Portfolio Update: May Go Away


  • Enlightened-American Portfolio: +1.1% through May, 2010 (my actual IRR, including cash balance)
  • DJIA: -2.8%
  • Nasdaq: -0.5%
  • S&P 500: -2.3%
  • DJ Wilshire 5000: -0.8%
  • Russell 2000 (smallcap): +4.3%

And we’re back, once again beating nearly all major indices, with the exception of the small cap index, plausibly due to the lower global exposure these smaller companies would have. One could waste much time and many brain cells coming up with plausible explanations behind market moves so best to avoid such futile exercises.

In any event, our large cash holding (44%) insulated us somewhat from the market drop in May, even as our individual holdings, led by BP, fell further than the average stock. Despite my belief the market is fairly valued at best even with the recent correction, I managed to find a few opportunities created by headline risk.

Members should also treat this missive as an action alert for selling BP. The continued deterioration of the Gulf oil spill situation raises too much dangerous uncertainty around possible fall-out. While we have lost much ground YTD, the stock has shown a modest profit since our entry in October 2008.

A confluence of ominous events and data has surfaced right as the market developed a near-consensus view that a double-dip recession was no longer in the cards. I do not share this view — a double dip seems more likely than not as our economy is still fundamentally weak and being juiced by Bernanke & co. ¬†As a young child, I remember an interview with Lyle Alzado a short time after his NFL playing career ended. His physical condition had deteriorated badly due to steroid use despite being a world-class athlete only a few years previous. He later died at the ripe old age of 43.

A poor analogy perhaps but is there a lesson about the perils of juicing for Ben Bernanke in there? Possibly, but remember the old Keynes saying, “The markets can remain irrational far longer than you or I can remain solvent.” Keeping that in mind, we continue to explore opportunities even as we await for more symptoms to arise.

[This post is excerpted from the latest Enlightened-American Premium portfolio update.]

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