Portfolio Performance: -13.6% YTD through Oct 2008

Click here to view the spreadsheet containing all disclosures for my complete equity portfolio, including initial entry points, YTD returns, total returns, etc.

THE ENLIGHTENED-AMERICAN PORTFOLIO SPREADSHEET

  • Enlightened-American Portfolio: -13.6% YTD (including dividends)
  • DJIA: -29.7%
  • Nasdaq: -35.1%
  • S&P 500: -34.0%
  • DJ WIlshire 5000: -34.1%
  • Russell 2000 (smallcap): -29.8%

Ten months through the year and all I have to hang my hat on is relative performance.  While I am outperforming the major US indices by 15-20 percentage points, it is little solace for the losses.  Adding insult to injury, the reasons for my relative outperformance were gains taken earlier in the year as well as my options strategy, thus leading to taxable capital gains despite the big down year.  I plan on selling some stocks to prevent any cash taxes this year on my investment portfolio.

As for the actual portfolio, I outlined some investment tactics in a previous post and have begun implementing them in new positions as well as “retro-fitting” some old ones. New positions opened (excluding those assigned from puts) include the following:

  • GlaxoSmithKline (GSK) @ $39.80 — The world’s 2nd largest pharma company selling for at least a 20% discount to its free cash flow with a 5% yield.  By most accounts, GSK also has a decent stage 3 pipeline relative to other big pharma companies.  Risks include your standard industry risks, higher debt load, maybe some currency risk due to it being a British company.
  • Goldcorp (GG) call spread @ $23.50 — Capped @ $20 – $30.  Of course, the stock promptly fell through my floor but I have until Jan 2011 for this bet to come good.  Everyone talks about Agnico-Eagle’s growth profile but I’ve always liked GG’s current production as well as its pipeline (though I also tried to open a call spread in AEM as well but didn’t get my price).
  • Northgate Minerals (NXG) @ $0.70 — I have an open naked put on NXG @ $2.50 which is deeply underwater.  The stock was so cheap at these levels that I opened a position to triple my money if it gets back to that strike.  NXG is a producing gold/copper miner with 1 mine (Kemess South) coming to the end of its life, 1 notable prospect (Young-Davidson) and a few workover high-cost mines they are attempting to streamline.  It generates good cash flow but got caught up in the ARS fiasco with Lehman Brothers, who promptly went bust.  If I had a do-over, I wouldn’t have written the put in the first place as my screening standards had gotten lax in search of premium, but the stock is unjustifiably cheap. Unfortunately, the company has one of those Canadian management teams that is clueless on rewarding shareholders and so it’s hard to see a catalyst to get the share price back up other than a run-up in metals prices.  In the meantime, I’ve written covered-calls against my position.
  • iShares Singapore ETF (EWS) @ $7.81 – I’ve always been fascinated by Singapore and that sense was only bolstered by a recent CNN interview of Singapore Minister Mentor, Lee Kuan Yew.  Obviously, valuing a country’s stock market is different than valuing companies.  EWS has been destroyed by the global stock sell-off combined with a strengthening dollar.  According to FT.com, Singapore is selling at 5 P/E yielding 5%.  If that’s not enough, Marc Faber recently put a buy on it, even as he guided for investors to hold more cash and gold.  He thinks Singapore is selling at a discount to its NAV.  Finally, take into consideration this article by Bill Fleckenstein, author of Greenspan’s Bubbles, who thinks a US currency crisis looks unavoidable.
  • Petrobras (PBR) call spread @ $23.00 — Capped @ $20 – $30. Readers know I am bullish on oil long-term and if the price is right, PBR is the place to go for future growth.  There is a lot of salivation over what might be lurking offshore Brazil and PBR is a national oil company so investors don’t need to worry too much about its ability to survive through the current crisis.  However, investors have to deal with dramatic currency and commodity volatility as well as government risk.  Its lack of a decent dividend pushed me toward opening a Jan 2011 call spread.
  • BP PLC (BP) @ $40.80 — I’ve stated before that long-term energy investors are being gifted an opportunity to get into some attractive positions.  I basically upgraded my portfolio, swapping out Talisman Energy (TLM) for BP.  I see BP selling at a discount to both its FCF and its NAV, even accounting for oil at $60-$100 / nat gas @ $5-$10.  Discounting reserves an additional 25% due to the TNK-BP Russia situation puts NAV around $45 so it looked attractive and pays near 8% dividend.

I divested the following positions:

  • Rogers Agricultural Commodities Index (RJA) @ $7.17 — I am still bullish on agricultural commodities but in guidance with my new tactical outline, I sold RJA as it pays no dividend and doesn’t trade options.  My intention was to swap RJA for DBA, which does trade options, and write covered calls against my position.  Unfortunately, I tried to time the transaction and DBA moved up against me and I refuse to chase anything in this environment.  I do plan on buying DBA once it comes back into my price range.  The key differences between DBA and RJA is that DBA is centered around 4 crops: wheat, corn, soybeans and sugar.  RJA is a much broader index.  DBA has better liquidity and is an ETF so it lacks the counterparty risk that RJA, as an ETN, poses as an unsecured liability of Swedish Export Bank.
  • Talisman Energy (TLM) @ $8.18 — See my BP comment above.  While I still think TLM is cheap, it shares the same problem as NXG.  It’s perennially cheap and other than selling the company, it’s hard to see a catalyst other than rising energy prices, where I’d expect TLM to lag the cheap sector.
  • National Oilwell Varco (NOV) — It is the leading rig parts manufacturer with great market position but its popularity with hedge funds battered the share price during the crisis.  The implied volatility and option premiums are sky-high.  I’ve taken advantage of the volatility to make big gains in short periods with naked puts.  If I get caught out and assigned the stock, it’ll be at obscenely cheap levels (under $19) and while NOV doesn’t pay a dividend, call options are quite pricey.

While the downturn has been painful marketwide, the gold miners are the biggest drag on my performance. That is also where I see the most opportunity going forward.  Overall though, it seems caution is warranted.   The financial crisis presages an economic downturn and if Fleckenstein is correct, the current market turmoil is only a prelude of more violent acts to come.

3 Responses to “Portfolio Performance: -13.6% YTD through Oct 2008”

  1. The Enlightened American » Portfolio Performance: -18.1% YTD thru Nov 2008 Says:

    [...] forward, I am taking a very cautious stance. Last month, I stated that gold miners appeared to be among the most opportunistic sectors and regular readers know that I am bullish on energy long-term. It may be instructive that those [...]

  2. The Enlightened American » Portfolio Up +2.5% YTD 2009 and the View Ahead Says:

    [...] the outperformance of gold and gold miners accounted for the higher returns (anticipated in the October and November commentaries).  Of course, these returns can quickly become a mirage, especially in [...]

  3. Renard Says:

    As a Newbie, I am always searching online for articles that can help me. Thank you

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