Currently every position that I hold is underwater. I have well and truly entered drawdown territory. I am not overly surprised for two reasons: [i] the portfolio tracking started in April 24 which was pretty close to the top of the market and [ii] the market is in the process of a crash.

I am sanguine with the situation. Why? It was planned for. The portfolio opened on April 24 holding 117,290 shares of common stock of 8 companies. Currently I hold 160,490 common stock shares in 10 companies. That is a 37% increase in shares held. I am only slightly underperforming the market, and that is due to a higher average beta.

As I leg into the various positions, once the market trades higher, I will be loaded with stock, of a higher beta, and will outperform, with additional shares to the upside. In addition, the accumulation of cheaper stocks that pay a dividend will increase my yield, which will also help outperformance.

Add to that the fact that I still hold just under $300K in cash [1 position is BIL which holds $89K as cash], which is almost exactly the same amount of cash that I held on April 24 and it is clear that I was selling stock at the highs, and building the cash reserve, which will allow the further accumulation of stock should the market trade lower, which I suspect it may well do.

Whatever your trading/investing style, this is the time to stick to your plan that you already had for when there was a market crash. For some, that will be sitting in 100% cash, some will be short. Discipline is key. Having sat through the 2001 Bear, and the 2008 crash, I’m at ease.

My m@arketocracy portfolio registered its first drawdown today at 9.98. Ironic. The biggest drag on the portfolio currently is EK. EK is a turnaround. As such, it may disappear into Chap 11. If not, and obviously I think not, then its recovery could be quite spectacular.

The primary reason I’m willing to go out on a limb is that earnings have been seriously reduced by “big bath accounting” having the Goodwill and Intangibles written down to almost $0.00 Previously, there were substantial amounts being carried as Book Value on the Balance Sheet. The impact of the writedowns will be seen in earnings, assuming they maintain current business, moving forward.

The market is up some 1.39% while the average gain in my portfolio is 2.33%, so I’m gaining a little based on beta, which also explains the downside underperformance. I had a propitious adding to EK which is up 9% today and helping raise the average.

To date, while I have lost some outperformance relative to the index, I have in absolute terms performed admirably. I have not to date gone negative, thus losing money from the starting principal or par value. Of course that may yet change, the cushion is not large enough to rule that out. It will likely take a year or so for that to be accomplished.

In addition, it looks as if the market has room to stretch its legs to the upside. I have maintained a fairly high cash position, and will continue to take profits as we move higher. If the cash position grows too large, I will recycle it into new positions that have attractive risk/reward characteristics. I want, in the eventuality of a severe market crash to maintain ample buying power. I will sacrifice a little upside, to ensure the downside.

I slept in very late today. Just been catching up with the market, nothing much happening either way. I see flippe-floppe-flye is shouting from the rooftops about his prowess yet again.

I checked my m@rketocracy portfolio tracking, my out-performance relative to the overall market has shrunk to 1.35%. The positive is, although through the fluctuations I gave back some open profit, I never moved into losses, well, not yet anyway. I’m still half expecting some drawdown, but it shouldn’t be serious unless the market goes into a 2008 style meltdown.

The reason for the market closing the gap rests with 2 positions. SVU and EK. Both are essentially turnaround plays. As such, it will probably take a little time, and by little I mean 1/2yrs to turn them seriously profitable, assuming that they survive. That is the big risk with EK. SVU has already been through Chap.11, so less of a concern in the short term there.

I added shares at $2.45 for EK, which are trading $0.10 below that currently. The bet is that EK’s earnings are better than analysts have been predicting. Where Goodwill and Intangibles were heavily impacting earnings, they have been written down to zero and thus will not negatively impact earnings any longer, allowing for a potential upside surprise, and re-valuation.

In addition, I have some high yielding common stocks whose dividend payments will actually make a material difference to the returns, adding cash reserves, which can be recycled into expanding the base. All-in-all, although performance has lagged a little here, there are some hidden positives.

An article looking at the out-performance of 4 Fund managers. Their results, when compared to the m@arketocracy chaps really isn’t so hot. Article here

Rankings Report for duc998’s Mutual Fund July 08, 2011

There are no rankings available for your fund. Currently, in order to be eligible for rankings, a fund must:

1. exist for at least 6 months prior to the last quarterly ranking, and
2. be compliant with Marketocracy’s rules more than 50% of the time during the ranking period in question.

Nothing yet. As you can see, the fund will need to exist for 6mths prior to the last quarterly ranking, so around the 4’th quarter I might be looking for a ranking based on that criteria. However, it is easy enough to follow, simply click on the link which takes you to the public page. I am compliant, that is no easy trick, much harder than you might think. Of course, the larger the fund becomes, the more difficult the task.

This raises the question of outperforming the market. On the upside, you want stocks that gain more than the averages, stocks with a high beta. Of course, on the downside, these stocks generally lose far more as well. The key is to be overweight in a bull market, underweight in a bear, assuming you don’t try to hedge via these inverse ETF’s. Holding ETF’s is a no-no anyhow, you can only hold a very minimal number.

I have been thinking about adding some Emerging Market exposure. The absolute worst continent that I can think of is Africa. Surely it can only move in one direction? Anyhow, I’m going to look at the Africa ETF as I have no ETF’s currently. Might be interesting.

Sold out 100% of SIRI and replaced it with US Steel. It returned me a profit. Just the fundamentals are so bad, that I just really didn’t want to hold it. Most equities are being held for longer swings, so the ability to survive is key.

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