Elizaville Partners Monthly Letter August 2015

Elizaville Partners Monthly Letter

September 8, 2015

To: Limited Partners in Elizaville Partners LP
From: Max G. Ansbacher, President, Ansbacher Investment Management, Inc., the General Partner
            Chuck Ansbacher, Business Development Manager, 
Subject: August 2015 Performance

Elizaville Partners had an average net estimated loss in August of 12.75%. This brought its average year-to-date gain to 8.38%.
The S&P 500 Stock Index lost 6.3% in August for a year-to-date loss of 4.21%.   

What a surprising month August turned out to be. Unless one was a confirmed bear before the month began, as we were not, it would have been almost beyond the range of probabilities to think that the market would see a 6.3% decline. Of course there were a minority of investors who foresaw a major decline coming, but for the most part they had seen it coming for many months, and had missed out on much of the gains that came before it. 

August was the S&P 500’s worst month since May 2012, and its worst August since 2001. But even these figures mask the turmoil that the market experienced during the end of the month. On Friday August 21, the S&P saw its eighth largest point drop in history, and the VIX shot up 46%. On Monday, the 24th, it saw its worst day in over four years, opening a staggering 3.95% lower than Friday’s close as the VIX shot up another 46%. By the end of Tuesday, the index had lost almost 11% in five trading days, and entirely wiped out its gains for the 17 preceding months.

By one metric, observed by Bespoke Investment Group, this marked the second worst selloff in history. The S&P 500 closed more than four standard deviations below its 50-day moving average for three consecutive sessions. That's the second time the market has sold off this abruptly in the history of the index. For the only other occurrence, you have to go all the way back to May 15, 1940.

Naturally we are very disappointed to have had such a loss, but we must point out that we are still up an average estimated return for the year of 8.38% while the S&P 500 itself is down 4.21%. We have often pointed that our strategy of writing partially hedged options can succeed in a wide variety of markets. Obviously, a market that goes straight down day after day in gigantic drops is not one of them. 

What happens next is anyone’s guess. There have been flatter markets than 2015, and there have been more severe declines, but we’ve never seen a greater decline following a flatter market. For the time being we are proceeding with caution, and take some solace in the fact that we took advantage of the favorable conditions that preceded August as well as we did.