Wednesday, November 05, 2008

October 2008 Report

In percentage terms October's results are the worst on record but they were heavily influenced by the decline in the Australian Dollar that took place in this period. This has the effect of reducing both our expenses and non-investment income in US Dollar terms and making investment returns in USD terms much worse than in Australian Dollar terms. In Australian Dollar terms the results were bad but no worse than September. Of course, September was horrible.

Income and Expenditure

Expenditure was $3,523 ($A5,340). This was elevated by heavy spending in China on everything from family banquets to hotelrooms. Non-investment income of $7,057 which was increased by a third salary payment this month and by money we received from Snork Maiden's parents. Retirement contributions were $668. Total investment losses were $96,753, which is a record loss. But $37,660 of this was due to the fall in the AUD. In AUD terms we lost $A52,637 - a little less than in September - with a positive $36,866 contributed by the rise in the USD.

Net Worth

Net worth fell by $90,408 to $234,430 or in Australian Dollar terms by $A43,074 to $355,305. This chart, in Australian Dollars, does look a bit less scary than the US Dollar chart posted on NetWorthIQ:

Medium term balance is just non-retirement accounts and superannuation is retirement accounts (including US ones as well as Australian ones).

Investment Performance

We are now trailing the MSCI All Country Gross Index across all of these time frames. Returns just fell off a cliff in September and October compared to any previous period:

Whatever way you look at it:

Using my preferred time series method portfolio beta to the MSCI index was 1.27 in October with an annual alpha of 3.1%. This alpha is hugely down on past estimates but still positive.

Asset Allocation

At the end of October the allocation was 52% in "passive alpha", 58% in "beta", 2% was allocated to trading, 6% to industrial stocks, 6% to liquidity, 4% to other assets, and we were borrowing 28%. Due to the use of leveraged funds, our actual exposure to stocks was 105% of net worth, which was down sharply this month due to "forced deleveraging". In September we were borrowing 29 cents for each dollar in equity; we are now borrowing 28 cents. The change is much bigger when we take into borrowing by the leveraged funds we are invested in. In total, borrowing per dollar of equity declined from 82 cents to 67 cents. Looking at asset classes:

Exposure to stocks reduced as they declined in value against other assets or we were forced to sell. At the end of September currency exposures were roughly 51% Australian Dollar, 27% US Dollar, and 21% Other and Global.

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