I am going to discuss Jan and Feb first because (A) the inflection point in the market occurred in March and (B) I cannot figure out how to fit Jan-Apr charts together so I have to do two months at a time.
The most notable aspect to Jan-Feb is the vast out performance over the SPX (almost 20%%). We were able to preserve capital during January and February primarily due to the fact that (1) we were 48% cash, and (2) some longs, such as SBB (short S&P600) and DNA were able to offset losses in GENZ. The remainder of our positions were flat over this time frame, resulting in a net 1% gain through Feb 27.
To give a little more color:
OGZPY (Gazprom) was a position we had held for some time (over 2 years I think). The basic bull thesis is that the company is a monopolistic gas supplier to Europe, which gets 40%+ of its nat gas needs from Russia. The downside is that most of the Gazprom sales within the former USSR are at below market rates and unprofitable (a point of consternation over recent winters as the Russians have threatened to shutdown gas pipelines during the cold winter months). We were lucky to have sold 40% of our position during the energy peak in mid-08 at substantial profit. In 2H08-Feb 09, the price of OGZPY declined substantially owing to the fall in nat gas prices (caused by the global recession) and the collapse of the Russian ruble. We probably could have sold earlier had we not been complacent and distracted in our investment approach at YE08 when I lost my job. However, we decided to sell the rest in early March as we decided to refocus our efforts and to run our PA with a more professional approach rather than one consisting of whimsical trades. The decision to sell was not based on a particular bull/bear view of OGZPY but rather a reflection of trying to build a new PA with well thought out ideas supported by the type of valuation work I had done as a buyside analyst.
GLD (gold etf)-we put this position on in late 2008 as the markets melted down. At the time, equities provided little safehaven or comfort, and I thought the injection of money by the Fed and the US government would have inflatrionary effects. The trade worked well Nov through December and was flat afterwards through February. At the beginning of March, I thought the trade had become crowded, and I thought the macro environment had stabilized enough to the point where equities had more limited downside (owing to their 20% drops since Jan 1). Additionally, the recession appeared deep enough to make me worry about deflation rather than inflation so GLD was not as attractive. Overall I think GLD is a good investment when you fear infation and when you are afraid in general (too afraid to put on stock trades); by late Feb I thought these conditions were about to reverse.
DNA- was bought by Roche for $95. We sold the stock in March before the tender was announced. Had I not sold this position, I estimate performance would be better by 3%! What a miss! Still I have no regrets. This position was an event-driven position and I made a conscious decision that although I liked the deal as an arb, I did not want to trade too many arb-like positions in our PA as there were better risk/rewards out there. Despite missing out on DNA, we have still managed to significantly outperform the S&P thus far.
SBB- short S&P 600. Speaks for itself. Reflects bearish view we had at the beginning of the year. Sold this position at the beginning of March, a few days before the big meltdown. Still I don't regret the early timing as we raised cash and promptly used it to buy stocks during early-mid March.
TRV- legacy holding (10 shares) from the Citi-spin years ago. Because i am too lazy to figure out my basis (for tax purposes) I am just holding onto it until I do.
GENZ-sold in March. Owned for 2+ years probably and ended up being flat on the trade. At times we were up significantly, at other times down notably. I liked the protected nature of their business (many drugs have orphan drug status). I first became familiar with GENZ when I owned Shire in 2006 (a good trade for us). I had become familiar with Shire because I did extensive work on TKTX (Transkaryotic) which Shire bought in 2005 (an arb deal I participated in at work). I frankly just became frustrated with the stock and sold it to move on to something else.
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