Chris Lau - Seeking Alpha

Wednesday, April 29, 2009

My Underperformance

I have been on KaChing.Com for a year now. There are now 3just over 300 followers for this portfolio. That might dilate anyone's pupils. My Beginner's Guide has 145 members, and Intelligent Investing has 314 members.

The portfolio has underperformed the S&P 500 by over 2000 basis points (20%):

Explaining is easier than predicting.

Here are some reasons for the under-performance of this portfolio:

No major big long positions, except for Activision and Biovail.

* SRS - Inverse to REITs. Big loss because companies like SPG are able to take full advantage of rising markets (by issuing shares or debt to raise cash).

* AA sold, MSFT position reduced just when markets rose. The reason MSFT was reduced was because it did not make sense to own more Micrsoft shares than Activision.

Portfolio will continue to underperform as long as rally continues. Losses will be actively minimized because a defensive stance is required (stubborn investors will be ultimately punished).

I do question this rally, for the following reasons:

* GDP was -6.1%
* Housing figures weak, but less weak than expected ("less weak" was a reason for "Mr Market" to be optimistic)
* Any profit taking won't come unless there is a reason for it i.e. GM job loss more massive, bigger job losses, weaker housing figures in the months (3-6) ahead
* Bank sector lead the rally with results that were simply too good to be true (the devil is in the details)
* Technical reasons cannot be ignored: lack of volume

On a positive side of things, earnings were not as poor as expected and inventory levels are declining (means suppliers will need to increase production even to meet lowered levels of demand).

Here are the Risk Metrics for my portfolio. Log on to KaChing, hover your mouse over the "?" for a detailed explanation of each metric.

To put it quite simply, green generally means good (lower risk, lower probability gains were made by luck alone), and red means bad (higher risk-taker, speculator, trader and not investor). In defense of my high turnover, active management is a must: one must realize losses early, especially when a decision turned out to be wrong.