Out Fox The $treet

Once again, the Opportunistic Levered (Arbitrage) model is at the top of the list on the homepage at Covestor. The model as had a fantastic 90 days and especially 30 days as growth stocks come back into favor. Please contact Covestor directly about investing in this model. It requires only a minimal $10K investment and a margin account at Interactive Brokers. Or please let me know directly if you have any questions.

This model lost a disappointing 6.6% in July versus a 1.3% gain for the benchmark S&P 500. This model typical outpaces the major indices by a large margin in up periods so the last month was a major exception. Since the end of 2011, this model has been running on the theme that the majority of stocks would retrace the losses experienced since the July 2011 levels. In essence, our theory all along has been any losses since that time period were from irrational fear of a second financial collapse that the Europeans were unlikely to allow. Naturally this fluctuates on a case by case basis where any individual stock could move a lot higher or lower depending on circumstances since then. Unfortunately this theory took a major hit as investors piled into dividend paying stocks sending most major indices back close to 2012 highs while at the same time selling the higher risk, global growth stocks. In some cases, stocks actually hit new 52 week lows recently. T...

This model lost a disappointing 5.8% in March versus a 3.1% gain for the benchmark S&P 500. This model typical outpaces the major indices by a large margin in up periods so the last month was a major exception. Since the end of 2011, this model has been running on the theme that the majority of stocks would retrace the losses experienced since the July 2011 levels. In essence, our theory all along has been any losses since that time period were from irrational fear of a second financial collapse that the Europeans were unlikely to allow. Naturally this fluctuates on a case by case basis where any individual stock could move a lot higher or lower depending on circumstances since then. Unfortunately this theory took a major turn in March as investors piled into dividend paying stocks sending most major indices higher while at the same time selling the higher risk, global growth stocks. In some cases, it was just a small reversal of the gains from the last couple of ...

This model gained a solid 21.4% in February versus 4.1% for the benchmark S&P 500. This model typical outpaces the major indices by a large margin in up periods and last month was no exception. Since the end of 2011, this model has been running on the theme that the majority of stocks would retrace the losses experienced since the July 2011 levels. In essence, our theory all along has been any losses since that time period were from irrational fear of a second financial collapse that the Europeans were unlikely to allow. Naturally this fluctuates on a case by case basis where any individual stock could move a lot higher or lower depending on circumstances since then. This conviction has allowed us to hold onto a highly leveraged portfolio and see significant gains this year as stocks like Apple (AAPL) , Dicks Sporting Goods (DKS) , Liz Claiborne (LIZ) , and Radware (RDWR) all reached those July levels by February. Other stocks like Manitowoc (MTW), Sears Hold...

After a bad 2011, this year got off to a fantastic start with the model seeing a 25% gain in January easily outperforming the 4.4% gain for the S&P500. The model spent most of the month accumulating cheap stocks in order to take advantage of the market rallying against the proverbial 'wall of worry'. January was an interesting month with stocks rising even in the face of what appeared like continued negative news out of Europe. With the continued focus on Greece, most investors stayed out of the stock market and missed that yields on Italian and Spanish bonds saw dramatic declines. The ability to isolate the problems to Greece and Portugal to a lessor extent were a big relief to a market pricing in a European blowup in December. In addition, the decline in emerging markets inflation was a big benefit to the under performing stock class in the new year. Specifically fast growing countries like China and India saw multi year lows in inflation rates allowing monetary polic...

After a strong 2009 and 2010, 2011 was a year to forget for this portfolio. The market hit highs around the end of April and this model was soaring to new heights at the time. Many of the holdings had valuations nowhere near the 2007/08 peaks or even close to what would normally be considered rich. Regardless, leverage was reduced since some gains were significant. Then, unfortunately most of the stocks collapsed and even in a few cases approached 2009 lows. With too much leverage left, the model was hit very hard. The good news is that valuations started the year as attractive as during the financial collapse of 2009. 2012 Outlook Portfolio Construction The portfolio remains overweight on the global growth theme. Most of the stocks in this sector trade as if emerging markets are headed towards a recession instead of continued growth. The biggest challenge to our investment strategy in 2011 was the major inflation fears in emerging markets like China, India, and Brazil. As 201...

October was an exceptional month with a 47.9% gain versus the 10.8% gain for the benchmark leading to a 37.1% outperformance. Unfortunately, this was only a small recovery from the July, August and September selloff. With many stocks in the model still trading far below the July highs, substantial upside remains just to recapture those levels. Though global GDP growth came under pressure during the summer and fall months, US corporations are reporting record profits. The yield curve remains very positive suggesting an attractive environment exists for equities. On a daily basis, it's becoming more apparent that the summer swoon was more of investor panic than a economic reason suggesting a return to even the April and May highs of 1,370 on the S&P 500 is probably warranted. China remains a key focus of the model. While investments in China based stocks have been greatly reduced, the model still relies heavily on the demand for materials and construction related items coming...

The best thing about the 3rd quarter is that it finally ended. The global growth stocks in this model were absolutely crushed while large cap dividend stocks held up much better than in 2008. This led the model to seriously underperform the benchmark. The good news is that many stocks in the model such as Alpha Natural Resources (ANR), Foster Wheeler (FWLT), Hartford Financial (HIG), and Terex (TEX) reached levels similar and as attractive as the 2009 lows. Considering most of the companies have seen little to no impact from the financial crisis in Europe, the sell off was unwarranted. The bad news is that risk still remains that the European Union will be unable to solve the crisis before it implodes or that China's economy might have a much feared hard landing. A good chance exists that the market has already priced in either outcomes. Being that the model remains highly leveraged in order to take advantage of the cheap valuations, the risk of more downside can not be ignored...

The Opportunistic Levered (Arbitrage on Covestor.com) model had another rough month. The model was again hit by fraud concerns among Chinese companies and emerging markets stocks fell due to concerns over inflation pulling down growth. Over the 29 months of tracking this model, it has had numerous months of 10% plus swings. Unfortunately some cases were to the downside. In those cases the stock holdings just got more attractive in the process. Even with China fraud scares, the three stocks owned in this model still appear to be worth more than our original purchase prices not to mention multiples of that. The size of declines in some of the stocks in this model caught us off guard. It didn't surprise us that June was weak, but the level of weakness in several sectors such as industrials and emerging markets such as China caught us off guard. Bottom Performers The bottom performers were again lead by the China stocks in the model. ChinaCache International (CCIH) and Lihua Int...

May was a very rough month for the Opportunistic Levered model. It severely underperformed the market as China specifically and emerging growth stocks in general were hit much harder than the overall market. This trend will likely continue into June, but eventually will provide great upside potential as most of the stocks in these areas remain extremely cheap. Expanded Track Record Recently the track record was expanded back to January 30, 2009 adding a little over a year to the previous record. As one can see, the model can be very volatile, but the end result has been very good for anybody that remains invested. Sometimes an investor has to accept wild price swings in order to make long term gains. It is not uncommon for top stocks to drop more than 25% before eventually rebounding to higher prices. At times it can be worthwhile to cash out to avoid losses such as the recent sell of Limelight Networks (LLNW). The sell limited losses without incurring material capital gains impacts...

*Note this investment report specifically outlines the trades and returns of the Opportunistic Arbitrage model on Covestor.com though the results will be similar to anybody invested directly with Stone Fox Capital using the Opportunistic Levered portfolio.  This model had a difficult month as it underperformed the SP500 by a disappointing margin (-1.6% versus 2.85%). The model was hit very hard from concerns over Chinese stocks and specifically the fraud allegation against Puda Coal (PUDA). PUDA contributed nearly 3% to the underperformance and along with the other Chinese stocks in the model contributed the majority of the disappointment. Most other stocks and sectors performed well. China Concerns abounded over Chinese Reverse Mergers including the two such stocks held in the model: PUDA and Lihua International (LIWA). Allegations surfaced (See  blog post ) during the month that led to a 51% decline in the stock price of PUDA and the halting of the stock. An investigation...

After a disappointing January, February was a welcome return to outperforming the market. The model returned 6.17% versus the 3.2% of the SP500. The market remained strong even in the face of Middle East turmoil and continuous calls that the market is overbought. Certainly the returns have been strong since the beginning of September, but a review of the first year of this model and market has only gained roughly 20% over that time period. While thats a great return for the 13 month life of this model, it isn't anything excessive considering the massive market drop during the financial crisis. Also investors need to consider that corporate profits are returning to the peak levels of 2007 all while the SP500 is still some 250 points below the all time high of 1,576. In that context the market appears cheap and has plenty of room to run. Definitely cognizant that the market needs a breather or even a minor 5% or so correction. Though market participants need to understand that a 10...