Thursday, January 01, 2009

2008 Summary

I will be doing a report for December, but after such a financially disastrous year, I'm not in the mood for a detailed analysis of the numbers for 2008 as a whole. In US Dollar Terms we lost more than half our net worth and in Australian Dollar terms more than 40%. These results were partly due to the general decline in the markets and partly due to me not understanding the scope of the crisis and re-equitizing when only part of the decline was complete. I thought the collapse of Bear Stearns was the peak of the crisis. I was very wrong on that score. If we'd kept the conservative stance we had at the beginning of the year through to October or November we would be in a pretty good situation now with maybe a 20-25% decline in net worth in USD terms I think. Maybe better. In Australian Dollar terms we might have been down just 10% or so.

Some of the damage is permanent in realized capital losses and some is hopefully temporary due to currently depressed asset values. We're looking at realized capital losses of $A71,000 so far this year, with about $A14,000 of realized capital gains partly offsetting that. At least we won't be paying any capital gains tax any time soon :)

I started the year trying to be a short-term trader using my quantitative models for predicting short-term market direction. While I am convinced the models have some validity I found it very difficult to trade on their basis both due to being based here in Australia with most of the market action occurring overnight in US markets and my general problems of discipline in trading. I may still look to work with someone else in implementing the models to run a managed futures fund. Though given the Madoff Scandal there is likely to be less interest in blackbox models now. I'll return to look at these again once I have a couple more academic papers submitted. If you are a fund manager and are interested in working with me on this let me know.

Now at the end of the year I've moved much more towards an asset allocation/rebalancing approach to investing with limited market timing. I'd still expect to reduce exposure as the market rises and more so if the yield curve inverts. But I'd re-equitize much slower in any future market slump and never get as leveraged as I did this time around.

The year ended somewhat positively with what seems to be a gain for the month in USD terms though at the moment it looks like we lost in AUD terms. There were some positive signs also on my career front with an upcoming screening interview at a university and I'm getting my research back on track and now have two papers under review at academic journals and more in progress. Having an active research "pipeline" is important in getting an academic job at a good university. The two personal highlights of the year were getting married and visiting China and Hong Kong for the first time. My mother and brother visited us in Australia - my mother's first visit back here since she left more than 45 years ago and my brother's first visit to the country of which he is a citizen. Another positive personal thing is that in the last couple of months I have gotten back to doing a bit of cycling. Hopefully I can lose some weight in the coming year. We also bought Snork Maiden a bicycle and we've been on a few short rides together.


JW said...

Hopefully 2009 will be a triumphant year for you. Happy New Year!

Rafi said...

I don't know what my losses were but they are around 10% with realized capital losses (if I understand this term) of around USD 5k only.

Here's to a better 2009 and successes built on the lessons of the past.