Half year Portfolio update

so – am I following Baupost‘s advice in my own investments?

I try to. It pays to be reminded again and again though, as like most people investing is a very part time game for me.

But I’m happy about some of my decisions, like my short position on EQR, which I regard as vastly over priced if you look at the earnings and value of assets versus the current valuation. The catalyst for the price to drop  is the housing crisis which means people are looking hard at and  reassessing values of these REITS.

I’ve gone up and down in the amount that I am short EQR, but I have made good percentage returns each time I dip in and out.

Interestingly Baupost itself does not short stocks, as the potential loss is larger than the investment, so they buy put options instead. If they make the wrong decision then the most they can lose (they buy and do not sell unhedged options) is the value of the option purchase. The upside though is magnified.

For similar reasons (and because eTrade only recently granted me the ability) I moved almost all of my short and even one of my long positions into options a few months back. The result is much more volatility in my portfolio, but solid returns – up 30% up year to date versus down 8.5% for the S&P500.

portfolio - green is me, blue s&p500

Not as good as last time I reported – when the portfolio was up 35% versus the market down 5.6%. But overall this is pretty good at halfway through the year. There is plenty of work to to to approach last year‘s peak return of 77% and actual return of 63.5% though.

For instance, I really do need to work on reducing volatility as those swings recently are not the sign of a “first don’t lose money” policy. I also need to start again my search for stocks that are wildly mispriced, have a catalyst to change in value and give a margin of safety.

I’ve been getting crushed by work, am super tired after a year of consulting here in Perth and really need time off to reengage in investing (and blogging). The challenge of beating last year’s % return is a good one, but I need to make sure that I don’t gamble to do so.

Published by Lance Wiggs