Friday, April 04, 2008

March 2008 Report

The crisis in the financial markets seems to be abating and so does our own personal mini financial crisis. Though we made a net loss this month and net worth is down again, I made gains in trading, the wedding etc. is paid for and our credit lines and bank account are freed up, and I have a lot more buffer available between me and a margin call on my Australian margin loan. Earlier in the month, while I waited for payment from Primary Health for the Symbion takeover I was into the 5% buffer where you can't buy more shares but they don't give you a margin call yet.

All figures in the following are in US Dollars (USD) unless otherwise stated.

Income and Expenditure

Expenditure was $4,573 - core expenditure was $3,349 - in line with average months. Spending included $324 of implicit car expenses - depreciation and interest. The non-core expenses were paying for our wedding photos and spending from the wedding present money my Mom gave us. The latter is included in the "other income" of $4,964 as well as Moom's US Federal tax payment, which we treat as a negative income item and Snork Maiden's salary.

Non-retirement accounts lost $11,501 with the fall in the Australian Dollar contributing $3,815 to the loss. Retirement accounts lost $843 but would have gained $3,057 without the change in exchange rates. Trading contributed $2,794 in realised gains.

Net Worth Performance
Net worth fell by $US12,034 to $US432,934 and in Australian Dollars fell $A799 to $A474,146. Non-retirement accounts were at $US215k. Retirement accounts were at $US218k. So we did not make progress on our first and third annual goals as net worth decreased and non-retirement net worth fell by more than the decline in the MSCI index.

Investment Performance

Investment return in US Dollars was -2.77% vs. a 1.42% loss in the MSCI (Gross) World Index, which I use as my overall benchmark and a 0.43% loss in the S&P 500 total return index. Returns in Australian Dollars and currency neutral terms were -0.24% and -1.04% respectively. So far this year we have lost 4.80%, while the MSCI and S&P 500 have lost 9.18% and 9.59%, respectively.

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

The returns on all the individual investments are net of foreign exchange movements. This month trades mostly resulted in gains. The biggest gain was in the CFS Geared Share Fund which I've been switching into from the CFS Conservative Fund at what I think are low points in the market. The latter experienced a loss partly as a result of this switching, which has so far managed to time the market well. Time will tell whether it was a good idea longer-term. Several Australian financial stocks were again major losers. However, the proposed takeover of the Challenger Infrastructure Fund gave that fund a nice boost.

Progress on Trading Goals

As I've mentioned, realised gains for the month were $2,793.

My three US trading accounts gained $1,315 (or 2.35%, which is much better than the market) and there is now $6,731 to go till I reach breakeven across those three accounts, which is one of my annual goals. My Interactive Brokers account gained 7.82%.

So, we made progress on annual goal 5 (making money from trading) and goal 4 (achieving breakeven in my US accounts).

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 0.92. Using a regression on the last 36 months of returns gives a beta of 0.74 to the MSCI or 0.59 to the SPX. Alphas are 1.4% and 5.9% respectively. A more sophisticated time-series method yields a beta of 0.79 and alpha of 8.8% for the MSCI index. Therefore, we are doing well on our second annual goal (positive alpha).

Allocation was 39% in "passive alpha", 70% in "beta", 2% allocated to trading, 6% to industrial stocks, 5% to liquidity, 3% to other assets and we were borrowing 25%. Our currency exposures were roughly 55% Australian Dollar, 27% US Dollar, and 18% Other. In terms of asset classes, the distribution was:

After all the changes in investments and trading this month here is an update on our exact portfolio allocation:

We made progress on three out of the five annual goals this month.

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