Since August I’ve made a few bets and portfolio adjustments. They were noted in my previous blog posts.

Some re-adjustments includes:

• Shifting assets away from US Treasuries
• Cutting of US Equities, moving towards International equities
• Buying ?other better graded Country Government Bonds
• Betting on Fix-income – Municipals Bond Funds (tax free)
• Added a little more on REIT

Breakdown

You’ll notice I have added 100% onto Municipals Bond Funds, after cutting out some US equities. The reason was explained in my previous posts when the US treasuries was downgraded. Not sure if the next payment, will Obama and their team of politicians discuss the issue of temporarily raising the debt limit again (though after the downgrade the yields were pushed even lower).

In terms of breakdown:

• Fix-Income / Debt instrument @ 64%
• Equities a.k.a stocks @ 27%
• REIT @ 9%

In my next post I will present some interesting findings and why I mentioned is was a good bet, and you’ll see thru the charts just how the money inflows and outflows are going, and the all-rounded way of diversifying in terms of different asset class as an Asset allocation based strategy.

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Income Portfolio Oct 2011

Seriously, 10 minutes for preparing this post is alot to me. The income fund has dropped some big losses were taken.

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Manage to take a snap shot of my current PrestoHedge Income Fund portfolio for 31 st Aug 2011, 1200 GMT -0400, from Google Finance. This total value does not include the use of derivatives, options and futures, and currency FX hedging in other accounts.

Current yield is around 8.37% P.A, or 0.7% a month after NRA Taxes.

Current Portfolio:

US Stocks portfolio as of Aug31st 2011

Portfolio asset classes breakdown:

Portfolio Chart Breakdown Aug 31 2011

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Another sell off

I seriously hope this will be the last for August and this year.

- drop of 4% on S&P500
- VIX touching the 40+ mark
- Gold hitting $1800.
- US Treasuries on 10 yr <2% (WTF? they were suppose to be AA+ now)

Now its exactly 12pm US Market timing. Some reports suggest that not much retail traders were acting on the sell off today, likely the big boys. Beside there aren’t any new news except for some disappointing figures. So why 4+ % you wondered ?

If you are a real trader, not investor, the action actions starts at around 3:30am US time, or about 3:30pm Singapore/China Time, when the Europe market opened. It open lower, and smooth downtrend, plus the news on Banks/Mortgage and Morgan Stanley, about falling Global growth (which we already know and probably already priced in).

US futures drop, in-line with the Europe markets, and opened lower. Then it was added by some disappointing Economic data from US that was released at 8:30 and 10:00. Hmm… hey look back yesterday. Half past day there were some selling from 1+% down to -1%. Shorting could have already started (Damn I didn’t hedge in any ways!)

As of now 12:03pm, Euro markets have closed, so the DJI and S&P500 are on their own, which is recovering slightly.

On my portfolios

Without the pics here. Snapshots will only be put up every 1 or 3 months hmm..

HPQ and IVR were cut. Only small losses were hit. As of now I’m down 1.9% overall, while the S&P500 is at its -3.8%.

End* Happy sleeping.

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What a crash. I haven’t seen something like this thru my trading life, because I started after the 2009 Lehman brothers crash. My Portfolio took a hit, unhedged, and some losses were inevitably taken, portfolios readjusted.

Keep it short, some points to note, things learned, actions taken:

- Vix Shot above 25.

In my style of investing, anytime when VIX goes above 25, I have to cut the volatile stocks, keep some cash, and neutralize some beta of my portfolio by being short some stuff or the S&P500 Index.

- Credit downgrade of US Treasuries.

Before the actual announcement, somewhere near end of July, there were already news that mention some US Bonds might default. And it was getting serious because politics were involved. I started to readjust All Funds that contain that bit of US treasuries, especially those from PIMCO HIGH INCOME Fund and some others. Losses taken here

- Big volatile day movement of 5%, up or down.

I had been playing around with Options Trading and strategies, and I would agree with those Futures traders and why people trade Futures, such as the ES Mini ?S&P500 contracts. Some disadvantages of Options during Volatile times:

• Costly – More trades or higher quantity means more Fees
• Complex – Here are many factors that affects its pricing. (Demand/Supply)
• Spread – Yes, this is one other factor. You might be right… but
• Time decay – This also affects too.

- Markets are interconnected – Time to move to Futures

And as you all know, there are so many markets and Index trading around the globe, from Nikkei 225, Hang Seng, to UK’s FTSE and Stoxx, and to S&P500. I don’t want to complicate with Commodities and Metals. With the advantages of Futures trading (you will know the differences between Equities /Options / Futures if you trade long enough) and the ability to go long and short cleanly, it is really a overall Huge market. Time to move a part of my strategy to Futures trading, but hedging comes first as priority.

- Portfolio Adjustments

With the cutting of treasuries funds, money was allocated to REIT (after the even extended time for low Fed rates). Corporate debts were also cut, since it is more logical for companies to borrow from banks instead from Wall St. Some late Night Shopping was done, Stocks I wanted to own 6 months ago are now inside my Portfolio thanks to a verb called “Patience”. I have also doubled down on some World / Asian Equities, and since the rebound, they are almost back to the green . Some Funds were also allocated to Foreign Government Bonds too as my safe Haven.

- Currency Hedging

I also took this time to add a new “feature” as I have using SGD (Sing Dollars) to trade the US Exchange, hence I need to convert to USD. For every 10k I have converted, I’ll be hedging 10k worth of Shorts USD / Long SGD, to take away this currency Risk. This will be managed by Spot FX.

- Losses

I’ve taken about only 2% of losses at equities, but close to 7% for derivatives. having realize this, I am a level up on the use of Options, its Leveraged power, and its disadvantages.

This is a snapshot of my portfolio as of 16 August, the day after Google bought Motorola for 12Bn.

Manage money online trading Portfolio 16 aug 2011

This was taken from Google Finance, since my Equity Portfolio can be easily manage while I concentrate on other Strategies. Perhaps this will be updated every quarter

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I have switched from Alpha measuring metrics to Sharpe Ratio for my portfolio. Hopefully this would help me adjust my risk according to my returns, and measure my performance peg against other mutual/hedge funds.

How to calculate Sharpe Ratio:

1. Use Excel
2. Use a professional software
3. Get a professional Fund Administration services Company

The obvious is to use Option 1.

The formula is as shown:

Average daily / monthly PnL returns % – 3/6/12 months Treasury Risk free rates

___________________________________________________________

Standard Deviation of Average daily / monthly PnL returns %

Ok, enough of the jokingly display of serious stuff here but in essence(with Excel formula):

(AVERAGE(A1:A10) – 0.0007) / STDEV (A1:A10)

If A1:A10 is the AUM PnL returns based on either in Days or Months, and the Risk free rates for 3 months is 0.07%, then this formula would apply.

With my Daily AUM updated base on the actual value of my portfolio (After using margin/leverage, negative cash, the actual value, realized/not realized) from my Brokers daily reports, I am able to record down the daily movements. With these data, I simply plug the figure into my excel spread sheets, using opening and closing AUM to get the daily PnL %, to calculate the monthly Sharpe ratio, Monthly PnL, Cumulative PnL% and even Annualized Figures. With these daily I’ll introduced another metric called Impact Ratio:

How to calculate Impact Ratio:

Another important metric introduced was the Impact ratio. Since I do trade “often” perhaps 10-50 trades a month with good movements and volatility or opportunities, or just simply 2 trades a month, the Impact Ratio measure how fast (slow) / how volatile you took to realized profits (loss).

1) Take each day’s Closing AUM and deduct the Opening AUM
2) Derive how much PnL made for the day, be it realized or unrealized.
3) Derive a daily data for a month of profits and losses.
4) Sum up all daily Profits for the month
5) Sum up all daily Losses for the month
6) Take the profits over losses. That will be your Impact Ratio

The reason to use this ratio is calculate how well you manage your portfolio’s profits and losses. Obviously if its a negative value, you may be experiencing a bad month, and a higher negative value means you are “slow” to stop the bleeding or “volatile” loss for the month.

Say your End of Month Impact Ratio is 2, which comes from having $2000 / $1000. This data would  be better off than another portfolio say Impact Ratio 1.5, with a $150/$100. The latter has lower Impact Ratio (Worst) than the former (Better), with its total Profits over losses for the entire trading days much lower.

Now say we combine the Sharpe Ratio and Impact Ratio, and what do we have ? With the exam of $2000/$1000, and $130/$100, we never know how Example 1 obtained the profits of $2000 and a loss of $1000, versus the 130/100.

Simply by using Sharpe Ratio, we can determine the rewards with risk in 2000/1000, and one with 150/100. Maybe the 2000/1000 was obtain with great risk. Maybe the 150/100 had too little risk to reward.

Summary:

By combining my other metrics such as calculating Monthly PnL, Trade % wins, replacing the old Alpha calculation with Sharpe Ratio and Impact Ratio, I hope to measure and improve my portfolio performance any, of course, my skill in managing investments and portfolios.

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This is my P&L for 2010, fund performance since March 2010. My strategies incepted during May/June 2010, but I am still experimenting with a few strategies and in the process of refining them.

2010 Performance (PrestoHedge Income + PrestoHedge Risk)

Total Assets for 2010: $15888
Total Realized Profit/Loss: -643
Total % Profit/Loss: -6.24% (accumulated monthly)
S&P500 Returns: 11.29% (accumulated monthly)
Beta: 0.8-0.9
Total Alpha: -17.62% (accumulated monthly)

Average for 2010

Total Assets for 2010: $15888
Total Realized Profit/Loss: -643
2010 PnL%: -4.04%
S&P500 %: 7%
Average Alpha: -11.04%

Summary of current Strategies in each fund:
Prestohedge Risk
-Relative Value
-Global Macro
-Long/Short

Prestohedge Income
-Fund of Funds
-Income Funds

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This has been the result of a few months of work, defining and refining my models and trading style, and ultimately seeking to have returns of investments. All the learning over the last 2 years has been paid off, while my small little seed starts to grow, perhaps just a minority.

I am introducing my new fund, just to demonstrate the proven record, rather than to keep it secret. The fund name – MezzoFort Diversified Income Fund.

This is the fund’s description: The fund focuses on building high income and yield for investors and such. It seeks to return a huge 0.5% returns per month, that equates to 6% per year, irregardless of the investors entry and exit points. The fund diversifies to a few highest paying industry, including REIT, Energy and other high cash flow funds of funds, with its our own unique investment selection and strategy

Currently its NAV is a small $900, I hope to grow it till $15,000 by the end of year 2010. As the description claims, the strategy has more or less been fixed and locked like this. Very few trades are done, while the ROI has to be maintained. The aim is to have a stable yet income giving, so as to meet the objectives of 1) Yielding higher than bank interest rates, 2) Allows investors to invest without the need for long term lock ups (which is what I hate most)

This fund will have its strategy separated from one of my other fund, that will be introduced later. That will be completely opposed of this, and it will be described in details further.

My blog will start to post its Monthly Performance of this fund, while keeping the positions undisclosed. I will not disclose any positions or strategies included here on this blog, but the build up of these funds requires some of the skills discussed here.

More details of this fund will be written as a fund fact sheet, soon.

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I was trying out the models developed by hedge funds, their strategies and portfolio management style. Applying their model onto my fund was already a challenging task, since I am a one-man resource.

Then I started thinking of measuring my performance. As a common phrase, you can’t manage and improve what you cannot measure. So I started to look at measurement metrics, and after going through tons of hedge fund books, I’ve found the term “Alpha” which also signify how well a fund perform in returns. It is also how the website Seekingalpha.com got its name after. ( And thanks to the book “The Quants” for giving me such knowledge.)

Now the main aim of the fund is to seek positive Alpha, and with a good Alpha, a fund manager can demand higher management fees ie. 1.5%, 2%per year of the total invested Capital. Well, getting better at Alpha remains a Mystery (kudos to Citadel who has the answers)

Now just how do we calculate Alpha ?

We need a few inputs, this gets a little mathematical~

- Returns / Gain in %
- Interest rates in %
- S&P500 returns in % (YTD, Monthly, quarterly etc) and depending on what index you want to – bench mark with
- Overall portfolio beta in value

To calculate returns %
Take your realized profits minus starting capital to percentage points. (since the date you want to measure)

To get interest rates %
Simply look at the Fed rates.

To get Index Returns %
Take the up to date value over the starting index, to percentage points. (since the date you want to measure)

To get Overall Beta in value
Browse at finance.google.com and get its beta for each and individual stock, add all of them up and average them out.

And heres the formula:
Alpha = Return% – Interest rates% – (S&P500% * 2)

Eg:
- Returns = 24%
- Interest rates = 2.0%
- S&P500 returns 12%
- Beta = 0.78%

Alpha = 24% – 2% – (12*0.78)
= 22% – 9.36%
= 12.64 %

Walla, your total Alpha to this date for your fund is 12.4%, and you can mostly charge your clients a good management fees if you can generate this returns over any market conditions.

Another example:
- Returns = 4%
- Interest rates = 1.0%
- S&P500 returns -9%
- Beta = 1.4%

Alpha = 4% – 1% – (-9*1.4)
= 3% – (-12.6%)
= 15.6 %

Wow not bad if your fund is able to get a 4% returns when the markets dropped a huge 9%.

Hope your calculate your own portfolio’s Alpha and compare it with the professionals!

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Managemoneyonline.com is a website, a blog that I have created to write down my ideas and experience I have encountered. These serve as a track record for me and myself and for everyone else to learn. Trading and investments is a difficult tasks.

I lost quite a few grands, about $9,000 for my first year of noobish trading. That was after the 2008 financial crisis and it was some bull run to 2010, but I still lost. While I am trying to learn “everything”, yes you heard it, everything about trading and investments, I will jot down some of my experiences, and strategies as well.

Well the main key words for this site, manage money, already tells you that I am all about managing money. Afterall, no matter how daring and how much risk profile you want to take, Wall street, or the stocks market is just a random reactions of ups and downs. No repeated patterns no nothing, because if there is, even a 3 year old kid could understand.

With that bad experience, I’ve went deeper and deeper into this art or science. On the second year of my trading, I started building a small portfolio, instead of blindly trading. Reading up and understanding even more detailed into investment banks, financial institutions and hedge funds, I wanted to do what the big guys are doing.

While I go about managing my small little portfolio, hoping to beat the market and growing equity, by measuring my performance with the general market / hedge funds. With strategies such as statistical arbitrage, law of one price, portfolio rebalancing and management, risk management, long/short equities, high income stocks and dividends, and other strategies that I’ve tried, this is the outcome of a true results of a trader who trades his own personal account.

I hope I am able to grow my own funds through this never ending, tiring process of seeking The Truth, the Alpha.

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