Decade of Daddy Mirror Fund™ Bi-weekly Report

Decade of Daddy Mirror Fund™ Bi-weekly Report

Things have stablized in our Mirror Fund. The US$ is still helping us out, as is the market’s view that there has been a real change in the credit backdrop at Goldman Sachs (GS:NYSE). Even then, our Decade of Daddy Mirror Fund™ (see launch in post “Decade of Daddy Mirror Fund” July 2-08) is still below the $40 million Mendoza line.

In the Mirror Fund, we’ve made money in (original currency):

Bank of Montreal (+13%), Bristol Myers (+6%), and Goldman Sachs 2037 Subdebt (+37%).

Since the fund began we’ve locked in our profits on BMO ($775k, plus $87.5k divi), CIBC ($242k), Merrill Lynch ($799k) and Teranet ($307k plus distributions) as you’ve read in prior reports.

In the red column (original currency):

BCE (-29%), BNS (-25%), Berkshire Hathaway (-29%), CDN Oil Sands Trust (-56%), Duke Energy (-11%), Eli Lilly (-17%), JPM (-15%), Merck (-25%); MKS (-22%), Royal Bank (-6%), Spectra Energy (-22%) and Thomson Reuters (-13%).

Since we launched the mirror fund on Canada Day, the Dow Jones Index is down 2,640 points from the level of 11,382 — or 23.2%. Our Decade of Daddy Mirror Fund is down 2.8% during the same timeframe with a value of $38.907 million (including dividends and currency moves). With more than half of the portfolio trading in US$, the 1.17 currency has certainly masked most of our paper losses on the U.S. stocks.

Terence Kevin O’Leary and his asset-gathering team at the real Decade of Daddy Fund™ continue to suffer from the difficult global equity markets via their O’Leary Global Equity Income Fund (OGE-UN:TSX). The net asset value (”NAV”) has bounced around since our last report (see prior post “Decade of Daddy Mirror Fund™ Monthly Report” December 20-08), and now sits at $8.64, as compared to the June $12 IPO price. One can’t forget that it pays $0.05 in distributions each month, but the dividends the fund was to receive from its investments was to mitigate much of that cash drain….

With the NAV now at $8.64, that’s a 28% decline from the launch date. As has been mentioned in the past, the decline has nicely tracked the Dow Jones over the same time period (-23.2%). There’s a 92.6% correlation between the NAV and the Dow between August 29, 2008 and yesterday’s close. The remarkable correlation of KO’s (as his friends call him) OGE fund to the Dow Jones 30 isn’t quite as remarkable as it was in November; dropping from 97.2% to 93%. But the NAV is still tracking one of the world’s great benchmarks with surprising resilience.

Retail investors had finally noticed the drop in the NAV, as the publicly traded units themselves sold off with some haste prior to the end of the tax year. Sinking from $11.24 (our November report) to $8.18 (last report), but they’ve rallied back to $9.45. A 16% jump in two weeks, despite the NAV climbing just 4%; logic is defied.

In related news, KO resigned his only unaffiliated public board on December 19th (EnGlobe {EG:TSX}), presumably so that he could focus all of his efforts on the weak performance of the Decade of Daddy Fund™. And the TV stuff. On the very next business day (Dec. 22nd), EnGlobe shares saw their largest trade of 2008 — albeit at 3 cents — presumably as KO took the $150k tax loss on his 300,000 EG shares. His second year end EnGlobe tax loss trade in the past three years. Ouch.

I guess losses can happen to the best of us.

MRM
(disclosure – this post, like all blogs, is an Opinion Piece; we own BCE, BMO, BNS, COS, MKX and GS sub debt in our household)