Thomas George       

Current market commentary-what we are seeing right now is global asset deflation with central banks throwing billions to revive it.It will not work.But the battle has resulted in commodities being hammered as well.This has implications on supply -farmers are being "punished" for excellent food output and high inventories at a time of tight credit,miners-everyone is being killed.Demand destruction will only go so far,people will still need to eat and drive.This is not a liquidity crisis,it is a crisis of confidence-but central banks think throwing more paper money at it will solve problems.It won't and since inflation is a monetary phenomenon and this paper is going to keep floating around,it will stoke commodity price inflation.I am not closing any commodity longs and will buy in when they bottom-they key here is inventories.How long can commodity pullbacks last?Years,Yes you read that right,I expect this pullback to last years.But does that mean the bull is over-far from it.The next bull market in commodities will be much bigger and will result in stagflation.So for the next few years,I will be content to wait and watch.
Edit(21/1/2009)-I am forced to do more active management due to the poor long term performance of ultrashort funds like SKF-unlike what I thought the fund provides leverage on a day to day basis and is not a good long term hold.Recent Marketwatch and Fundmymutual fund discussed this issue.They are best used as daytrading tools according to them.Apart from that my views remain the same.
For actual transactions look at the personal portfolio page,as I tend to take small positions first and then increase if the idea is working out.
This is a dummy portfolio I am using to test my understanding of the markets.I am bullish on commodities,gold,oil,silver and natural resource companies.This portfolio is a testing bed for ideas and will therefore include exotic picks.In real life I will put all my money into RJI,GLD,USO and FXY and will keep on adding to my positions.Here I am not doing that because it is no fun :) and more importantly not conducive to learning how to manage a portfolio which is the basic reason I am here anyway.This is my principal fund and is modeled as a long short hedge fund with assets running in millions.I am doing this because this is extremely difficult since one has to be diversified across many stocks.

Q.Do you put my money where my mouth is or in other words do you believe what you say?
A.Yes and no.This is a dummy portfolio that I am using to study portfolio management.So in that sense I am not following my advice but this is what I would have done if I was a portfolio manager.I am from India and these commodity investments are not available so I am 100% in gold.

Q.What is your thought process behind the portfolio?

There are two methods to stock picking
1.a top down approach based on identifying macroeconomic themes,the countries that do well etc.I follow this.
2.a bottoms up approach where one goes through the financials,the balance sheets etc and buy a company that is undervalued.Warren Buffett is the master of this approach.

I am a big fan of Jim Rogers and Marc Faber.
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/10/24/bcnrog124.xml

http://www.gloomboomdoom.com/portalgbd/homegbd.cfm

about commodities
I believe that we are in the early stages of a commodity bull market that has many more years to run.

about currencies
I believe that US dollar will decline in value for many more years.I am a supporter of the gold standard.And I believe that central banks throughout the world will try their level best to destroy their currencies by cutting rates.Japan & Switzerland have very little room to cut as their interest rates are already very low.So I am long both the Yen and the Swiss Franc.

about stock markets
I believe that stock markets throughout the world will crash going forward under pressure from high commodity prices raising input costs leading to margins being squeezed,high inflation leading to higher interest rates raising cost of doing business,inflation cutting into disposable income leading to reduced consumer demand-all in all a very bad time for stocks. I believe the American consumer is still in denial and is still not cutting back which is the reason why earnings are still good but worldwide earnings will slow down going forwards.But all stock markets won't suffer.Commodity rich countries will continue to boom.So I am long Russia,the Middle East,Brazil,Chile,Norway.I believe in the China story so I am reentering China.I am short India.India was booming with the rest of the world with not much help from the government.Going forward it will take tremendous leadership to keep the growth going.Looking at the political landscape I feel confident enough to sell all my stocks and go into gold.I don't fear that I will regret this decision.

about bonds
I believe that we are going to see high inflation which would cause central banks to raise rates.I am short 20 year US treasuries which is one of the world's worst investments right now.I will not buy any international bonds either.I am expecting a massive bond sell off once everybody catches on to the reality of inflation.There would be severe short term pain as there would be the usual shift to bonds from equities when the going gets rough in the stock markets.

about real estate
World wide real estate boom fueled by easy credit will come to an end going forward.I am short both US and international real estate

All the picks are for the long term and I will sell only if they are extremely overvalued.I try to think of the taxes and transaction costs involved in frequent buying and selling.So one might see my picks go up 10 % and then come down to a 5% profit(cal maine foods ).If it goes below my purchase price I will just average it down.I will consider selling only if there has been more than 50% fall from my purchase price AND the investment thesis has been proved wrong conclusively.I will try to add my opinion of where I went wrong/what I learned from a wrong choice as a comment.I would also try to add why I am holding the stock in spite of the loss.Commodities are cyclical and prone to huge moves both on the upside and downside,since this is a commodity heavy fund this will reflect on fund performance.As for hedges,I am not intending to add any stocks/etf just because it would protect downside risk.

Q.What are the limitations of your portfolio?

1.stock timing can be off
I am a doctor in real life and do the investing whenever I get time.This has enormous disadvantages with regard to stock timing.Case in point my entry into Dry Ships -I got in at the top and am still down 4.41 % from my entry price.Since this is a virtual portfolio I can average it down but in the case of a private investor it can be very crucial to get the timing right as well.I don't use technical analysis so that is a key limitation.But that said there are no picks in there that I have selected on a whim and a wish.All of them have strong fundamentals (at least IMHO).Please keep this mind just in case u might find any idea interesting enough to put actual money in.So my point is to look as the picks more as investing ideas rather than a brokerage like recommendation(MS has put a buy recommendation on xyz company at the current market price of 100$ and a target price of 113$-my picks are not like that at all).What I am good at is strategy and tactical asset allocation strategy.I will enter if the fundamentals are good like low pe,pb,high roe and low debt and business is in line with the themes given above.

2.percentage allocation to each stock is not satisfactory
I manage this on the premise that I am getting funds all the time.While this sounds great,it does have its problems.This would mean that my best performers would have low allocation because by the time I get more money they would already have run up too much.I still haven't figured out how to deal with this.The obvious answer will be buy on declines but that would mean I have to be around when they are declining.

3.Shorts -carrying costs and margin pressures are not discounted

In the world of socialpicks there are no margin to be maintained and no interest to be paid so I can afford to keep my shorts open indefinitely.For example I am short Apple because I believe that tech spending is discretionary and will be cut.I am confident I will be proved right but in real life I would have had a short squeeze since it had run up quite a bit since my short.I am still in the red.I would borne out the axiom that markets remain irrational more than one can stay solvent.In real life I would have covered my shorts with a strict stop loss.

4.Too many stocks
Since my principal objective is to learn about businesses,I would be choosing a large number of companies from diverse sectors in many countries.As I read somewhere while diversification will reduce risks,it would also lead to less than stellar results.But it is only by going out there and sticking one's neck out that one realizes that really learns anything.

5.I could just be plain wrong
:)

Q.Are you always this cheerful?

I know that was very depressing.I should be crowing about my strengths.I would have liked to be a portfolio manager in real life but I know that I would probably talk myself out of the job in the first week itself.But my intention is for the readers to understand the risks and limitations of my approach.Before one analyzes return one should consider risk.This is especially relevant in a bear market.

I have a dim view of financial professionals so please read this before investing:

http://thewildinvestor.com/to-buy-or-sell/