Portfolio Performance +5.2% Through March 2009

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: +5.2% YTD (including dividends)
  • DJIA: -13.3%
  • Nasdaq: -3.1%
  • S&P 500: -11.7%
  • DJ WIlshire 5000: -8.9%
  • Russell 2000 (smallcap): -15.4%

The stock market enjoyed a strong rally in March and while I gained a few percentage points as well, I lagged the broader indices on the month. I’m comfortable with that fact as YTD returns are still favorable. Also, I am positive on the positioning of my portfolio (for the most part) due to its cash flow generation as well as my outlook on markets going forward (more on that later).

Despite the new market lows established in early March, I’ve not added much to my investments due to personal reasons:

  • Minefinders (MFN) pays no dividend and I’ve been looking to write calls to generate cash at a decent premium. I wrote calls that would generate a 4% premium if assigned while also booking a gain on the shares. Unfortunately, my timing was lousy as gold stocks ran up a few days later and the call premiums shot up substantially.
  • I closed out the Petrobras (PBR) call spread position for a double-digit gain, basically to raise cash. Its recent deal with the Chinese looks very interesting but their public stance of “full-speed ahead” on capital spending worries me and reiterates the government’s role in that company. Long-term, I am still bullish on energy and PBR is one of the premier NOCs in the space.
  • I sold Freeport McMoran (FCX). In hindsight, this was another exercise in lousy timing but I’m not convinced it was a mistake to sell. I emphasize process over results in the belief that if one follows discipline, the results will take care of themselves. I sold at $32.55 and now that the stock is above $42, I look like a fool. But I’m mindful of the fish in poker, who thinks he made a good play drawing to an inside straight while getting 4-to-1 on his money. Even if he hits it, he’s made a mistake and eventually, it will cost him dearly. In the case of FCX, they suspended their dividend and shut down much of their acquired Phelps Dodge capacity. I was also concerned with their total reliance on the Grasberg asset with the Indonesian government making noises about redoing contracts. My concern may be overblown but I realize I am in an information deficit regarding that jurisdiction and found $32 an acceptable exit point.
  • As always, I will refrain from discussing any redacted positions or the companies underlying those positions from the date they are added to the portfolio.

My outlook for the markets is ill-formed at this point. Bernanke’s announcement still managed to shock me, though the distress in the American economic system suggested that quantitative easing was inevitable. Many pundits are predicting this rosy outcome or that dire scenario but perhaps there are just too many variables to predict the consequences of such a move.

I find optimistic scenarios somewhat implausible. How is America supposed to lead the world out of this downturn when it is so fundamentally imbalanced? We are looking at a long-term retrenchment of the economy and perhaps, society. Wage deflation is now taking hold in the world’s most indebted society — a lethal mix, for sure. The government recognizes this and is handing out free money, $8,000 for homes, a few grand for new cars and more money on the way, I’m sure.

Yet, for all the doomsayers predicting the end of the currency, the Fed put in an explicit ceiling on Treasury yields for most of the 1940s to fund the war effort. The Fed continued to buy down interest rates for a few years after the war ended. This debt monetization did not lead to massive inflation or dollar devaluation. Of course, our economic situation is much different today than last century so a straight parallel can not be inferred.

Seth Klarman, in the latest edition of the Graham/Dodd classic, Security Analysis, states it is neither possible nor desirable (and maybe even dangerous) for an investor to have an opinion on everything. I intend to take these words of wisdom to heart. I do not know which turn the economy will take but Helicopter Ben’s moves fill me with a deep sense of unease.

I don’t know if the current rally portends a new bull or if we’re going to take another leg down. Best to position the portfolio to take advantage of either situation. Maintaining a core holding of investments with a good cash stockpile to buy if things head lower is my strategy to play it. As opposed to the November drops when everything crashed, the recent lows have seen quality holding above their November lows. If this holds up, good stockpickers can build new positions with less fear of massive drops due to market panic.

Currently, I am rediscovering my long-held preference for hard asset investments. Corporate bond yields are attractive but default risk lurks and  the Fed’s move raises the question of asset allocation as bonds are vulnerable to both inflation and dollar devaluation. I still maintain my assertion that the energy sector is cheap. Futures prices suggest the market agrees with me but the market’s overwhelming short-term bias allows the long-term investor an opportunity here.

As always, YMMV.

P.S. – I’ve made some adjustments in the portfolio spreadsheet to close the gap on my public return vs. my real-money return, which has trailed by 1-2% since the beginning of 2009. First, I de-emphasized the weighting on the divested Northgate Minerals (NXG) position. I also changed the accounting for the call spread positions, which were keying off the actual stock prices previously. Now, they will be treated like other options, with no bearing on the portfolio until the positions is closed.

One Response to “Portfolio Performance +5.2% Through March 2009”

  1. Jae Jun Says:

    Having a +ve YTD is definitely much better than having a big rally but still being down 10%.

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