Update on Performance: June 2013

June worked out very nicely for our strategy: +26% versus -1.7% for SPX.  This brings Q2 2013 to 53.56% and ytd 2013 to 76.99%.

We continued to play things rather close to the vest with tight stops and very few overnight positions.  June continued the market’s practice of adding more than all of its net gains via ramp jobs.  Without the gains made in the first hour of trading following overnight ramp jobs, June would have dropped over 8% instead of posting a more modest loss.

June far outperformed our average month returns of 10-11%.  I attribute this to a rather predictable correction to the bottom of a well-defined channel where, as expected, SPX bounced and continued its march higher.

How predictable?  The first bottom made at 1598 on June 6 at 1598 was pretty much what we forecast on May 21.  An on-the-fly adjustment made on Jun 20 to accommodate the lower lows came in handy, too.

While I welcome these kinds of months any time, we should consider them outliers and not become accustomed to them.  Here in July, for instance, we again face the question of whether the markets might make new highs.

That same issue throttled performance in January and March of this year when we posted returns of only 4.5% and 8.3% respectively.

As we’ve discussed before, the flip side of not holding positions overnight is more trading.  Beginning each day in cash, we are likely to take a position on the opening bell, play a reversal or two intra-day, and go to cash again at the end of the day — which translates into 4-6 trades per day.

This isn’t a lot for day traders, but it’s hardly ideal for swing traders.  I will continue to try and find the right balance between the two.

Thankfully, our results continue to come in without undue volatility.  Our largest single losing trade during the month was -0.93%, which was almost completely offset by concurrent offsetting trades.  And, we have yet to experience a negative month or even week.

Again, there are trade offs.  We were able to limit losses by using tight stops and not holding positions overnight, but it meant a greater volume of trades.  In my estimation, it’s a reasonable price to pay.  But, I recognize that this won’t necessarily be the case for everyone.

As we approach the startup date for the hedge fund, I have to make certain choices regarding risk and return, volatility and activity, etc.  My intent is to make choices that will be compatible with the average investor’s needs and competitive with other hedge funds.

In HedgeCo.net’s universe of approximately 1300 funds, for instance, only 13 funds have never had a negative month.  And, of those 13, none comes remotely close to our performance figures.  Our 77% YTD through June would land us in 4th place overall; and, our 15 months of returns (approximately 175%) would land us in 12th place compared to the top funds ranked by their 36-months returns.

None of this is to say we’ll be able to continue on such a streak.  As you will no doubt read many times in the documentation, past performance is no guarantee of future results.  But, enough of you have indicated interest in the fund that I feel we must be on the right track.

I have been rather deliberate in preparing for its launch.  This past week was fruitful, as I finally found great office space that should be very convenient.  I have made similarly exciting finds regarding service providers, technology, and business partners.  I appreciate your patience as I work to ensure a smooth transition.

A quick note about the fund:  I will offer only 100 slots initially.  If most of you who have expressed interest in the fund actually subscribe, then the majority of those slots will be spoken for.  Those current annual pebblewriter.com members who subscribe in the initial period (probably Sep 15-Oct 15) will be given first priority, as well as a 10% discount on their fees.

After those slots are spoken for, I will open the fund up to others.  I don’t know how long the second period will be, but I intend to stop accepting new subscriptions once the total fund size reaches $100 million.  The fund may continue to grow, but it will be through existing investors and performance rather than through new sales.  I will probably do one last membership promotion for pebblewriter.com in the next day or two, so pass the word if you know other folks who might be interested.

For those of you who are not accredited investors, I am exploring alternative structures — possibly registered — that will accommodate you, too.  I will pass along details as soon as I am able, but my plan is to get going on it as soon as the fund is well enough along.

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