At times, the market baffles even the best of analysts and managers, as irrational viewpoints lead to grossly distorted price swings in either direction. Investors went crazy over the dotcoms and ludicrous B-2-B stocks ten years ago, aided by rampant fraud by the accountants and auditors (can you say “Big 4”?) as well as an outrageous no-holds-barred promo campaign by the Wall Street IB hustlers. Most of those investors ended up with a pocketful of zeroes, and a stack of research reports that could be used as fireplace starters – or evidence in civil suits. The homebuilders and subprime/predatory mortgage originators made a huge move beginning six years ago, as Wall Street chose “don’t worry, be happy” as an investment theme, instead of “don’t you think we should have some minimum regulatory oversight when firms are creating trillions of bad paper?”

At the end of trading on Friday, March 20, 2009, the Best Portfolio is ahead of the benchmark S&P500 by 4.05% after only seven weeks of comparison. That is largely because our strategy of capturing option premiums as well as some dividends has boosted our performance in a tough market. We also got the benefit of the last two weeks’ surge in resource stocks, especially [[FCX]] and Quadra Mining, a couple of copper names with a gold kicker. We have nice gains in [[AMAT]], [[WFR]], [[BRCM]] and [[SVM]], a Canadian silver producer. All the rest of the Portfolio is either around even, down somewhat, or a resource stock.

We bought more [[STEI]] at $2.85 on 2/17/09, only to see it really get cracked the next day, and the one after, as bank stocks took a scary plunge amid the “nationalization” panic that has economic traditionalists quaking in their shoes. Let’s face the facts – we have definitely nationalized Citi (C) at this point, and have made serious bolstering moves in numerous other banks, despite their protestations of solvency. I sincerely hope we will kill the ludicrous mark-to-market nonsense, which doesn’t work in a non-market such as we have now. The banks are a ward of the state for now, like it or not!

It’s been an exciting week. Although the SP500 plunged around 5% due to poor earnings, the Best Portfolio gain for the first two weeks is still 5.95%, frankly much better than I expected in such a short time – but the market has been very kind to a number of our positions. The advance in resource stocks, plus the call premium and dividends earned, has enabled the portfolio to outperform the SP500 by a whopping 5.8% in just two weeks, which obviously is an outlier return. The Portfolio collected option premium on nine positions and also seven dividends accrued (went “Ex”) this week. See the Excel spread attached below.

Well, it looks as though our strategy is paying off very nicely. After just one week, the portfolio is sporting a large gain, and outperforming the SP500 by more than 3%. We have been filled on a total of nine covered call positions, and some of these are already in the money, so if the stocks hold up, we will lose these holdings temporarily at March expiry, but can be glad we made some quick money. I can’t tell you how many times I have had a 20% gain in a stock, held on for a bit more for a month or two, then seen it all disappear in a market slump. Whereas, if I had just written a covered call, the stock would have been taken away from me at a substantial profit, and become someone else’s problem.

Well, we had one very positive development, and one very negative one too!

First the bad news – Hecla Mining (HL), which has great silver properties in Idaho and Alaska managed by less-than-great executives, just did round two of its rescue-my-job financing package, which dropped the stock as much as 24% from Wednesday’s close, which was already off more than 10% from Tuesday! Nice job guys! While I knew a refi package was coming when I put the position in the portfolio, frankly I thought they could do way better than this deal, which seems to be a huge gift to the bankers at Canaccord.

Needless to say, this has been a very tough U.S. equity market on the long side. As January unfolded, I became convinced that we were shaping up for some great bargains in value stocks, and that the worst of the carnage for many sectors has passed. The purpose of my contribution is to help investors refocus on fundamentals, sound portfolio management practices, and making a profit from what I expect to be a choppy, fairly flat market that offers some excellent bargains for sharp investors. The inception of the portfolio that you see below is as of Jan 30, 2009 closing prices, when all positions are entered for the first time.