Better late than never, as they say. I hope “they” are right in this instance.

The Fusion Investing Portfolio just bought 60,000 shares in Biota Holding Ltd (ASX:BTA) at $1.58. Due to the near term risks associated with GSK announcing Relenza sales on 22 July and Daiichi Sankyo announcing LANI results within weeks the fund is buying a half position.

The GSK Relenza announcement could disappoint the market after the stunning Q1 result. However, if that occurs it may result in a short term buying opportunity as the medium term sales of Relenza should be very strong. One of the few things I am sure about is that I have no idea how the market will react to either the GSK Relenza or LANI results. The Relenza results may disappoint as GSK only had around 6M courses available and limited manufacturing capacity.  I’ll be most focused on what GSK say about future capacity.

LANI. I treat this as a free call embedded within Biota. The market is not currently fairly valuing Biota’s probable Relenza income stream, let alone ascribing any value to LANI. Though as I said I have no idea how the market will react if LANI results are bad. If they’re good I’d imagine a good bump for Biota.

More analysis and commentary on Biota.
More on Fusion Investing Portfolio.

Disclosure: I own Biota in a couple different accounts. My cost price is around $0.40 and my initial sell price was $1.80. My new target price is considerably higher, but that could change over the next few weeks.

The Fusion Fund has applied for a full $15k allocation to the ANZ share purchase plan.

I will write more about this later, but if anyone still wants to apply you have a little under one hour to get to 380 Bourke St, Melbourne with your application and cheque. Make sure you have it in a letter with a stamp, as theat is the GPO Box location and you’ll be posting it over the counter.

More later on as I relay the trials and tribuations of how I made $1875 in an hour.
[Here is the story.]

Key Dates for 2009

Full Year 2009 Results Announcement           Thursday, 29 October
Ex-date for Final Dividend                                     Thursday, 5 November
Record date for Final Dividend                            Wednesday, 11 November
Payment date for Final Dividend                         Friday, 18 December
2009 Annual General Meeting                             Friday, 18 December (Melbourne)

ANZ Share Purchase Plan Offer Timetable

Allotment Date                                                          Monday 13 July
Quotation of new shares on ASX                       14 July

I continue to monitor the Fusion Fund, but it is certainly not front and foremost in my thinking. Last year I realised I had taken on a lot of new activities and they were taking my attention away from what I should be doing. So I jettisoned numerous activities, put overs on hold and relegated a few more to the ticking over pile. The Fusion Fund sits in the ticking over pile and for the most part that’s fine. I set it up to show that 100% invested buy and hold investing was a poor excuse for an investment strategy and frankly that doesn’t take much work. See this post for more on the falacy of 100% invested. 

I’m also not a fan of high turn over investing. While that may work for some people it’s not my style. I like to make fewer better decisions. Yes I have a lot of room to improve on the better part

Better late than never, goes the procrastinators favourite saying. Those who know me, know I’m more of a just do it or make it so type of guy (hence why averaging is useful to curb my impetuousness), so it annoys me to think how I should have sold this position as soon as I found out the real nature of Ultra Funds.  It’s all OK though as it’s better late than never. (Heavy sarcasm)

Ultra Funds should only be used for short term investments, measured in days. Due to volatility these funds do not return the expected two times performance over longer periods . Quelle bummer!

The Fusion Investing Fund is selling it’s full position in ProFunds UltraBull Inv (ULPIX) at Monday’s close. The fund bought 400 shares on 27 Oct 08 at $21.40, they closed on Friday at $20.63, down 3.6% from our buy point. Though once the appreciating AUD is taken into account the loss is 22.5% as of Friday. Once again I say quelle bummer!

You learn more from your losers than your winners so it’s time to dig deeper into this trade.

First up let’s look at the buy report. Bugger I didn’t say much then and I didn’t post that follow up report. Though I did find some other good/fun posts from last October:

• The Bear is Dead – Long Live the Bull
• Investing is Simple – Start Buying

Getting back to ULPIX. I could swear I posted that the main reason for the trade was to decrease the funds exposure to the USD. I sold $168k of SPY and bought $86k of the ULPIX. My simplistic and flawed thinking was I was maintaining the same exposure to the S&P500, but halving our exposure to USD. Plus taking money off the table to use for averaging in as discussed in The Bear is Dead – Long Live the Bull. If only I’d had the conviction to sell USD. Oh wait I did, and fortunately that was in our real money account. Unfortunately I did not know the volatility curse of Ultra funds. It was especially unfortunate as I also bought ULPIX in our real portfolio, though my averaging philosophy limited the damage there, I also only made the one buy of ULPIX in a real account.

The S&P500 closed at 848.92 on Monday 27th Oct and 882.88 on Friday. So while it was up 4%, ULPIX was down 3.6%. Compared to some of the other Ultra returns I’ve seen I guess I shoudl consider myself fortunate that the result wasn’t worse.

Now let’s compare it to doing nothing, i.e. if I had of stayed put in SPY. On Friday it closed at 88.71 up 5.7% from its Oct 27 close of 83.95. Then there are dividends.

and for ULPIX the dividend was a miserly $0.165098. 

First let’s look at a simple adjusted close comparision

Adjusted Open Close

So invested in ULPIX compared to SPY over five month time frame resulted in a 10% negative difference. Ouch!

However, we did have that extra cash earning interest and less exposure to USD. The bottom line is the SPY performed better on a percentage basis, but my swap to ULPIX performed better on a totally adjusted cash basis, i.e. a real return basis including interest, dividends and currency. As I always say you can’t eat percentages; the fund was better off swapping to ULPIX to the tune of $9,254. However, on a real basis the trade lost $26,779, as of Friday.  

Good idea poor execution on flawed knowledge.

Summary of Lessons Learnt

• Ultra funds are only for very short term trades, so not for me.
• Reducing currency risk doesn’t hedge risk and it certainly does not totally remove risk. Next time I have a strong opinion about currency exposure I should so something about it. 
• Averaging in to positions can save your bacon.

Why Trade Now

• ULPIX is a short term instrument and I should have closed it when I became aware of that. I am finally taking overdue action.
• The AUD has had a strong move off the bottom, but could still run a further. Selling ULPIX further reduces our exposure to falling USD. I don’t currently have a strong opinion on the direction of AUD:USD, but may consider taking a currency position to cover the rest of the funds exposure. 
• I am not concerned about having more cash and less equity exposure. I currently consider it mildly positive. That is not a reason to trade, just a view on the outcome of the trade. 

More on Fusion Investing Portfolio
More on leveraged funds

[Update: ULPIX Sold at market close on Monday for $21.86 for a 2.1% gain on a USD basis (without dividend). With AUD rising to 0.7658 (still waiting eod price) the loss on an currency adjusted basis is 19.1% or $26,963 (excluding dividends and interest earned). Including dividends and interest as per the above calculation for comparision to holding SPY the loss narrowed to 18,425 or -13% .] 

I seldom comment on my actual trades, but in a moment of stupidity* I did today on a discussion board. So I may as well repeat it here.
I got up very early today so I could shuffle some deck chairs around on the Titanic, otherwise known as my portfolio. FWIW which is zero, I sold half of my largest position, CVTX, and pumped that into GE and FACT plus I held some cash back to support selling Puts on LUK.

Another poster explained why he had sold all his shares in this post of the day and I thought we must be getting close to the bottom. Even if not, I like to stick to my knitting of selling fairly/overvalued companies and buying undervalued.

After posting I wondered where the deck chairs phrase originated. I’m still not positive, but did get a laugh out of this joke Stephen Colbert made on the 2006 White House Correspondents’ Dinner.

Some people say changing the cabinet around is like rearranging the deck chairs on the Titanic. That’s not true; this administration isn’t sinking. In fact, this administration is soaring; if anything, it’s like rearranging the deck chairs on the Hindenburg.

Some quick notes on my transactions. CVTX is up big time for me and fairly valued in an undervalued world. The CV Therapeutics board continue to reject Astellas Pharma’s $16 offer, without even discussing it with Astellas. I find it incredibly difficult to believe that CVT board is acting in my best interest. Astellas said it best in this statement

“We are disappointed that CV Therapeutics’ Board has rejected our all cash proposal and did not engage us in any discussions as part of their review of our proposal. We continue to believe that our proposal provides CV Therapeutics’ stockholders excellent immediate value that exceeds what the company could reasonably expect to deliver through their standalone strategy. We remain committed to a transaction with CV Therapeutics, and while our desire continues to be to work together to negotiate a mutually agreeable transaction, we are considering all the options that are available to us to move our offer forward.”

I outlined yesterday why I was looking at Facet, FACT, and have taken a starter position. I bought in with a double in mind. I’ve had a good look at their pipeline since posting and I did not buy for the pipeline. Their lead compound is for MS which is a notoriously hard to crack. The rest of the pipeline are early stage cancer compounds, which aren’t worth much. Who doesn’t have some early stage cancer compounds lying around! 

I am skeptical of doubling down, so I quadrupled down on GE instead! Seriously I am not a fan of doubling down, but I only ever took a tiny position in GE to help me focus on the story. Which come to think of it I’m also not a fan of. Let’s see if breaking two rules cancels each other out or invites disaster.   

In this absolutely brilliant post on a question and answer session with Warren Buffet, the following joking allusion to GE being undervalued made me dig deeper.

In a joking reference to being hard of hearing, Buffett said he recently told Charlie Munger: “Charlie, we should buy GE at 11.” No response. Moving closer, Buffett said once again, “Charlie, we should buy GE at 11.” Again, no response. Finally, Buffett moved up close and shouted in Charlie’s ear. “Charlie, we should buy GE at 11!”
Charlie turned to him and said, “For the third time, Warren, YES.”

Lastly, still on the rearranging the deck chairs theme I present to you my lunch. Mount Zero Olives, Meredith Goats Cheese and salad greens from my garden (rocket and two types of lettuce). I saw a naturopath yesterday and apparently I have a leaky gut. So it’s time for a change. She wouldn’t believe me that I seldom felt cold or tired and prescribed a boat load of nutrients plus a substantial change in my diet, hence the salad. Now I worried that I’m going to be a super charged, super heated, super freak. Fortunately I like most of the food she recommended, but come on I’m a guy and that is not lunch! 

* I believe talking about your trades, even to friends, effects the trade. It adds an unnecessary psychological pressure, with absolutely no upside.

The Fusion Investment Portfolio will sell it’s full QQQQ position at US market close today and buy the Australian market at open via the ETF STW.AX.

The Portfolio is currently outperforming the ASX200 by 17.1%.

I have just bought Suntech in a personal account and Fusion Portfolio will buy 3000 shares at the same price of $9.96. Earnings are out in two days on Thursday, my preview is here. I had butterflies in my stomach when placing the order and realise that current investor and sentiment will pound STP if they have a substantial miss or negative guidance. This investment has a 1-3year horizon, a short term investment for me.

Opportunity provided by a J.P. Morgan analyst who wrote in a note to clients. “As a result we believe 2008 reflects a peak in solar energy subsidization with risk of cuts going forward.” read more->

I will update the Fusion Portfolio soon. I have to insert the appropriate currency conversions. Time to get the kids ready for the day ahead. Have a great day everyone.

The Fusion Portfolio is making the following trade at today’s close of US markets, Monday 28th October.

Selling the portfolio’s entire position in SPY, 2000 shares.

Buying 4,000 ULPIX, Ultra Bull Fund.

Due to the continuing strength of the US dollar the portfolio will record only a small loss of around 5% on the SPY position. This compares to the almost 17% drop of the SPY and 14% fall on STW.AX, the Australian S&P ASX200 index.

I will be writing a full portfolio update at the end of the month and will include my reasons for the trade then, if not before.