Wednesday, February 06, 2008

January 2008 Report

All figures are in US Dollars (USD) unless otherwise stated. This month again saw falls in net worth due to negative investment performance, though our performance was not as bad as the market.

Income and Expenditure

Expenditure was $3,970 - exceptional expenses included expenses on the upcoming wedding - core expenditure was $3,323. This included $231 of implicit car expenses - depreciation and interest. Our core expenditure has been remarkably consistent over the last three months.

Non-investment earnings ($3,598) mainly consisted of Snork Maiden's salary. Her previous employer finally stopped paying her. Snork Maiden's retirement contributions from her employer were $872 - there were three contributions this month for some reason (but only two salary payments!).

Non-retirement accounts lost $11,713 with the rise in the Australian Dollar offsetting $3,739 of what would otherwise have been a loss of $15,452. Retirement accounts lost $405 but would have lost $2,938 without the change in exchange rates. This difference is due to the strong exposure to bonds in our retirement accounts and the stronger exposure to equities in our non-retirement accounts. Trading contributed $577 in my Roth IRA account and $82 to the non-retirement result.

Net Worth Performance
Net worth fell by $US10,905 to $US437,702 and in Australian Dollars fell $A23,167 to $A488,125. Non-retirement accounts were at $US225k. Retirement accounts were at $US213k. So we made negative progress on our first and third annual goals.

Investment Performance

Investment return in US Dollars was -2.70% vs. a 8.17% loss in the MSCI (Gross) World Index, which I use as my overall benchmark and a 6.00% loss in the S&P 500 total return index. Non-retirement accounts lost 4.94%. Returns in Australian Dollars terms were -4.64% and -6.98% respectively. In currency neutral terms the portfolio lost 4.10%.

The contributions of the different investments and trades are as follows:

The returns on all the individual investments are net of foreign exchange movements. Foreign currency gains appear at the bottom of the table together with the sum of all other investment income and expenses - mainly net interest. This month most of the most negative numbers are unlisted and listed Australian funds, while most of the best gains are from short-term trades or new positions.

Progress on Trading Goals

Asset Allocation
Using the simple method of adding up the betas of each individual investment weighted by their portfolio allocation, at the end of the month the portfolio had an estimated beta of 0.58. Using a regression on the last 36 months of returns gives a beta of 0.75 to the MSCI or 0.65 to the SPX. Alphas are 0.52% and 4.65% respectively. A more sophisticated time series method yields a beta of 0.65 and alpha of 10.1% for the MSCI index. There is less difference in the estimate of beta this month between the different methods. This maybe suggests that the Australian Dollar was less correlated with the stock market this month.

Allocation was 34% in "passive alpha", 68% in "beta", 2% allocated to trading, 8% to industrial stocks, 5% to liquidity, 3% to other assets (including our car which is equal to 2.9% of net worth) and we were borrowing 20%. Our currency exposures were roughly 59% Australian Dollar, 31% US Dollar, and 10% Other (mainly global equity funds).

At the end of the first month of the year we are on track to achieve two out of our five goals (2: Positive Alpha and 4: Gain in Ameritrade/IB Accounts).

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