Green Investment

Most of us are not familiar with Terrence Laundry’s T-Theory, which is a method of analyzing general investment trends using a time symmetry property. It basically states that the duration over which investors can obtain “superior equity returns” will always be equal to the previous time period in which returns were subnormal. The practical purpose of the theory is to anticipate the runs of “superior returns”.

We uploaded our most recent quarterly client letter.

RMHI 2012 July client letter

RMHI is pleased to announce year to date returns as of June 30, 2012:

RMHI Moderate Growth +13.58%
RMHI Long Term Growth +19.35%
S&P 500 +8.4%

Results were derived from the proprietary RMHI investment model.  These results are not hypothetical but are real returns for RMHI accounts.

As always, returns are net of all fees and expenses.

I have sold all shares of Sun Healthcare for RMHI clients today at $8.40.  No sense taking any risk with the buyout at $8.50.  No further purchases at this time.  Yesterdays sell off killed a great deal of the momentum that could have led to a significant upside breakout for the markets.   We need another dose of time to let the markets heal.

Have a great weekend

Brad

I’ve been traveling the past two weeks and have made little posts in the intervening time period but this morning comes news worthy of sharing.

During the past two weeks market strength and stability began to reappear and I began reversing my cautious stance in favor of a more bullish profile.    Over the past three weeks I’ve added a handful of positions but the stock that ranked the highest in my most demanding and best performing model was Sun Healthcare symbol SUNH.

SUNH is an operator of nursing and rehabilitation hospitals and care facilities.

As of last night SUNH was our largest position in client portfolios with an average price in the range of $5 to $6 a share.  Today comes the news that Genesis Healthcare will buy Sun Healthcare for $8.50 a share, a whopping 43% premium to yesterdays closing price.

Wow

Long SUNH

We have coyote puppies.   A neighbor called us this morning informing us that on a part of our land that we don’t often see we have a pack of coyote puppies living in a culvert.   We took precautions this morning to make sure the pups were inaccessible to our Akbash on patrol.   They deserve their chance for a life and a night isn’t complete in the Rockies without the yipping and howling of coyotes at night.

Long Coyotes

Brad

Yesterday we finally got the break I’ve been looking for.  Markets had been levitating on declining momentum and borderline extreme optimism.   Keep in mind that market advances are fueled by constant wall of worry along with rising earnings expectations.

On the rising wall of worry, Rydex mutual fund investors had positioned themselves as extremely bullish and depleted their cash reserves which would have fueled the rally.

In addition Bank of America/Merrill Lynch and Goldman Sachs have reduced their 1q GDP expectations from 2% to 1.8%, implying slower growth.

While the seasons come and go….even here at 7000 feet with six months of Winter, Greece appears never ending.

And lastly, tensions between US and Iran.  If war does break out it could potentially introduce a new Black Swan event in the form of a stupendous spike in oil.  Such predictions for a spike in oil are very likely ludicrous but could $200 oil be possible?

Regardless, investment conditions for the time being are causing me to be very cautious and hedged (to protect existing holdings and first quarter gains).   We’ll be patient and wait for the fat pitch before taking any swings.  I’d like to see the pendulum of investor emotions to swing back to extremely cautious which would imply that many of the potential negatives would be factored into stock prices, which they certainly are not at the moment.

Long TWM

Just out is the ISI Hedge Fund Survey indicates that hedge funds are at their lowest net long position in 4 years!

This is a contrary indicator and means they’re going to be forced to buy into equities to keep up with the indices.   Its another source of fuel for the markets.

Thats a fair question and no, my name is not Green.   There are many methods of investment screening and our method is to eliminate from consideration any company that we deem to be negative to animals or the environment.  Granted most people would love to see portfolios filled so called Green stocks, but the problem is the risk is enormous …..see Solyndra or Evergreen Solar,  Many are start ups at best and most will be big losers.   When a  “green” stock shows up as a selection in our quantitative model we will use it if possible.   Please keep in mind that for all of our clients, preservation and growth of principal are our primary objectives and if that can come from the use of neutral or clean investments all the better.   Brad Pappas