2014 Q1 Report

“The focus of most investors differs from that of value investors. Most investors are primarily oriented toward return, how much they can make and pay little attention to risk, how much they can lose.”  – Seth Klarman

money

(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 03/31/2014. My market level valuations are based on historic PE ratios, profit margins and Q-Ratio among other criteria.


Current Market View:

Markets continue to defy gravity. We are indeed living through a very interesting time. The current evaluations (Shiller PE) we are seeing in US markets (especially small caps) have only happened a few times in the history. 1929, 2000, 2007. Needless to say, we all know how those events ended. Yet markets continue to go up, even as evaluations continue to show negative future returns.

The low return on cash has forced many investors to seek more and more risk. Eventually this party will come to an end and it most likely will be uglier than people anticipate, but for now I am paying a great price for being on the sidelines.


Things I am watching:

Russia is starting to look attractive, but besides that things are pretty expensive everywhere.


Current Market Valuations:

International Markets: International markets are overpriced by about 35% and need to drop about 50% to be a true bargain.

Emerging Markets: Emerging Markets need to drop about 18% to be fairly valued and need to drop about 35% to be a true bargain.

US Large Caps (S&P500):S&P500 is overpriced by about 50% to fair value.

US Small Caps (Russell 2000): US Small Caps continue to be tremendously overpriced and need to drop over 65% just to be fairly valued.


 Current Portfolio as of 03/31/2014:

Name

Symbol

% of Portfolio

Cash and (Cash like Instruments)

69.57%

Berkshire Hathaway

BRK.A

11.16%

ProShares Short Russell 2000

RWM

9.63%

Singapore Dollar

1.58%

Emerging Market

VWO

0.26%

ProShares Short Small Cap 600

SBB

0.22%

ProShares Short 20+ Year Treasury

TBF

0.45%


 My Current Positions:

Cash and cash like Instruments – 69.57 % – Cash, I sold off most of my Asian currency position and moved to cash. I continue to hold a very small position in the Singapore Dollar. I also trimmed some of my Berkshire Hathaway holdings.

Berkshire Hathaway – 11.16% – I sold off some of my Berkshire Hathaway holdings as I feel the markets are getting more and more dangerous.

Russell 2000 Short – 9.63% – I added a bit more to my short position over the last quarter.

Singapore Dollar – 1.58 % – I isolated my Asian currency holding to the Singapore Dollar.

SBB/VWO – .48% – I continue to hold a small long position in Emerging markets and a short position in US small caps. Over all I feel this trade provides the best risk / reward profile.

Long Treasury Short – .45% – Small insurance against a drop in treasuries.


 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

1Q 2014 Performance

1 Year Performance

Performance since tracking (1/1/2012)

My Portfolio

.61%

1.12%

3.15%*

S&P 500 (IVV)

1.34%

19.55%

49.36%

Total World Stock (VT)

.45%

14.14%

38.18%

     
       
       
       

* I have been making a mistake in my previous reports by listing my annualized returns not my total returns. This showed lower returns than I actually received. The problem has been corrected moving forward, but I left the previous reports uncorrected.

Did you like this article? Share it!
 

2013 Q4 – Report

“There actually are two risks in investing: One is to lose money and the other is to miss opportunity. You can eliminate either one, but you can’t eliminate both at the same time.” – Howard Marks

money(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 12/31/2013. My market level valuations are based on historic PE ratios, profit margins and Q-Ratio among other criteria.


Current Market View:

With 2013 behind us, what can be learned and what is the take away? For me, the take away is that markets can be irrational for longer than you imagine. 2013 proved to be a difficult year for me, while a few trades that I made have been successful overall, I simply did not have a lot of skin in the game to make it matter. I continue to stay mostly in cash and my long stock holdings are muted by a small cap short position.

Investing is a tough job because no matter how you do it – you always look foolish. Either by getting out of the market too early and staying in cash (me) or risking and losing money when the markets crashes (not me).

Here is a great example of how Isaac Newton, one of the smartest people in the world, invested during the South Sea Bubble and what I see as the fate of many investors today.

Many thanks to Marc Faber for doing the leg work on this chart.

Newton_south-sea-bubble

Mr. Newton saw an opportunity, entered the tulip bubble and got out with a decent profit. But then, seeing everyone else around him get rich, he went back in the market only to see it crash and go broke. The chase for a few percent more becomes extremely dangerous during over valued markets like the one we are seeing now. I may have missed out on a good return staying in cash, but I find that loss to be a lot less painful than actually losing money.

Markets can continue to climb but by almost any measure you want to use (Tobin Q, Shiller PE, GNP to total market capitalization) the markets are at best overvalued and at worst extremely overvalued.

I see no reason to compound the mistake of missing the rally by risking capital. The time to get into the market will come and when it does there will be a great deal of money to be made but now is not that time.


Things I am watching:

There are bargains to be had, mostly in a few Emerging Market countries (Russia, Turkey) and I may go into them once there is positive momentum but overall evaluations are rich all over.


Current Market Valuations:

International Markets: International markets are overpriced by about 35% and need to drop about 50% to be a true bargain.

Emerging Markets: Emerging Markets need to drop about 20% to be fairly valued and need to drop about 40% to be a true bargain.

US Large Caps (S&P500): S&P500 is overpriced by about 50% to fair value.

US Small Caps (Russell 2000): US Small Caps continue to be tremendously overpriced and need to drop over 65% just to be fairly valued.


 Current Portfolio as of 12/31/2013:

Name

Symbol

% of Portfolio

Cash and (Cash like Instruments)

60.00%

Berkshire Hathaway

BRK.A

20.56%

ProShares Short Russell 2000

RWM

9.89%

Asian and Emerging Market Currencies

8.44%

Emerging Market

VWO

0.29%

ProShares Short Small Cap 600

SBB

0.25%

ProShares Short 20+ Year Treasury

TBF

0.55%


 My Current Positions:

Cash and cash like Instruments – 60.00 % – Cash seeking fat pitches.

Berkshire Hathaway – 20.56% – Continues to be my largest stock holding over the last few years.

Russell 2000 Short – 9.89% – I added a bit more to my short position over the last quarter.

Asian Currencies – 8.44 % – An insurance policy against the possibility of a falling dollar.

SBB/VWO – .54% – I am not sure what the market will do in the short run (next year or two) but over the long run I am very certain that emerging market will outperform US small cap stocks by a wide margin. I added a little to my position of going long emerging market and short US small caps.

Long Treasury Short – .54% – Small insurance against a drop in treasuries.

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.


 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

4Q 2013 Performance

1 Year Performance

Performance since tracking (1/1/2012)

My Portfolio

-.03%

.92%

.88%*

S&P 500 (IVV)

9.92%

32.00%

47.39%

Total World Stock (VT)

6.92%

 21.76%

37.56%

     
       
       
       

* My performance was actually a bit better but for simplification I am not counting the return on my cash which was around 1%

 

Did you like this article? Share it!
 

2013 Q3 – Report

 The best way to outperform is to avoid the disasters” – Jim Chanos 

money

(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 9/30/2013. My market level valuations are based on historic PE ratios, profit margins and Q-Ratio among other criteria.


 Current Market View:

We are indeed living in interesting times. Extremely overvalued markets continue to defy gravity pushing higher and higher regardless of underline evaluations. The big problem in investing during bubbles like this one is that you either look foolish by getting out before the top and watch everyone else make money or you look foolish getting out after the crash. I chose to be in the first category. I took a defensive position in my portfolio last year and I missed a big chunk of the melt up that has taken place. But to me the downside is much larger than the upside and I see no reason to venture onto thin ice to pick up nickels and dimes.

The majority of the time you pay a very high price in the stock market by staying in cash but when the markets are this overvalued I am willing to pay that price. For those who have been reading my market forecasts over the last two years you may get the impression that I am pessimistic perma bear but that is not the case. For most of my investing history I have been almost fully invested in the market. As a matter a fact, the last time I was positioned this defensively was in 2007 and 2008 before the big market crash.

There are currently some decent deals to be found in the emerging markets which are now trading at average historic evaluation levels and normally I would venture into them. But with the US stock market being ridiculously overvalued, I fear that when the crash comes, it will drag other markets down as well. That’s why I feel comfortable staying on the sidelines.

Just how overvalued is the US stock market? It depends on which criteria you want to focus on. For me – I like the Shiller PE ratio (the S&P 500 divided by the 10-year average of inflation-adjusted earnings) along with a few others. If we look at the Shiller PE ratios we see that the market has only been this overvalued a few times in history: before the 1929 crash, before the 2008 crash and at the middle of the dot com bubble.

Over the last 15 years if you were fully invested in the market you would have seen your portfolio lose close to 50% of its value – twice. I suspect that the next market crash will be no different. I do, however, think that the next market crash might be a lot scarier than the last two. During the dot com and real estate bubble crashes the investor had some silver lining of hope that the Fed would move in to protect the system and lower rates to spur growth. Unfortunately, at current historic low rates, there is very little that the Fed can do. For this reason, I think the next crash will be truly scary for investors as they realize that there is no safety net and nobody there to save them.

When will the crash happen? That I cannot predict. I do know that sooner (rather than later) the markets will offer some truly amazing deals which will allow an investor to make a very generous return on their investments. Unfortunately, now is not that time.


Things I am watching:

Emerging Markets are about 25% from a true bargain. I also see a lot of opportunities in a number of countries in Europe as well as Russia and Brazil. I hope to go into them once they hit new lows and establish momentum.


Current Market Valuations:

International Markets: International markets are overpriced by about 30% and need to drop about 45% to be a true bargain.

Emerging Markets: Emerging Markets are trading at a slight discount.

US Large Caps (S&P500): S&P500 is overpriced by about 50% to fair value.

US Small Caps (Russell 2000): US Small Caps continue to be tremendously overpriced and need to drop over 60% just to be fairly valued.


 

Current Portfolio as of 09/30/2013:

Name

Symbol

% of Portfolio

Cash and (Cash like Instruments)

61.01%

Berkshire Hathaway

BRK.A

19.64%

ProShares Short Russell 2000

RWM

10.02%

Asian and Emerging Market Currencies

8.42%

Emerging Market

VWO

0.19%

ProShares Short Small Cap 600

SBB

0.18%

ProShares Short 20+ Year Treasury

TBF

0.54%


 My Current Positions:

Cash and cash like Instruments – 61.01 % – Dry powder waiting to be put to use.

Berkshire Hathaway – 19.64% – My largest stock holding over the last few years.

Russell 2000 Short – 10.02% – I added a bit more to my short position over the last quarter.

Asian Currencies – 8.42 % – An insurance policy against the possibility of a falling dollar.

SBB/VWO – .37% – It is tempting to wade into the markets, unfortunately there are very few bargains to be had. In those situations I tend to prefer to play the spread (going long and short). One such play which screamed as a bargain is the spread between returns of emerging market stocks and small cap US stocks. Based on evaluations EM should outperform by about 10% a year on average over the next 5 to 10 years. (How it will do over the next year or two is anyone’s guess). I established a small position going long Emerging market and Shorting S&P SmallCap 600 which I hope to add to if the spread widens.

Long Treasury Short – .54% – Small insurance against a drop in treasuries.

At the start of the year I established a small position of going long gold miners and shorting gold. I closed out my position last quarter at a small gain after I started to become more and more uncomfortable holding Deutsche Bank ETN. (DGZ) (ETN unlike an ETF is only backed by the faith of the bank issuing it). With Deutsche Bank’s current leverage of close to 50X, I did not think I was being compensated for taking on that much risk. 

Brazil Equities –  I closed my position in Brazil equities last quarter for a small gain.


 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 2013 Performance

1 Year Performance

Performance since tracking (1/1/2012)

My Portfolio

-.67%

.97%

1.02%*

S&P 500 (IVV)

5.83%

17.92%

35.17%

Total World Stock (VT)

8.69%

 16.60%

29.67%

     
       
       
       

* My performance was actually a bit better but for simplification I am not counting the return on my cash which was around 1%

Did you like this article? Share it!
 

2013 Q2 – Report

 

Caution has not been a profitable investment tactic for a long time now.  I strongly believe it is about to make a comeback.” – Seth Klarman

 

money

(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 6/30/2013. My market level valuations are based on historic PE ratios, profit margins and Q-Ratio among other criteria.


 

Current Market View:

The big question on investors’ minds is; will Ben Bernanke slow the bond purchase program or will he continue to provide liquidity? While most everyone looks at it from an economic perspective, I chose to take a more psychological look at the issue which very few are discussing. With Ben Bernanke’s term coming to the end I suspect the big question on his mind is what kind of legacy will he leave to the world? I suspect, consciously or subconsciously, that plays a much larger part in his decision making process than most realize. Slowing of the bond purchase program will most likely cause a big market drop which he would prefer to avoid on his watch. I would think Ben’s biggest concern now is to run out the clock on his term without “breaking anything”.

So, just like Alan Greenspan before him, I suspect that Ben Bernanke’s big goal is to leave on a high note and hopefully a market top and have the next Fed Chairman clean up his mess and deal with the consequences. For this reason I think the tapering might not happen till later than most realize.

There’s no doubt that the US market is tremendously overvalued. A crash or a series of crashes are coming and they will be worse than most are anticipating. It is possible that the stock market will continue to go up and up and that “this time it is different”, but I highly doubt that the two main drivers of the market, greed and fear, have changed very much so I am not holding my breath.

It’s been a bit frustrating watching an overvalued market continue to climb higher and higher over the last year while being mostly out of the market but I am happier staying on the sidelines in cash instead of trying to pick up nickels in front of a steam roller (even though over the last year there have been a lot of nickels to pickup). True bargains will come; it’s just a matter of being patient and waiting for your fat pitch to arrive.


 

Things I am watching:

There are a few countries which are becoming a bargain including Brazil, Russia and a few European countries which are starting to look very attractive. Hopefully further drops will allow me to put more money to work. Emerging Markets as a whole are also trading at a slight discount and would be a true bargain on a drop of 15% or so.


 

Current Market Valuations:

International Markets: International markets are overpriced by about 20% and need to drop about 40% to be a true bargain.

Emerging Markets: Emerging Markets are trading at a slight discount.

US Large Caps (S&P500): S&P500 is overpriced by about 50% to fair value. If we use Shiller P/E ratios the S&P is valued roughly at the same levels as before the great crash of 1929 and 2007.

US Small Caps (Russell 2000): US Small Caps continue to be tremendously overpriced and need to drop over 60% just to be fairly valued.


 

Current Portfolio as of 06/30/2013:

Name

Symbol

% of Portfolio

Cash and (Cash like Instruments)

60.04%

Berkshire Hathaway

BRK.A

19.26%

ProShares Short Russell 2000

RWM

9.29%

Asian and Emerging Market Currencies

8.31%

Gold Short ETN

DGZ

0.90%

Gold Miners

RING

0.78%

ProShares Short 20+ Year Treasury

TBF

0.52%

iShares MSCI Brazil Capped Index

EWZ

0.45%

iShares MSCI Brazil Small Cap Index

EWZS

0.45%


 

My Current Positions:

Cash and cash like Instruments – 60.04 %
I continue to hold cash while waiting for fat pitches.

Berkshire Hathaway – 19.26%
Berkshire Hathaway continues to be my core equity holding. It is also a play on quality by shorting Russell 2000 stocks.

Russell 2000 Short – 9.29%
US small cap stocks have been grossly overpriced for over a year now. I have added to my position as we hit new highs.

Asian Currencies – 8.31 %
My Asian Currency position is an insurance policy against the falling dollar. However in the short term I suspect the dollar will continue to go up as it is the main stable currency in times of trouble.

Gold Short /Long Gold Miners – 1.68%
Last year I wrote about the bubble I saw in the gold market. Since then gold has dropped over 25%. I took a small position on gold miners while shorting gold itself as XAU to Gold ratio dropped to a record low.

Companies that mine gold derive their value mainly on the price of gold that they are mining. Over the years there has been a historic pattern and a correlation between the price of gold and gold stocks. Over the last quarter the ratio of XAU (gold mining stocks) to the price of gold has reached the lowest levels on record. I decided to take a small position assuming that over time the ratio will get back in line. From my perspective it is really irrelevant if the price of gold goes up or down but only that the ratio of gold prices to gold producers will normalize. (I have to admit that I am not totally comfortable holding a gold short position in an ETN (Exchange Traded Note) since they are not as secure as ETF (Exchange Traded Funds))

Long Treasury Short – .52%
I took a small position to capitalize on any large drop in US Treasuries.

Brazil Equities – .9%
I took a small position in Brazilian equities as they became attractive. I will be glad to add to my position if the prices continue to fall.


 

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

2Q 2013 Performance

1 Year Performance

Performance since tracking (1/1/2012)

My Portfolio

.5%

2.47%

1.66%*

S&P 500 (IVV)

2.24%

12.68%

19.28%

Total World Stock (VT)

-1.47%

 17.64%

27.71%

     
       
       
       

* My performance was actually a bit better but for simplification I am not counting the return on my cash which was around 1%

Did you like this article? Share it!
 

2013 Q1 – Report

“Believe me, there’s nothing better than buying from someone who has to sell regardless of price during a crash. Many of the best buys we’ve ever made occurred for that reason.” – Howard Marks

money

(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 3/31/2013. 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 20% and need to drop about 40% to be a true bargain.

Emerging Markets: Emerging Markets are fairly priced and need to drop little over 20% to be a true bargain.

US Large Caps (S&P500): S&P500 is overpriced by about 40% to fair value.

US Small Caps (Russell 2000): US Small Caps continue to be tremendously overpriced and need to drop over 45% just to be fairly valued.


 

Current Portfolio as of 03/31/2013:

Name

Symbol

% of Portfolio

Cash and (Cash like Instruments)

64.51%

Berkshire Hathaway

BRK.A

17.99%

ProShares Short Russell2000

RWM

8.54%

Asian and Emerging Market Currencies

8.46%

ProShares Short 20+ Year Treasury

TBF

0.50%


 

My Current Positions:

Cash and Cash Like Instruments – 64.51 %

Berkshire Hathaway – 17.99%
Berkshire Hathaway continues to be my core equity holding. It is also a play on quality by shorting Russell 2000 stocks.

Russell 2000 Short – 8.54%
US small cap stocks have been grossly overpriced for over a year now. If the markets continue to go up, I will add to my short position like I did in Q1.

Asian Currencies – 8.46 %
My Asian Currency position is an insurance policy against the falling dollar. I shifted a bit more money into the Singapore dollar over the last quarter, although I suspect that the problems in Europe might push the dollar up.

Long Treasury Short – .5%
A small position to capitalize on any large drop in US Treasuries.


 

Current Market View:

On June 28 1914 Archduke Franz Ferdinand of Austria was shot dead in Sarajevo. The death created headlines but nobody could have foreseen what would happen next. That assassination started a chain of events that eventually lead to World War I and the death of over 16 million people. (See Niall Ferguson War of the World). At times the smallest catalysts can create the biggest and unexpected fires.

I suspect the same thing will eventually happen in Europe or some place else in the world. It will be a completely trivial and unforeseen event that would set in motion a chain of consequences which would cause a great unraveling of the current markets. It might be a default on a bond payment by a small country, or a crash in an obscure bank, but sooner or later some black swan will cause things to become extremely ugly. When that will happen and how big the ramifications will be, is something nobody can predict. My feeling is the eventual stock market crash can be a lot uglier than people anticipate, especially in the US where stock prices are tremendously over priced and most likely will not be a lot higher in real terms seven to ten years from now.

The only problem with my hypothesis is that stock market crashes usually happen when there is complacency and optimism in the market. Currently most of the market spirits are cautiously pessimistic which would lead me to believe that the market crash might not be with us in the near future, even if evaluations would indicate otherwise.


 

Things I am watching:

There are currently about a dozen countries (mostly in Europe) which are within 25% of their buying range. If things become cheap enough I will be more than happy to put my money to work. Emerging Markets are also about 20% from a buy. If the US Stock market continues to climb I would add a bit more to my short position as well as shorting the long bond. These are very strange times to invest. Stocks, bonds, commodities all looked over priced, yet continue to go up. To me it would be tempting to go into the market and chase the trend. Unfortunately, it’s not a game I am good at or fully understand. I am a lot more comfortable sitting in cash and waiting for the market to offer some true bargains. Like it did last year with Italy, Ireland and Greece; all which I bought and sold for a handsome profit. 


 

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

1Q 2013 Performance

1 Year Performance

Performance since tracking (1/1/2012)

My Portfolio

1.14%

2.42%

1.58%*

S&P 500 (IVV)

10.47%

11.94%

20.2%

Total World Stock (VT)

5.79%

 8.31%

21.07%

     
       
       
       

* My performance was actually a bit better but for simplification I am not counting the return on my cash which was around 1%

Did you like this article? Share it!
 

2012 Q4 – Report

We can only enjoy the rewards of long-term investing if we are prepared to tolerate short-term losses” – NG Kok Song

(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 12/31/2012. 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 15% and need to drop about 35% 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 40% to fair value.

US Small Caps (Russell 2000): US Small Caps continue to be tremendously overpriced and need to drop over 50% just to be fairly valued.


Current Portfolio as of 12/31/2012:

Name

Symbol

% of Portfolio

Cash and (Cash like Instruments)

65.58%

Berkshire Hathaway

BRK.A

15.65%

ProShares Short Russell2000

RWM

8.91%

Asian and Emerging Market Currencies

8.68%

ProShares Short 20+ Year Treasury

TBF

0.50%

Greece

GREK

.69%


My Current Positions:

Cash and Cash Like Instruments65.58 %

My cash position increased slightly due to the selling of my Italy and Ireland holdings in 4Q.

Berkshire Hathaway15.65%

Berkshire Hathaway continues to be my core equity holding. It is also a play on quality by shorting Russell 2000 stocks.

Russell 2000 Short – 8.91%

US small cap stocks have been grossly overpriced for over a year now. If the markets continue to go up, I will add to my short position.

Historically in situations like this stocks eventually reach fair value either by going nowhere for many years and allowing inflation to lift all boats or the more likely scenario a sharp decline which allows stock prices to drop to fair market values. I suspect we will see the later scenario eventually. (Although the irrational exuberance can go on much longer than most imagine.)

Asian Currencies8.68 %

My Asian Currency position is an insurance policy against the falling dollar. I have been wanting to add to my Asian currency position but with a steady rise in their evaluations I have been reluctant to do so. Hopefully I will get another chance.

Long Treasury Short.5%

A small position to capitalize on any large drop in US Treasuries.

Greece – .69%

Even though I have made over 50% on my Greek stocks since my purchase in Q3 I continue to hold them since I feel there is still a larger upside.


Year in Review:

Things I got wrong:

2012 was a year of being defensive. I was hoping that US markets would drift more towards fair value, instead they continued to rise. I don’t know how much longer US stocks can continue to defy gravity but I am willing to accept that it may take place for much longer than I anticipated. Instead of being long I played it more safely. I stayed mostly in cash which earned about 1% and going long Berkshire Hathaway and shorting Russell 2000 which produced around a 1.5% return, compared to the Dow which rose over 7%. My underperformance was over 5%. Although for me the downside of going all long was a lot larger than the upside of a few percentage points, it nonetheless caused an underperformance to the overall portfolio.

Things I got right:

2012 was a year for staying in cash and waiting for fat pitches to come to me. Unfortunately there were very few fat pitches which came my way but the ones that I did swing at I managed to hit out of the park.

I purchased Ireland stocks in Q3 and sold them in Q4 after a 21% gain.

I purchased Italian stocks in Q3 and sold them in Q4 after a 36% gain.

I purchased Greek stocks in Q3 and continue to hold them with over 65% gain.

Unfortunately the markets did not allow me an opportunity to take on much larger positions so the great outperformance was not a large factor in my overall portfolio.


Things I am watching:

I continue to stay in cash and wait for fat pitches to come my way. I sold off my Italian and Irish holdings in Q4 and hopefully will get another chance to pick them up at bargain prices in 2013 if Europe unwinds. There are a number of countries (mostly in Europe) all within 20% of being a true bargain, if problems persist I hope I will be able to put a lot of cash to work.

Hopefully 2013 will be the year where amazing bargains will become available, until then I am disciplined and happy staying in cash and waiting for the markets to come to me.


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

4Q 2012 Performance

2012 Performance

My Portfolio

-.01%

0.84%*

S&P 500 (IVV)

-.87%

13.64%

Total World Stock (VT)

2.92%

14.44%

* My performance was actually a bit better but for simplification I am not counting the return on my cash which was around 1%

Michael Page

Did you like this article? Share it!
 

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

Did you like this article? Share it!
 

2012 Q2 – Report

“In investing, what is comfortable is rarely profitable.” – Robert Arnott

(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 6/30/2012. My market level valuations are based on historic PE ratios, profit margins and Q-Ratio among other criteria.


Current Market Valuations:

International Markets:

Currently International Markets are trading about 10% above historic averages and would need to drop about 25% to be true bargain. There are a few European countries (Spain, Italy, Greece and a few others) which are trading at historically low CAPE valuations but overall the International Market is still overvalued. I suspect things will continue to deteriorate in Europe regardless of the positive headlines which seem to boost the market in a predictable fashion if only for a short time. But bargains are starting to appear.

Emerging Markets:

Emerging markets fairly priced, and would need to drop by around 25% or so from these levels to be a true bargain.

US Large Caps (S&P500)

The S&P500 is overvalued by about 30% and would need to drop to close to 45% to be a true bargain.

US Small Caps (Russell 2000)

US Small Caps are still tremendously over priced by about 40% and would need to drop by close to a half to be a true bargain. Once again it does not mean that they will do so in a near future, since they can go nowhere for a long time and allow evaluations to catch up. Overall I don’t see the US market trading a lot higher from today’s levels 5 to 7 years from now. And I see very little reason to venture into the broad US market at these levels.


 

Current Portfolio as of 6/30/2012:

Name

Symbol

% of Portfolio

Cash and (Cash like Instruments)

66.82%

Berkshire Hathaway

BRK.A

14.61%

ProShares Short Russell2000

RWM

9.77%

Asian and Emerging Market Currencies

8.44%

ProShares Short 20+ Year Treasury

TBF

0.38%


My Current Positions:

Cash and Cash Like Instruments – 66.82 %

With a large cash holding it’s easy to be tempted to chase yields but unfortunately there are very few bargains to be had and with current evaluations risk outweighs rewards.

Berkshire Hathaway – 14.61%

Berkshire Hathaway is trading slightly above its book value. I suspect if things begin to look bad in the US, Berkshire Hathaway might be caught in the undertow and trade at a true bargain. Even though Warren Buffett has stated that he plans on buying back the stock if the prices are within 10% of book value thus putting a floor on the stock price. I suspect in a true bear market crash the floor would be broken regardless of the buy back.

Russell 2000 Short – 9.77%

To me, the US market looks riskier than ever. Especially over the next 12 months and post elections (regardless of who wins). If stocks rise roughly 10% from these levels I would feel comfortable adding to my short position.

Asian Currencies – 8.44 %

I added slightly to my Asian Currency position over the last quarter, which is a hedge against the falling dollar.

Long Treasury Short – .38%

I added slightly to my position shorting the Long Treasury over the last quarter. I suspect a bear market will drag the yields even lower allowing me to add to my position.


Things I am Watching:

Currently a great number of people expect that the likely outcome in Europe would be for weaker countries (Greece, Spain or Italy) to exit the Euro. But very few people are talking about the possibility of the stronger countries (Germany, Finland) exiting the Euro to avoid being dragged under, which I think is just as likely a scenario. But overall things in Europe are starting to look cheap, specially if your holding period will be years not months or days.


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

2Q 2012 Performance

YTD Performance (till 6/30/2012)

My Portfolio

0.45%

0.03%

S&P 500 (IVV)

-3.15%

8.57%

Total World Stock (VT)

-5.29%

5.86%

 

Michael Page

Did you like this article? Share it!
 

2012 Q1 – Report

“Investors should always keep in mind that the most important metric is not the returns achieved but the returns weighed against the risks incurred. Ultimately, nothing should be more important to investors than the ability to sleep soundly at night.” – Seth Klarman

(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 based on market levels at 3/31/2012. My market level valuations are based on historic PE ratios, profit margins, Q-Ratio among other criterias.


Current Market Valuations:

International Markets:

Currently International Markets are at slight premium. They need to drop another 15% or so (about 20% for Intentional small caps) to be fairly priced, and roughly 30% and 35% (for International Small Caps) to be a true bargain.

As of this writing (March 2012) I don’t think the markets are pricing in all the dangers that exist in Europe. I suspect that financial cracks will soon become a lot more visible for the markets to ignore.

Emerging Markets:

Emerging markets fairly priced, and would need to drop by around 20% or so from these levels to be a true bargain.

US Large Caps (S&P500)

In the US, the markets are over priced by about 35% and would need to drop by about 45% to be a true bargain.

With all the recent problems in Europe, the US looks like the skinniest kid at fat camp, which is not saying very much. Eventually the problems in the US will become more visible, specially when good opportunities will become available in other parts of the world (such as Emerging markets). I suspect US might remain strong longer that people imagine but when things turn ugly they might turn ugly pretty quickly.

US Small Caps (Russell 2000)

US small caps are tremendously over priced by about 45% and would need to fall about 50% to be a true bargain. That is not to say that they will do so in any near future, it might simply mean that Small caps might go nowhere for 5 to 10 years and allow evaluations to catch up to their price. But in any case I do not see any reason to venture into broad US stock market at current levels.


Current Portfolio as of 3/31/2012:

Name Symbol % of Portfolio
Cash and (Cash like Instruments) 68.20%
Berkshire Hathaway BRK.A 14.30%
ProShares Short Russell2000 RWM 9.60%
Asian and Emerging Market Currencies 7.60%
ProShares Short 20+ Year Treasury TBF 0.21%

 


My Current Positions:

Cash and Cash Like Instruments – 68.2 %

I don’t hold cash happily. Currently I am earning a little over 1% on the money, with inflation around 3% it means that each year 2% of my money disappears into never never land.
Last time I had a cash position this large was back in early 2008, by March of 2009 every penny I had was in the market. Unfortunately at current evaluations the downside risks far outweigh the upside in owning stocks. I patiently wait for a day when markets will offer some true fat pitches for me to swing at, till that day I am begrudgingly keeping my powder dry at -2%.

Berkshire Hathaway – 14.3%

Berkshire Hathaway is my oldest stock holding at almost 10 years. I added a little to my position last year, when the stock price dropped below book value very briefly which was a true anomaly. I would be happy to add to my position if the price again drops below book value, which is a bit over 20% below the current stock price.

Russell 2000 Short – 9.6%

With US Small caps being roughly 45% over valued I hold a Russell 2000 Short position (If stock prices fall I make money). If the small caps were to increase another 5% or so I would be happy to add to my short position.

Shorting is always a risky endeavor since even if markets are grossly overvalued they can go nowhere for a long time eventually allowing evaluations to catch up. So spotting a bubble does not always produce a profitable trade.

Asian Currencies – 7.6 %

My feeling is that over the next few years, the dollar will play a much smaller role in world currency market. I developed a small position in Asian currencies (specially asian emerging market currencies) which I feel offer the best protection against the falling dollar. As the dollar strengthened due to the problems in Europe I used it as a buying opportunity. I plan on establishing a position of around 20% in emerging market currencies over the next 6 months to a year.

Long Treasury Short – .2%

As the US long term bond yields hit all time lows I established a small position in shorting the long term treasury. I feel comfortable adding to my position if opportunity presents itself, which I suspect is a likely outcome if Europe truly unravels. If the yields go back to their last 10 year average I should see a gain of about 30% on this position although I suspect the yields will over shoot by a lot more. But one only needs to look at treasury yields in Japan to see just how long yields can go nowhere. I see this and the Asian currency position as an insurance policy against ugly outcomes in the US.


Things I am Watching:

  • Buying Emerging Market equity if the markets drop around 20%
  • Adding to my Long Treasury Short Position if yields continue to drop
  • Shifting money into Asian Emerging Market Currencies
  • Adding more Berkshire Hathaway Stock if it falls below book value
  • Adding to my Russell 2000 Short Position if markets go up about 5% more from these levels
  • Any other opportunity which might present itself or do absolutely nothing.

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 1Q 2012 Performance
My Portfolio -0.44%
S&P 500 (IVV) 12.11%
Total World Stock (VT) 11.79%

 

Michael Page

Did you like this article? Share it!