November 2008 Report

November was another horrible month. The percentage decline was not as bad as in October in USD terms. In fact, only half as bad. But we lagged the market very badly due to forced margin liquidations and in Australian Dollar terms this was our second worst month ever (September 2002 was worse).

Income and Expenditure



Expenditure was $3,800 ($A5,807). This was elevated by a registration fee we had to pay for the China conference. Core expenditure still came in at $3,003 ($A4,588), which exceeded non-investment income of $2,635. Retirement contributions were $1,133 as Snork Maiden's employer began to catch up on some of the missing contributions. They are still behind by three contributions. Total investment losses were $38,789. Foreign currency had little impact this month as the Australian Dollar and Euro were steady though the Pound fell.

Net Worth

Net worth fell by $37,448 to $195,284 or in Australian Dollar terms by $A54,305 to $298.427. This takes us back to mid-2004 levels in US Dollars or late 2004 to early 2005 levels in Australian Dollars. If I can get a decent job in the next year and markets recover a bit we could fix this damage in about 3 years I think.

Investment Performance

USD returns were -16.67% vs. -6.51% or -7.18% for the MSCI and SPX respectively. In AUD terms we returned -15.98%.

Using my preferred time series method, portfolio beta to the MSCI index was 1.43 with an annual alpha of 1.8%. Other methods now give a negative alpha.

Asset Allocation

At the end of October the allocation was 47% in "passive alpha", 59% in "beta", 1% was allocated to trading, 0.5% to industrial stocks, 6.5% to liquidity, 4% to other assets, and we were borrowing 17%. Due to the use of leveraged funds, our actual exposure to stocks was 101% of net worth. Deleveraging continued. In October we were borrowing 28 cents for each dollar in equity; we are now borrowing 17 cents. When we take into borrowing by the leveraged funds we are invested in, borrowing per dollar of equity declined from 75 cents to 63 cents. Looking at asset classes:



Exposure to foreign stocks and private equity reduced as they declined in value against other assets or we were forced to sell. The shares of the stronger performing asset classes increased. As a result, we moved away from our long-term target (A distance of 25% vs. 23% in October). The picture at the position level now looks like this:



There were only three positive performers this month, namely Platinum Capital (PMC.AX), CREF Bond Fund, and the Man managed futures fund. Everything else lost money.