bert111 (85.23)

Recent Portfolio Changes

September 23, 2008 – Comments (3) | RELATED TICKERS: GE , BRL.DL , OSG

http://rcrawford.wordpress.com/2008/09/24/recent-changes-in-my-investments-portfolio/

Several days ago I made a small number of adjustments to my portfolio, as the market entered “meltdown” mode. Allow me to describe each of those decisions.

First, I sold my long positions in General Electric (GE), Barr Laboratories (BRL), Methanex (MEOH), Overseas Shipbuilding (OSG), and Nordstroms (JWN).

In the case of General Electric, the company’s exposure to high debt levels prompted the sale. This is a subject about which I’ve previously written but had not yet taken action. Given the recent turmoil in the market, I decided to retained only those positions about which I felt most certain, and General Electric did not make the cut.

In the case of Barr Laboratories, TEVA Pharmaceuticals previously announced its friendly acquisition of Barr, and the stock price adequately reflected the price of purchase.

In the case of Methanex, the additive to petroleum produced by the company primarily supports leaded gasoline – which is an increasingly small portion of the market. Moreover, it appeared the provision of component supplies to petroleum products represented a less significant growth prospect, despite the increased use of petroleum products by emerging market countries. It is certainly the case that the market was ill-prepared to place a premium on this investment. Given the other uncertainties associated with the market, it made sense to sell the stock.

In the case of Oversees Shipholding, I became increasingly concerned with the future prospects of a company so reliant on the strength of the broader international economy at a secondary level. When economies improve or decline, there are direct beneficiaries, whose prospects improve as a consequence of a change in the economy. Just as there are primary beneficiaries, there are secondary beneficiaries, as well. Secondary beneficiaries tend to move more slowly in terms of stock price appreciation (often representing the value opportunities). In the case of this stock, I came to the conclusion that it is a secondary beneficiary, and that its principal growth prospects had more to do with whether it was a target for acquisition than on the strength of its business model in this environment. Given the uncertainties in this time of market turmoil, I decided to eliminate any position about which I was less than completely certain. Ordinarily, I would have held the stock until the cows come home, but, concerned that there is no grass in the pasture for the cows to consume, I decided to jump ship (and to mixed metaphors, in the process).

Nordstroms, a high-end retailer, was the easiest of the decisions, given the declining market. I am prepared to hold a high-end retailer during a normal recession, but the jury is still out on whether we are entering a recession or depression, and there is nothing to commend a high-end retailer during a depression.

Recently, I wrote of the recommendation made by a member of the Wall Street community, who urged purchasing a short position on the S&P 500 as a means by which to isolate the comparative performance of my long positions. Given this, and the abundant uncertainties in the market, I made two significant purchases – neither of which involve precious metals or, for that matter, healthcare (two traditional safe havens).

The first, as recommended, was shorting the S&P 500, for the reasons outlined, above. With a goal of creating a short position that represented one half of my long holdings, this became, effectively, my single largest position. This purchase, however, should not indicate that I am betting on a market decline. Instead, I am betting that my long positions will outperform the S&P 500, as they have in the past.

The second was a purchase of Swiss francs. Given the market turmoil and the likely response, I am concerned about the stability of the US dollar. Consequently, I purchased a long position in Swiss francs at an amount equal to my short position in the S&P 500. There is some concern that Europe is entering into a significant and protracted recession. Moreover, the emerging markets of Russia, China, and India seem to be strongly impacted by problems within the US market. Given this, the question became one of which currency represented the best hedge for the US dollar. This is why I settled on the Swiss franc.

I should also mention that I exited each of our IRA mutual funds, effectively taking long positions in the US dollar.  Consequently, I have more in cash (awaiting deployment) than in any other position — to include shorting the S&P 500 or the Swiss franc.

Each of these changes represents concern over the US economy and the direction of the financial markets. While some may view them as motivated by a depressed perspective on the market, this would be a mistake. Instead, they are temporary holding positions, as the market gets his act together – providing me with sufficient time to identify the next round of a value stock purchases. In other words, I see the current problems confronting the market as creating opportunities, rather than a justification for fleeing in fear. In fact, I spent the better part of this past weekend looking for new investment opportunities. Unfortunately, nothing met my increasingly stringent standards. I am, however, an optimist… and an opportunist… and I’ll let you know what I find.

Each of these changes followed a recent trip to New York and time spent with members of the Wall Street community.  From that trip, it was evident that this is a time of significant uncertainty for the professionals in the investment realm.  What became abundantly clear is that Wall Street and the rumor mill has access to information significantly faster than even the investment press, and, if the professionals are uncertain, the feigned confidence of those writing about investments represents a delusion.  Unquestionably, this is not a time to be a trader, since there is no trend to follow, no reliable “technical” measure, and no informed authority on whom to piggyback.  In this environment, there are only two reasonable positions — cash or its equivalent, on one hand, and a long-term perspective filled with value investments, on the other hand.