FAST-FORWARD
(part 1 of 2)
Due to technical issues, you may not have received Part I of our newsletter on Tuesday as intended. Please accept our apologies for the delay.
Since we published our last GreenThought$ issue just six days ago, the world changed. Not the real world, but the financial world. In fact, in some ways, it has been turned upside down or so it seems. There is so much we could write to you about, but for today, we wish to make the following key points, and make them strongly. We will summarize them today, and also sum up recent portfolio changes we've made. Then, tomorrow in part 2, we'll expand on these key issues:
1. These are unprecedented times, but they didn't just start this month. They've been bubbling up to the surface for some time now. We think there's a basic lesson in what has happened, and we'll tell you what it is.
2. Greed and arrogance are the human factors that caused the problems now being showcased via late-night financial TV specials and continuous "breaking news" events from Wall Street. Until that stops, sustained recovery is not possible.
3. Decisions are being made so quickly at the government level and by market participants, it is as if we've compacted a year's worth of market activity into a couple of weeks. It is like someone hit the "Fast Forward" button on the markets!
EMERALD ALLOCATION STRATEGIES (EAS)
PORTFOLIO CHANGES - WEEK OF 9/15/08-9/19/08
Hybrid Strategy:
· Bought and then increased position in a security that shorts a stock index
· Increased position in actively-managed fund that shorts stocks
· Initiated a position in a merger-arbitrage mutual fund
· Initiated a position in a security that tracks the Euro-currency
· Sold out of a long-term position in a fund that we felt was too volatile for the Hybrid strategy, and which, in our opinion, did not make sufficient use of its allowed hedging capabilities
Concentrated Equity Strategy:
· Increased position in actively-managed fund that shorts stocks
Global Cycle Strategy:
· Added a position in an actively-managed fund that shorts stocks
· Sold our position in a security that double-shorts the Emerging Markets
· Initiated a position in a security that tracks the price of Natural Gas
· Swapped from one India fund to another, in what we consider to be an upgrade in the portfolio
While the knee-jerk reaction to this environment would be to just go to cash and "wait until things get better," that may in fact be the worst move a long-term investor can make.
THE LONG-TERM INVESTOR'S OUTLOOK
Here is what Emerald sees right now, and how our strategy portfolios are positioned:
a. Global stock markets will get worse before they get much better
b. There is money to be made, but not in the usual places - specifically, the potential we see is in gold, non-U.S. currency, and shorting the stock market
c. It will take some time, but the result we are most confident in from whatever plan finally comes out of Washington is inflation. It could be high and could last a while, as we pay off the debt by printing dollars. This means that Treasury Bonds will offer opportunity if you short them.
d. Select opportunities will exist in the stock markets around the world, but profiting from them will more often require tactical management instead of buy-and-hold strategies. Some managers can pull off the later in this environment, but finding those managers is akin to the needle in haystack analogy, unless you really know what to look for.
As you can guess, we probably will see some of this change soon. That is just the way things are today. That is why we are thrilled to be proponents of the "Flexible and Adaptive" school of portfolio management, and why we firmly believe that this is an environment that can not only be survived, but conquered by long-term investors who are willing to go out of the box in pursuit of returns. We welcome your comments and feedback.
It should not be assumed that any of the securities holdings discussed were or will prove to be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of the securities discussed herein. The securities discussed do not represent a portfolio's entire holding and in the aggregate may represent only a small percentage of the portfolio holdings. The information herein has been obtained from sources believed to be reliable, but Emerald Asset Advisors, LLC ("Emerald") does not warrant its completeness or accuracy. Prices, opinions and estimates reflect Emerald's judgment on the date hereof and are subject to change at any time without notice. Any statements nonfactual in nature constitute current opinions, which are subject to change. Projections are not guaranteed and may vary significantly. Further information on the firm and its advisory fees may be obtained from the firm's Form ADV Part II, which is available without charge upon request. Complete descriptions of all Emerald's products and benchmarks are available upon request.
(c) Emerald Asset Advisors
www.emerald-eas.com
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