it could have been worse. Overall after 21 months of operations, the ISOP is now +131% compared with ±0% for the hedgies and -13% for the NASDAQ.

So we did have a lot of company-specific news this month, but it was pretty much overshadowed by the macro-level proverbial excrement hitting the fan. We had the government takeover of Fannie Mae (FNM) and Freddie Mac (FRE) on 7 Sep. A week later we had the bankruptcy of Lehman Brothers (LEH) and the acquisition of Merrill Lynch (MER) by BAC. Then we had a run on the money market funds ($140 billion withdrawn in one week), and the emergency $85 billion loan by the Fed to AIG to avoid a bankruptcy there. To close out the month, you have the spectacle of Republican Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke begging the GOP-controlled House for a $700 billion emergency bailout fund to be used to purchase so-called “toxic” assets that have plummeted in value and threaten multiple financial institutions who own them with insolvency…and being turned down! (Oh, and we almost forgot, the arrangement for Citibank (C) to buy our own troubled asset, WB.)

Clearly chickens are coming home to roost here. As we keep saying, this economy has serious fundamental flaws—too much debt and entitlement obligations, too much energy devoted to unproductive-to-fraudulent financial transactions, an unsound currency, underfunding of infrastructure investment—and the cultural focus on taking the path of least resistance and maximizing the immediate return on investment is impeding us from addressing these long-term flaws. While it would be painful, a collapse of the current Ponzi-based financial system would clear the decks for the creation of a healthier, sounder approach, and the resultant crisis would be resolved a lot faster than is likely to be the case if we just kick the can down the road again here. So we were cheering when the House voted down the Troubled Assets Relief Program, even though the markets tanked on the news. (Of course, by then we were mostly short. LOL)

Speaking of which, the market was extremely volatile this month—it was ±3% on two days, ±4% on three days, ±5% on three days, and -9% on 29 Sep (the day the House voted down the $700 billion bailout bill). Ofttimes the market does not move as much as 9% in an entire year! In that light, it is not a shocker that we felt constrained to make a few moves…such as closing more than half the positions we started the month with and then opening up even more new ones. Among the few holdovers were our two biotech companies (VRTX up 24% and NBIX down 9%), our gold miner (GSS down 1%), and our housing industry short (BZH -14% by virtue of which we gained). As for the newcomers, two of our three financials short were up (BAC +1% and HBC +3%) but GS was down 24% in only three weeks. Two of our three retail-related shorts were down big (BBY -9% and MA -21%) in only two weeks while the other gained a point (WMT +1%). Our oil short ETF (DUG) was down 5% and the retailer we went long on (CAB) manifestly should have been a short as it was down 14%. You can help both yourself and the ISOP by going to their website and stocking up on ammo and fishhooks as insurance against a potential collapse of the system.

Clearly, the risk of a serious downturn is now greater than a month ago, and we are about as short as we are going to get. Fasten your seat belts; it’s going to be a bumpy night.

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