Tuesday, July 07, 2009

The Other Shoe?

I know I have been expecting a correction and I guess it is official as even people like Cramer and Kudlow (the penultimate bull) think we're going down from here. I feel good about my portfolio as we head into rocky waters. My MFI portfolio is part in cash. And then about 10% of my overall portfolio is in SDS, which is a double short of the S&P 500. I have been doing a little hedging since May, so if I put 10K into a stock, I put 5K into SDS. My overall portfolio (MFI and other) is up 33% YTD and I wanted to reduce the chances of that frittering away. Anyway, it worked very well today. While the overall market was down about 2%, I was down just 0.2%.

Even my MFI portfolio (which clearly is long only, except for the cash) was down 0.8% today, so it also held up relatively well. The outperformance was primarily caused by QXM. QXM, for no reason I can discern, jumped 7.5% today on heavy volume.

Some stock have really pulled back in my portfolio and looked pretty darned attractive:

CMED - $18.77: recall they preannounced a very solid quarter (China Medical Technologies Announces Selected Unaudited Preliminary Financial Results for the Fourth Fiscal Quarter and Full Year Ended March 31, 2009) and jumped over $24 on that news and now have slid back down.

CSKI - $12.86. The shorts love to bash this stock, but if you have any faith that the financials are correct they are cheap, cheap cheap, with $3 a share in cash, trading at 4x ebitda and growing 38% this year and forecast to grow 24% next year.

UTA - $9.63. the little Chinese travel agency that could, it is very volatile, but has potential to be a double at these prices.

JTX - $5.25. I know MD just said don't buy (Stock Review: Jackson Hewitt Tax Service (JTX)), but I am not so convinced that this isn't a nice turn-around story with the new management team.

GME - $20.46. They have insider buying, solid balance sheet, people are doing more trading of used games, which my 11 year-old son loves to do. What is not to like (except they are in retail)?

I don't know what I'll do. I also expect the market to drop, so I won't be in a rush to buy anything... not at least without the hedge. My next buy may still be MTXX as I mentioned last week. If they somehow drop below $5, I think I'll be in with both feet.

3 comments:

Homer315 said...

Marsh,

After reading the VIC post about GLL (the ultrashort gold ETF) I would be very wary about buying SDS if I were you. I strongly encourage you to read that post. It talks about how these ultrashort ETF should not (in at least one poster's opinion) have ever been approved by the SEC. Another poster suggested that it makes sense to short ultrashort ETFs regardless of their underlying fundamentals.

Take, for example, your SDS. In the last 365 days, the S&P is down 29.64%. SDS? DOWN 14.28%. The way these ultrashort ETFs are built means (in the opinion of the GLL post) that they are doomed to failure, unless the underlying index or commodity (in the case of GLL) not only goes to zero, but does so with very little volatility. As another example, SKF is the ultrashort financials ETF. It's one year performance is a staggering NEGATIVE 72.93% as of today. Its approximate 2 year performance is a negative 37%.

I was shocked after reading that post and coming to understand how these things work...

Marsh_Gerda said...

Albert, I will read the article. However, in the past 3 months and past one month the SDS has been virtually a perfect mirror of SPY and on a daily basis since I bought SDS it is usually very close to 2x the movement.

MG

Homer315 said...

Marsh, to be clear, it's not that I don't think that SDS will not be a perfect mirror on any particular day, the problem is that over time, with volatility, these ultrashort ETFs have a fatal flaw in their structure. Think about SKF, how on Earth could an ETF that is 2x short financials be DOWN 73% in the last year?