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As can be plainly seen, we have absolutely trounced all of the hedge fund indices, both for the year and since inception.
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2009 saw my performance dip to -39% for the year (see Year End Note to BoomBustBlog Readers and Subscribers) as compared to the best of breed in funds of 229%. 2009 held my best quarter ever, and my worst 3 quarters ever, plus a father diagnosed with cancer which (admittedly) thoroughly distracted me.
This year was a disaster for many (if not most funds) and last month was pretty bad for funds in general, with most big funds posting negative numbers. 2010 saw the best of breed at 37% and many deep in the negative. It should become apparent to many that most funds are offering leveraged beta that simply amplifies the returns of the broad market, in lieu of actual alpha and/or uncorrelated diversification. In addition, it is obvious that very few hedge funds actually hedge! My subscribers and I have done very well over this time period, showing both alpha and a true lack of correlation. As a matter of fact, the research returns, if traded appropriately returned multiples of many of the top funds in the report above for both the month and the year. Yes, it looks as if I was right and simply had to ride out the bear market rally. What tripped many firms up was riding that bear market rally spike as if it was truly a fundamental bull market instead of the central bank and government engineered ponzi scheme that it actually was. The gist of the blog research returns for the year stemmed from the Pan-European Sovereign Debt Crisis thesis that I started in January of 2009 and formalized in January of this year. See The Coming (now arrived) Pan-European (soon to be global) Sovereign Debt Crisis for details. I have now started a bankruptcy search to find those Ponzi scheme bull benefactors that will collapse in the coming liquidity crunch.
Major Trades for the year...
In a recent Bloomberg article, it was pointed out how many funds were caught with their pants down by the sovereign debt crisis (Boaz Weinstein Profits From Credit Market Distress Handing Paulson Losses). The crisis was (and still is) an opportunity for significant gains.
I stopped posting blog and personal numbers as of last year due to the work involved and the consequences of publishing personal information. Readers can easily determine the success of this month, quarter and year by going through the historical research. Hint: the blog was probably on top of the best of breed performance list once again. Here are some examples of...
400% plus on Greece and the Greek banks
Yeah, that’s right! Listening to the former EC President would have gotten you on the wrong side of the TRIPLING of CDS spreads. Not to fret though, the ECB allocated 1 trillion dollars to alleviate this problem, and now spreads have just more than doubled, but are still rising. And for those of you who believed me over Prodi (I apologize again for the “liar, liar pants on fire” bit, though)…
500 to 600% on Spain and Spanish banks
Due to the subscription nature of the content, I can't reveal much else, but we did well on German banks, US asset managers and the current whipping boy of the media, Goldman Sachs (see The Brown Stinky Stuff is Splattering Off the Fan Blades and Landing on That Shiny New Building on the West Side Highway):
So, How Many Banks and Analysts Were Bearish On Goldman Before Today? and Is the Threat to the Banks Over? Implied Volatility Says So. Some may ask why I’m being so generous in regards to the extent of this quarter’s earning review. Well… A European institutional subscriber recently stated he was able to get the same content found in my offerings from his investment bank research. Whaaatt!!! I told him that he probably wasn’t reading the subscriber content. He wrote back stating that that wasn’t the case. He also said that he doesn’t see any fundamental analysis in the work. I nearly fell out of my chair. Hmmmm. Well, on the day that Goldman executives are due to testify before the Senate, let’s review the opinions of the ONLY entity that I know of that had a bearish perspective (rightfully and profitably so – twice and counting) on Goldman Sachs. If I am not mistaken, nearly every bank and analyst (save Meredith Whitney, you know I love you ) had a strong buy or hold on this company both back in 2008 and last month. So much for relying on that name brand investment bank research. For any others who may hold the sell side propaganda machine in such high regard (or is it me in such low regard), might I recommend the following two posts before we move on: For Those Who Chose Not To Heed My Warning About Buying Products From Name Brand Wall Street Banks, and “Blog vs. Broker, whom do you trust!”.
Reconciling the 3 down quarters of 2009
Again, excerpted from Year End Note to BoomBustBlog Readers and Subscribers:
...I tried to put it in perspective in my year end note to subscribers and readers, though. A short term outlook simply will not work with my investment style. I actually had hedge fund structures and documents drawn up in 2007, and those structures had a 2 year lock up period. It is impossible for me to control securities prices (I'm not Goldman), hence I need time for my theses, to run their course to be proven right or wrong. 3 quarters going against you may hurt, but it may happen. I can handle it, particular with 36 quarters running in my favor... Reference this excerpt from the afore-linked blog post:
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I need to run a delicate balance here, for I definitely don’t want to understate how disappointed I am in 2009’s performance, but at the same time it is pertinent that a realistic view is attained. I don’t want to flagellate myself, yet don’t want to be a braggart as well.
It has been 2 to 3 quarters of what I consider under-performance thus far, and I see the fundamentals coming to the fore in a very big way for the year 2010. To recap, I started the blog 9/07, and my personal account return for that quarter was about 14%, roughly annualized at 55%. The following year saw a time weighted return of about 450%, and the first quarter of 2009 saw a rise of around 50%, but I finished the year down 39%. Again, the last three quarters have been very disappointing to me as I can imagine it has been for others who are bearish, but I do want my subscribers and readers to know that this blog’s (and particularly, my personal) record bests the records of the vast majority of market participants – and by a very wide margin. We are talking in the range of about 150% annual blended return for my own performance. I had 7 winning quarters out of 10, which although pales to Goldman Sachs’ statistically impossible 97% win ratio (again, mine is unpowered by government hook-ups and multi-billion dollar subsidies, but I am working on that), should be commendable by most but is still quite disappointing to me. I need to hold myself to a very high bar.
The significant drawdown from the second and third quarters of this year stemmed from the fact that I waited too long to adopt a market neutral stance. This fault has been corrected and we plan to be well protected against extended movements against the fundamentals in the future through going long volatility via market neutral strategies, if the events call for it. The market neutral strategies allowed me to trade the volatility in
lieu of the fundamentals and still benefit from the potential of the fundamental research bearing fruit. See the researched strategy analysis released for subscribers at the end of this blog post that proved profitable in many of the preferred cases.
Although one could theorize that I could have knocked it out of the park this year if I went net long, I would not have done so. I am a fundamental investor and there were, literally, absolutely no fundamental nor macro reasons to be long most stocks, and the only reason to buy stocks was because the price of stocks were going up. – that in and of itself should give the fundamental investor pause. Now, this has been a glorious three quarters for the momentum investor and swing trader, both of whom relish in chasing trends, but the fundamental investor had to take a back seat as profits and losses, assets and liabilities, balance sheet strengths and insolvencies became inverse to share price performance in the investment space. The weakest companies literally gained the most while the strongest companies stood relatively motionless. I suspect the shenanigans played by the “powers that be” will wither in 2010. See the following articles for more on the possibility of significant manipulation that postponed the inevitable crash in the markets. Even for the optimistic, this must spur some thought:
- Is The Government Misrepresenting Unemployment By 32%? [Zerohedge.com]
- On Government DOL Misrepresentations Part 2: Following The Money, Or In This Case The Average Unemployment Paycheck [Zerohedge.com]
- TrimTabs Asks: Who Is Responsible For The Non-Stop Market Rally Since March; Gives Some Suggestions
- Is it all just a Ponzi scheme? [Sprott Asset Management]
- Bad CRE, Rotten Home Loans, and the End of US Banking Prominence?
- You’ve Been Bamboozled, Hoodwinked and Lied To! Here’s the Proof. What Are You Going to Do About It?.
- Green Shoots are Being Fertilized by Brown Turds in the Mortgage Markets
If the pre-ordained crash is not the case, I have polished the market neutral strategies so as to attempt to prevent myself and my subscribers from being left out, or even worse, hurt by extreme market rallies that fly in the face of the fundamentals for an extended period of time. In essences, no more significant drawdowns unless I am literally wrong, this time around. Remember, the price of a stock’s movement in the short term does nothing to dictate whether one’s thesis is right or wrong. I, for one, believe that fundamental investors need to stick to their knitting and not become momentum chasers when the breeze blows in a different direction. This was painful for three quarters of this year, for the bulk of the year was a trader’s market.
For the record, I would not have taken the risk of forging ahead after the 2nd quarter if I was managing outside money. The reason? I easily made my year’s compensation, being up about 50% in Q1-09. Why jeopardize the 10% of that gain I would have received on a 2 and 20 basis. If I was running $100 million dollars, I would have been able to pocket a $10 million incentive fee plus the AUM fee of 2%, which would have doubled. Better to sit in cash and collect me fees. Now, since I didn’t have the leverage of other’s money to incentivize me to do so, I plowed forward. This was actually a time when greed would have been good.
For those who do not follow me, please refer to “The Great Global Macro Experiment, Revisited” for a glimpse into my investment style. Reference the graph from this treatise below, and compare it to the actual graph of prices below that.
Understanding my proprietary investment style
My 10 Year Track Record
Case Shiller index has been amplified by a factor of 10x for the sake of comparison to the S&P 500.
In the spring of 2004, I sensed the market getting much too overheated with the hurdle rate for risk adjusted returns based on rental income becoming harder and harder to attain upon property acquisition (which is where the money was made, in my opinion), hence I started putting buildings up for sale in a very heated market. I sold off the bulk of the properties between the end of 2004 and the 3rd quarter of 2005, with a final listing in the 1st quarter of 2006. As you can see from the chart above, the NY market peaked early 2006. My timing was apparently on point. To be honest, it really had nothing to do with timing, and everything to do with the fundamentals. You see, although rents and incomes in the areas that I invested in had increased dramatically due to gentrification and a bubblicious economy, they were increasing nowhere near enough to justify the price spikes that were occurring. I would have loved to have considered myself a really smart guy, which is why it appeared I was making money at a clip that easily bested the broad equity market and many other real estate investors, but the truth of the matter was the market was simply in a over-heated bubble, and I was fully aware of it. Sensing the top somewhere proximal, I decided it was time to go. I believe that all who were in the real estate game at that time and had access to a calculator or a spreadsheet knew the jig would be up relatively soon. It’s just that they wanted to pick up every single dime off of the table. I am of the mindset that it is always best to leave a little money on the table. Don’t be greedy. Often, that last dime costs about $1.20 to pick up!!!