2012 Q3 – Report

“In the short run, the market is a voting machine but in the long run it is a weighing machine.” – Benjamin Graham

(Photo: 401K)

This is not a recommendation to buy or sell any security; this is simply how I am managing my money and how I see the market. It is also a record to track my performance.

 All commentary is based on market levels at 9/30/2012. My market level valuations are based on historic PE ratios, profit margins and Q-Ratio among other criteria.


Current Market Valuations:

International Markets:

International markets are overpriced by about 10% and need to drop about 30% to be a true bargain.

Emerging Markets:

Emerging Markets are slightly overpriced and need to drop little over 25% to be a true bargain.

 US Large Caps (S&P500)

S&P500 is overpriced by about 35% to fair value.

US Small Caps (Russell 2000)

US Small Caps continue to be tremendously overpriced and need to drop over 40% just to be fairly valued.


 

Current Portfolio as of 9/30/2012:

Name

Symbol

% of Portfolio

Cash and (Cash like Instruments)

65.40%

Berkshire Hathaway

BRK.A

15.34%

ProShares Short Russell2000

RWM

9.10%

Asian and Emerging Market Currencies

8.57%

ProShares Short 20+ Year Treasury

TBF

0.49%

Greece

GREK

.55%

Italy

EWI

.51%

Ireland

EIRL

.04%


My Current Positions:

 

Cash and Cash Like Instruments – 65.40 %
I was able to put a little cash to work over the last quarter by investing in European equities which presented a good bargain, but overall I continue to hold cash and preserve capital.

Berkshire Hathaway – 15.34%

Berkshire continues to be the core equity holding in my portfolio. It was greatly under valued earlier in the year and has risen steadily. My position in Berkshire Hathaway is really two fold; 1) To be able to take advantage of a rising stock market in a safe holding which historically should not drop as much if there was to be a crash. 2) A play on quality by going long (BRK) and shorting Russell 2000 (RWM). I am taking a position that in the long run quality stocks will out perform junkier stocks. So far it has been a profitable trade.

Russell 2000 Short – 9.1%
The Russell 2000 is currently greatly overpriced. It is possible that the stock markets will go no where for a long time but most likely outcome is a big drop in prices to bring prices in alignment with evaluations.

Asian Currencies – 8.57 %
My Asian Currency position is an insurance policy against the falling dollar. Most likely any global harsh stock market decline will be reflected in a stronger dollar but in the long run I suspect the Asian currencies will become much stronger against the dollar.

Long Treasury Short – .49%
A small position to capitalize on any large drop in US Treasuries.

Greece – .55%
Italy – .51%
Ireland – .04%
I picked up some Europe stocks when they hit their lows in July. They are up between 15 and 30% to date. Unfortunately due to the small position the performance is not enough to move the needle very much in my portfolio. My feeling is that in the near future I will get a chance to pick up a lot more stuff in Europe and will get a chance to put a lot more money to work.


Things I am Watching:

Global Cape (or Shiller P/E) is has been a good predictor of future stock market performances. Over the last quarter I picked up a number of stocks from countries which were trading at a very low Global Cape in Europe. There are currently a number of countries all which are within 20% of a true bargain. They include Russia, Portugal, Austria, Ireland, Belgium, Finland, Netherlands, France and Brazil. Greece, Spain and Italy are about 30% from their lows. I hope to put a lot of money to work once the opportunities present themselves.


My Performance:

I consider myself a buy and hold investor and judge the success of my investing over a full market cycle. The performance over a quarter or even a year is pretty irrelevant in the long run. But I am including it just for reference and record keeping.

Portfolio

3Q 2012 Performance

YTD Performance (till 9/30/2012)

My Portfolio

0.74%

0.81%

S&P 500 (IVV)

8.32%

14.33%

Total World Stock (VT)

5.60%

11.79%

 

Michael Page

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