Sunday, September 03, 2006

Portfolio August 2006

Last month was a good one for stocks in general which meant my strongly hedged portfolio underperformed. Here are the numbers: the actively managed (AM) portion lost 1.69%; the loss was more than offset by the gains in the asset allocation (AA) portion which was a respectable 2.95%. As a result, the overall portfolio managed a small gain of 0.43%. The cumulative returns from Jan. 11 in the AM, AA and total portfolios stood at 18.09%, 5.06% and 12%, respectively, at the end of August.

Detailed Discussion

My actively managed portfolio remains strongly committed to precious metals (PMs) and related stocks. They were stagnant last month although I feel they are at the cusp of a break through. One of the analysts I follow, Jack Chan, has recently issued a buy signal and my own simple technical analysis have come to similar conclusions. For whatever it’s worth, this week’s commitment of traders (COT) report revealed the commercial net short position at a level generally associated with cyclic lows. Normally this portends higher prices.

The culprit for the loss in my AM portfolio was undeniably the bearish positions I took on the general equities. I have been anticipating a housing-led slow down for some time and have been building up short positions since mid May. In my previous post, I have a more detailed personal outlook at the current economic condition which I characterized as driven by the start of a downturn in consumer spending. However, keeping in mind that “the market can remain irrational longer than you can remain solvent” – perhaps the most often quoted line of Keynes, I’m still slightly net long the market which enabled me to end August in the plus column.

I have held off any purchase of energy or base metal related stocks recently. The hurricane season is a bust so far and weather related premium is leaving oil/gas as fast as one can say “Ernesto”. But my real concern is the proverbial “second shoe” to be dropped on the economy and the inevitable (if only initial) hit to commodity stocks. Longer term I’m still very bullish on commodity stocks in general so I’ll likely take a small position after the next down turn.

The AA portfolio did rather well, owning no small part to the performance of my wife’s company stock. She works in a healthcare related industry which is one of the defensive sectors in any downturn.


  • 8/17 sold half of my company stock (It’s my policy not to name my or my wife’s company in this blog).
  • 8/16 sold 100 sh QID (@ $68.11, 9.7% loss); 100 sh MZZ (@ $71.82, 3.7% loss)
  • 8/2 bought 1000 sh TRE @$7.60, 100 sh GDX @ $40.03
  • 8/3 bought 400 sh GG @$30.05
  • 8/7 bought 20 contracts SPYVU SPY Oct 125 puts @ $2.05 (Pretty bad move, but let’s see how September treats me. I was eyeing the 1220 level on the $SPX)
  • 8/17 bought 200 sh QID @ 67.10 (went right back for more!)
  • 8/4 shorted 200 sh BZH @ $43.825
  • 8/21 shorted 300 sh PHM @ $29.39 (I think all home builders will eventually trade below their book value in this cycle. Their book value should also drop as they write off over valued land positions.)

None of this is investment advice; please do your own due diligence. Good luck and be safe!