Lobo's Investment

Let X be the daily fund price of a specific fund and E the expected return. The expected daily return can be calculated by E/N, where N is the no. of trading days in a year. For simplicity, I use Alpha, the 1st regression coefficient for E.

A centered random variable can be constructed by

dX - Alpha/N

From geometric point of view, the correlation coefficient can calculated from the dot product of the two vectors drawn from the two random variables. If a portfolio with a number of funds with net zero vector sum is found, that would be something that can produce a very steady growth.

This week, I am reading the Annual Reports from various fund houses. I found something interesting. The fund size of the New Energy fund increased from 16M in '03 to 2633M in '06, i.e. 165 times. At the very beginning, I bought this fund just because they're holding some very interesting companies such as American Superconductor. As the fund size increased so much, I am afraid that they can hardly find more companies on exciting new energy technology, the theme would be forced towards companies on renewable enegy. Thus, I expect lower return.

Also, good sign shows in financials sector, I should incease the exposure there. As the emerging market funds I hold generally have below average breakdown in financials, in order to have an overall 30% of financials in my portfoiloI better consider adding 5-10 percent for a financial sector fund.

The Natural Gas dropped 60% this year. This leads to failure of Amaranth hedge who bet on the up side of Natural Gas.

South African Rand dropped 18% this year. The Gold price still looks good.


Currencies of countries that export natural resources like South Afrian, Eastern Europe and Latin American have to be closely watched. This situation may attract speculations. The debt in emerging markets have to be watched too. Should there be any sign of difficulties to roll over their debt, storm may be comming.