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Monday, 22 December 2008


Dear all, your Chairman and Board are happy to report our best investment returns again this year as ever - despite remaining well diversified in terms of concentration risks and to maximise our market turbulence gains, with zero exposure at any time to the wrong side of price peaks, or to any bursting asset balloon bubbles. Our investment strategy is not that of Berkshire Hathaway's fundamental values, but always firmly based on market prices. This is never a straight line expectations business, always steadily up by stages before finally zigzagging down fast. Ours is a chairlift & super-G giant slalom strategy (Alpine). We made good money on shipping stocks and gold in '07 and first half '08, swapped out and then shorted commodity shippers after June. In line with our Madoff principle that if we cannot explain how we make our steady but excessive returns you should not invest with us, we are happy to explain this year's strategy. The signs that this could be our best year were clear in late 2007. We leveraged and borrowed heavily, doing everything experts have been telling everyone has been the ultimate cause of the credit crunch. We borrowed stock to short-sell financials and other predictable fallers. We sold the company's and our shareholders' art collections. We did not engage in any complex hedging strategies, relying instead on business confidence survey data for our main leading edge indicators. As you all know we sold all our property portfolio in 2006 except for what was leased out at fully secure long term rentals. We sold shares and bought US 10 year and longer maturity AAA bonds gaining 62%. On UK gilts we made 64%. In the first half we did carry trade deals, borrowing in Yen and depositing in Australia, making 75%. We also rode the MSCI BRIC Index and the MSCO World index, making 38% and 72% respectively. We continued to short the S&P making large gains on 90% of deals. We bought oil futures taking 50% profit at mid-year when we sold, recognising that this had peaked as soon as Goldman Sachs made a simple straight line trend prediction. It was obvious at that very moment that oil was bound to fall and the dollar would peak rapidly. We next sold oil short making over 70%. Our offshore operations remained strongly in cash, while onshore was heavily borrowed. Once the commodity and emerging markets bubbles looked fit to burst in the second half, we got out of foreign equities and shorted whatever the excellent US retail statistics told us to. Certain stocks remained good value, however, such as Tunisa, some Central Asian stocks and Far East stock temporarily based on news, and any stocks with smallest free-float like Volkswagon and Hermes, making over 100%. The easiest bets were shorting the S&P and the FTSE in the third, and into the fourth quarters. During the year with sterling clearly over-valued, we rode the dollar as funds fled back to it, making 28%, and then shifted into Euro for another 20% gain, before liquidating all positions and buy long dated treasuries for a quiet Christmas and to lock in our 500% aggregate gains for the year including a final 12% gain on shorting the dollar in recent days, having recognised that it would not cross the long term 90 resistence level. Thanks to our buying several large shareholdings in banks that we very successfully shorted (either with derivative puts or CFDs according to the rules prevailing at the time, and never holding or going short more than 1% of any stock, a healthy, and perfectly legal, market practise) we are happy to announce that we have purchased more tax loss than required to offset all tax liabilities for this year, and that our current tax account is therefore showing a large three digit percentage profit. We also have a raft of 3yr corporate bonds from solid blue-chips paying 9% and similar bond holdings with banks where the bonds are guaranteed by Government. I am happy to report that shareholders have voted their full confidence in the re-election of the full Board and a vote of thanks to our esteemed Chairman, everyone's favourite Bank Manager, Mr Gale Gordon. All that remains therefore is for Hindsight Investment Securities Inc. to wish you all a prosperous 2009 when we fully expect the beneficial investment climate to continue for at least the first three quarters much as we have enjoyed the same in 2008! The US recession is already 1 year old, the UK recession about 6 months and we expect both to last another 9 months, possibly 12! Staff and managers and any shareholders who have signed the new zero funds withdrawel and 100% profits reinvestment clauses are welcome to join us at the company chalets at Val d'Isere, Gstaad and Wengen.



from The Scotsman Newspaper: - Sandy Crombie pulled no punches in his verdict on the banking sector crisis. (22 Dec.2008 by Peter MacMahon, Business editor)
SANDY Crombie has delivered a withering verdict on the management of some of the country's crisis-hit banks, asserting that it was a "no brainer" that some would be "destroyed" by the freezing of the commercial money markets.
The chief executive of Standard Life claimed that if banking executives saw the credit crunch coming, there was no evidence they did anything to prevent its impact on their businesses. Although he did not name the institutions , Crombie's criticism will be seen as being aimed primarily at the management of HBOS, which has now been taken over by Lloyds, and Royal Bank of Scotland (RBS). However, the head of Standard Life also struck a positive note, maintaining that Scotland's reputation as a leading centre for financial services could survive the credit crunch. Crombie defended the Edinburgh-based insurance and pensions giant's recent record although he admitted that it had suffered "collateral damage" from the credit crunch. Its life and pensions sales were virtually flat at £12.4 billion in the nine months to the end of September and its shares have dipped in the last two weeks. Crombie said: "The stock markets have been driven by fear – fear of what could be lurking inside businesses that could damage them or destroy them, "Because of the way we have changed, we are not seen to be subject to the same risks, and the fears that the market has about other companies have not been had about us.." Making it clear that all business should take risks, Crombie said some banks were "almost entirely financed from the commercial markets". He added: "It would seem to be the case that those who were more reliant on the availability of these commercial money markets did not perceive there was a risk of them drying up. "They presumed that those markets would be there every day which, as has been seen, was not a valid assumption. So if the supply of money dries up, it is a complete no-brainer that some business models would be destroyed by that." He continued: "With perfect hindsight, people will say that people could have done better in preventing this. The simple fact is that there is no evidence, if anybody saw this coming, that they did anything significant to prevent it happening." Crombie, who, with the departure of Sir Fred Goodwin from RBS, will now be seen as the most influential figure in Scotland's financial services industry, said it remained to be seen if the country's reputation had been damaged by events like the bailout of RBS and the take-over of HBOS. But he added: "There are a lot of other financial businesses in Scotland, other than just banks. As a source of funding, as a viable centre, I would hope and expect that Scotland's reputation will continue. "But we will have to work hard. There will have to be a lot of hard work inside our two major banks in order to see them emerge stronger." Crombie drew parallels with Standard Life's traumatic period of readjustment during its demutualisation. He said: "We've done all that internal examination. We have subjected the patient to surgery, to a serious dietary regime, to a serious fitness regime and, at the end, you have a much stronger, fitter, healthier corporate body that in many respects would be the envy of our competitors." Crombie argued that new RBS chief executive Stephen Hester would have to do the same. "I think we have to be positive about the future and I wish Stephen Hester well in his search for a strong and stable core to the business."



Positions I took were too big for ever more volatile markets

Although I positioned myself reasonably well for what was coming last year, one thing I got wrong cost me dearly: there was no decoupling between markets of the developed and developing worlds.

Indian and Chinese stocks were hit even harder than those in the US and Europe. Since we did not reduce our exposure, we lost more money in India than we had made the year before. Our Chinese manager did better by his stock selection; we were also helped by the appreciation of the renminbi.

I had to push very hard in my macro-account to offset both these losses and those incurred by our external managers. This had its own drawback: I overtraded. The positions I took were too large for the increasingly volatile markets and, in order to manage my risk, I could not go against the market in a big way. I had to try to catch minor moves.

That made it difficult to maintain short positions. Although I am an experienced short-seller, I got caught several times and largely missed the biggest down-draught, in October and November.

On the long side, where I stuck to my guns, I lost an enormous amount of money. I was impressed by the potential in the new deep-water oilfield in Brazil and bought a large strategic position in Petrobras, only to see it decline by 75 per cent at one point in time. We also got caught in the developing petrochemical industry in the Gulf.

We did get out of our strategic long position in CVRD, the Brazilian iron ore producer, in time for the end of the commodity bubble and shorted the other big iron ore groups. But we missed an opportunity in the commodities themselves – partly because I knew from experience how difficult it is to trade them.

I was also slow to recognise the reversal of fortune for the dollar and gave back a large portion of our profits. Under the direction of my new chief investment officer, we did make money in the UK, where we bet that short-term interest rates would decline and shorted sterling against the euro. We also made good money by going long on the credit markets after their collapse.

Eventually I understood that the strength of the dollar was due not to people choosing to hold dollars but to their inability to maintain or roll over their dollar obligations. In a very real sense the strength of the dollar, like the fever associated with sickness, was a measure of the disruption of the financial system. This insight helped me to anticipate the downturn of the dollar at the end of 2008. As a result, we ended the year almost meeting my target of 10 per cent minimum return, after spending most of the year in the red.