The portfolio gained 2.9% for the month of February, bringing the year-to-date return to 3.1%.
* We report the percentage gain or loss during a month in an additive sense for ease of comparison, however the year-to-date returns are reported as a chained series. As the total return become greater, and as inflows have an effect on the portfolio, the two will diverge. Adding up the monthly returns for the year may not give the precise total return.
24 Mar 2011
22 Feb 2011
Small-C January 2011 Letter
The portfolio gained 0.2% for the month of January. Common to the last two months of the year, our favorite themes underperformed the S&P index. China-related equities were down and the small caps we loaded up on at the end of the year to take advantage of the Other January Effect went down. Treasuries started to move down a bit, while high yield was up. Possibly our best performer over the last several months, Inpex, continued on its tear.
* We report the percentage gain or loss during a month in an additive sense for ease of comparison, however the year-to-date returns are reported as a chained series. As the total return become greater, and as inflows have an effect on the portfolio, the two will diverge. Adding up the monthly returns for the year may not give the precise total return.
* We report the percentage gain or loss during a month in an additive sense for ease of comparison, however the year-to-date returns are reported as a chained series. As the total return become greater, and as inflows have an effect on the portfolio, the two will diverge. Adding up the monthly returns for the year may not give the precise total return.
18 Feb 2011
Small-C November & December Letter
Because we've been so slow to report these months, we're combining November and December into a single note.
The portfolio gained 1.6% over the period, bringing the return for the year to 6.7%.* The total return on the S&P was about 15%, so we must apologize for missing our benchmark by a mile. We can point out that over the longer term, we have still outperformed the equity index, but that feels like small consolation when we really ought to have 10% more money in our pocket.
Some of our biggest calls failed us this year. The Other January Effect failed to materialize for the second year running, and the market finished up signficantly after falling first month of the year. Market timing trades, mostly playing to the January theme, therefore lost around 1% across the board. Our China- and Asia-related shares made a 15% return, but we note that we count the US-listed YUM! Brands in that category, which made a stunning 42% over the year (making it the best performer of any consequence). High-yield bonds returned 13%, but only just beat their interest rate hedge; we lost money on our short bonds trade, bringing the historical P&L for that trade close to flat.
Broadly, our main mistake was not to have enough equity exposure and too much fixed income and like instruments. We continue to favor yield; instruments that put money in our pocket today that we can choose to reinvest, versus speculative plays based on future growth. We feel having liquidity to judge entry points, and wealth preservation in the face of a difficult financial environment, will be increasingly important going forward.
Looking into 2011, we see some of the same themes we have been following for years. Inflation data is starting to show the effects of loose monetary policy, and the rate adjustments can't be far behind. In Europe, there a shell game going in which sovereign debt is being passed from one borrower to the next, evidently calming solvency concerns while the debt burden only grows. The US is doing nothing serious to deal with entitlement spending. Western investor are concerned that China is overheating and will suffer some sort of crash. I believe that view is heavily influenced by our experience of low growth Western economies, where every several years a bust follows a boom. Surely economic development in China will experience bumps the road, but the nation has fifty years of solid growth ahead. We look forward to what 2011 will bring.
* We report the percentage gain or loss during a month in an additive sense for ease of comparison, however the year-to-date returns are reported as a chained series. As the total return become greater, and as inflows have an effect on the portfolio, the two will diverge. Adding up the monthly returns for the year may not give the precise total return.
The portfolio gained 1.6% over the period, bringing the return for the year to 6.7%.* The total return on the S&P was about 15%, so we must apologize for missing our benchmark by a mile. We can point out that over the longer term, we have still outperformed the equity index, but that feels like small consolation when we really ought to have 10% more money in our pocket.
Some of our biggest calls failed us this year. The Other January Effect failed to materialize for the second year running, and the market finished up signficantly after falling first month of the year. Market timing trades, mostly playing to the January theme, therefore lost around 1% across the board. Our China- and Asia-related shares made a 15% return, but we note that we count the US-listed YUM! Brands in that category, which made a stunning 42% over the year (making it the best performer of any consequence). High-yield bonds returned 13%, but only just beat their interest rate hedge; we lost money on our short bonds trade, bringing the historical P&L for that trade close to flat.
Broadly, our main mistake was not to have enough equity exposure and too much fixed income and like instruments. We continue to favor yield; instruments that put money in our pocket today that we can choose to reinvest, versus speculative plays based on future growth. We feel having liquidity to judge entry points, and wealth preservation in the face of a difficult financial environment, will be increasingly important going forward.
Looking into 2011, we see some of the same themes we have been following for years. Inflation data is starting to show the effects of loose monetary policy, and the rate adjustments can't be far behind. In Europe, there a shell game going in which sovereign debt is being passed from one borrower to the next, evidently calming solvency concerns while the debt burden only grows. The US is doing nothing serious to deal with entitlement spending. Western investor are concerned that China is overheating and will suffer some sort of crash. I believe that view is heavily influenced by our experience of low growth Western economies, where every several years a bust follows a boom. Surely economic development in China will experience bumps the road, but the nation has fifty years of solid growth ahead. We look forward to what 2011 will bring.
* We report the percentage gain or loss during a month in an additive sense for ease of comparison, however the year-to-date returns are reported as a chained series. As the total return become greater, and as inflows have an effect on the portfolio, the two will diverge. Adding up the monthly returns for the year may not give the precise total return.
12 Nov 2010
Small-C October 2010 Letter
The portfolio gained 4.3% for the month of October, bringing our year to date return to 5.1%.* The S&P gained 3.7% over the month. A lot of things went well this month. Quite a few of our equities outperformed the market, especially our China-related portfolio. Treasuries finally started to lose some value - even with all the talk of quantitative easing, rates are edged upwards. We feel we will someday be vindicated in our negative view on rates, and when that adjustment comes it will be drastic and, obviously, unexpected by most.
This month, we passed our high water mark, set in late 2007. That means for the last three years our investments have generated zero returns and only now stand a chance of making you money. It has been a long road, and as depressing as a zero return sounds, we are feeling a bit self-congratulatory.
If you had invested in a money market fund over the same period, you would have made around 4%. If you had the foresight to buy a 10-year treasury, you would now have a 26% return in your pocket. On the other hand, if you had invested in the S&P, you would still be down over 14%.
* We report the percentage gain or loss during a month in an additive sense for ease of comparison, however the year-to-date returns are reported as a chained series. As the total return become greater, and as inflows have an effect on the portfolio, the two will diverge. Adding up the monthly returns for the year may not give the precise total return.
This month, we passed our high water mark, set in late 2007. That means for the last three years our investments have generated zero returns and only now stand a chance of making you money. It has been a long road, and as depressing as a zero return sounds, we are feeling a bit self-congratulatory.
If you had invested in a money market fund over the same period, you would have made around 4%. If you had the foresight to buy a 10-year treasury, you would now have a 26% return in your pocket. On the other hand, if you had invested in the S&P, you would still be down over 14%.
* We report the percentage gain or loss during a month in an additive sense for ease of comparison, however the year-to-date returns are reported as a chained series. As the total return become greater, and as inflows have an effect on the portfolio, the two will diverge. Adding up the monthly returns for the year may not give the precise total return.
12 Oct 2010
Small-C September 2010 Letter
The portfolio gained 3.2% for the month of September, bringing our year to date return to 0.8%.* The S&P gained 8.8% over the month. Of course it is disappointing to underperform our benchmark so drastically, however that will be the occasional result of holding a low volatility portfolio. We question the validity of this rally. While the economic data has improved slightly, the economy is still in grave difficulty. There have been rumors and intimations that the US will embark on a new stimulus spending and a program of quantitative easing. Previous rounds of such stimulus have done nothing to improve employment rates, and we fear that each time the government takes over a larger portion of the economy it dooms us to a longer period of sub-optimal growth. How that can be positive for equities is beyond us. Even more amazingly, 10-year Treasury rates ended the month nearly unchanged! We have been wrong about the direction of rates for a very long time now, but this just seems absurd.
* We report the percentage gain or loss during a month in an additive sense for ease of comparison, however the year-to-date returns are reported as a chained series. As the total return become greater, and as inflows have an effect on the portfolio, the two will diverge. Adding up the monthly returns for the year may not give the precise total return.
* We report the percentage gain or loss during a month in an additive sense for ease of comparison, however the year-to-date returns are reported as a chained series. As the total return become greater, and as inflows have an effect on the portfolio, the two will diverge. Adding up the monthly returns for the year may not give the precise total return.
Small-C August 2010 Letter
The portfolio gained 1.7% for the month of August, bringing our year to date return to -2.4%.* The S&P lost 4.7% over the month. We are pleased to have outperformed our benchmark. Our shares positions outperformed the market slightly, while of course the low-volatility bond positions held their ground.
* We report the percentage gain or loss during a month in an additive sense for ease of comparison, however the year-to-date returns are reported as a chained series. As the total return become greater, and as inflows have an effect on the portfolio, the two will diverge. Adding up the monthly returns for the year may not give the precise total return.
* We report the percentage gain or loss during a month in an additive sense for ease of comparison, however the year-to-date returns are reported as a chained series. As the total return become greater, and as inflows have an effect on the portfolio, the two will diverge. Adding up the monthly returns for the year may not give the precise total return.
20 Sept 2010
Small-C July 2010 Letter
The portfolio gained 2.9% for the month of July, bringing our year to date return to -4.1%.* The S&P gained 6.8% over the month.
* We report the percentage gain or loss during a month in an additive sense for ease of comparison, however the year-to-date returns are reported as a chained series. As the total return become greater, and as inflows have an effect on the portfolio, the two will diverge. Adding up the monthly returns for the year may not give the precise total return.
* We report the percentage gain or loss during a month in an additive sense for ease of comparison, however the year-to-date returns are reported as a chained series. As the total return become greater, and as inflows have an effect on the portfolio, the two will diverge. Adding up the monthly returns for the year may not give the precise total return.
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