See the end of the post for the current make up of my portfolio and the last four weeks of trades
I don’t have any general comments to make so I am going to get right into my portfolio updates for the last month.
The Tanker trade
The biggest moves in my portfolio have tended to take place in the first couple months of the year . In 2013 it was YRC Worldwide. In 2014 it was Pacific Ethanol. I’m hoping that this year its the tanker stocks.
Of course the tanker stocks have already had significant moves. I have been adding positions at prices that are much higher than they were a couple of months ago. But to use Pacific Ethanol as an analogy, the move from $2 to $4 was only the first act. I’m not sure if these stocks will put on the show that Pacific Ethanol did, but I am hopeful there is a second act in the cards. Read more
See the end of the post for the current make up of my portfolio and the last twelve weeks of trades (its been a while since I did a full update).
The last few weeks have been a rollercoaster. It was less than a week ago, on Tuesday night, that I was deliberating whether I should be making dramatic cuts to my exposure the next morning. By the market close Friday my portfolio was back to the post October peak.
The gyrations have not been due to particular volatility in the stocks I own. Over the last month I have basically been tracking the market, doing a little bit better but not much. Its just that the market is going up and down like a yo-yo.
While I am happy to have gained back the losses I took over the past couple of weeks, this whole dynamic makes me uneasy. Too many extremes for my liking. In my investment account, which is where most of my risk is and the one I track here (its also by far the most fun one to write about) I’ve taken down some exposure over the last few days by reducing some positions that seem to be the most prone to gyrations in this market. Stocks like Ocwen, Nationstar, Aercap and the like (note that I wrote this over the weekend and had reduced my servicing positions before the Ocwen settlement today. Today I sold Ocwen entirely at the open, being a little surprised that it was trading at $19+, bought back some Nationstar at a little over $28 later in the day and then bought back a bit of a position in Ocwen at the end of the day on hope of a short term bounce). Read more
Five weeks ago I wrote that I was walking away for a while. And so I did that. It didn’t last as long as I had anticipated.
At the time I had taken my portfolio to about 60% cash and I had a number of shorts that helped hedge out the exposure from my remaining longs. In early October I had basically stepped away because I had made some mistakes and lost confidence in my decisions. It had started with the mistake of not looking closely at the oil supply/demand dynamic, which was compounded by the mistake of selling the wrong stuff when the bet began to go wrong. As I lost money on a few oil and gas holdings, rather than reducing those positions I reduced other positions, presumably with the intent of reducing my overall risk. Unfortunately this isn’t really what I was doing. What I was actually doing was selling what was working while holding onto what wasn’t. A cardinal mistake.
The consequence was that I saw my portfolio dip 12% from its peak by the second week in October. More frustrating was that as stocks recovered in late October, I watched as some of the names I had sold near their bottom, in particular Air Canada, Aercap, and Overstock, recover their losses and were on their way back up.
I wrote my last post on a Friday afternoon after the market had closed. Over that weekend I was virtually unencumbered by the markets. My portfolio was cash, my blog was on hiatus, I had nothing to prevent me from thinking clearly. I don’t remember exactly when the moment came, but at some point that weekend I had a realization.
For those who have followed this blog over the past few years, you will remember that in December of last year I made a very large bet on New Residential. The stock had gotten hit down to below $6 at the time. I thought this was rather ridiculous and so I bought the stock. I bought a lot of the stock. I made it a 25% position in my portfolio.
In a narrow sense, the trade worked out. By the end of December the stock had jumped close to $7 and I sold the position for a tidy profit. But in the broader sense, it was an abject failure. Read more
Two weeks ago I made the following tweets describing my latest and last investment decision:
I meant to get around to writing a post acknowledging the same sentiments but I never did until now. Since that time I have watched the market go down a lot and then come all the way back up. I haven’t done much of anything during the whole see-saw.
And that is because I think I’m done. I have a lot of cash, a few positions and no plans to chase anything up or even add to anything as it comes down. Maybe when the Fed (or perhaps the ECB) decides to get back into the game I will change my mind. But for now I don’t really have a strong inclination to do anything. So I’m going to walk away while I’m ahead. Maybe there will be a better set-up in the future. But until then…
My portfolio had a tough week and has had a weak September. As it goes when I show weakness, I am quick to clean house and start anew. This week I jettisoned a number of names (including Sherritt, Mart, Straight Path Communications and Aercap), made a number of positions much smaller (including Overstock, IDT, Transat, Sanderson Farms, and Supercom) and raised a bunch of cash. When the dust settled I had 10 positions remaining of significant size.
One of those positions is Bellatrix, of which, in the midst of oil and gas carnage everywhere, I bucked the trend and added to this week. This after I had mentioned in a tweet a couple weeks ago that a recent add would be the last one.
Well I lied. With the stock dropping to the mid-$6’s I decided to revisit the whole idea, and after doing so, I added fairly aggressively. I do not make this decision lightly; as I have written before, once I have a full position I rarely add to it if it starts losing money. There’s just too much chance that I am wrong. At the time of the tweet Bellatrix was a 4% position for me. Its now the largest position in my portfolio at 12%. My average cost base is down to around $7.17.
Why was I willing to add so significantly? Because the work I did helped reassure me that my original idea is most likely correct; that the company is suffering from a short to medium term processing bottleneck that should be alleviated by the commissioning of their own plant in mid-2015.
Most of my work focused around a production/decline model that would help give me a better idea of how production should trend under various drilling scenarios and capacity constraints.
My model is simplified, but not too simplified. I think that oil and gas models are some of the most difficult to make. The inputs require estimates of decline rates, which changes over the life of each of the wells in the field, drilling schedules, which are impacted by weather, rig and processing availability, and in the case of the Western Sedimentary Basin, by spring break-up. There are so many difficult to determine parts that I think it is better that one not try to confuse precision with accuracy.
See the end of the post for the current make up of my portfolio and the last four weeks of trades.
I don’t know if the chart of performance really does justice to the volatility my portfolio has had over the last couple of weeks. It feels like much more of a roller coaster than that little blip in the trend that you see on the screen.
I sold out of the rest of Pacific Ethanol and Rex American Resources in the first half of this week. I hemmed and hawed through the weekend, even briefly added to my position to Pacific Ethanol on Monday (at the same time I was reducing my position in Rex American), but the volatility of the stocks, the declining price of ethanol, and specific to Pacific Ethanol, my uncertainty with respect to their corn basis (I concluded tentatively it is actually quite a bit higher than Q2) led me to capitulate on many of my shares on Tuesday. I followed that up by selling the rest on Wednesday in the minutes that followed a very bearish EIA inventory report (+800,000bbl!). I tweeted on my sales at the time.
My caution turned out to be fortuitous as the stocks continued to fall the rest of the week. I was even able to catch a few dollars of profit on the way down; always remembering the old classic to which this blog takes its namesake, I took the lesson that if a stock is to be sold it is likely just as well sold short, and so I took a small short position in Rex American and a few $18 puts on Pacific Ethanol. The puts were sold Friday and my short position has been cut more than in half, so these were merely short term trades taking advantage of a clearly bearish dynamic. Read more
Over the last week I have played some parts of the ethanol yo-yo well and other parts not so well. Let me review.
On the well side, I significantly reduced my extremely over-sized position in Pacific Ethanol (25% of my portfolio at its peak) at prices of about $23 per share. On the not-so-well side, I added/subtracted and then added back my position in Rex Energy on continuously declining prices and held on to a still not insignificant percentage of Pacific Ethanol (about 5% position) through the declines of Thursday and Friday. What is yest to be determine is that I added back some of Pacific Ethanol at $20.15 on Thursday. While I sold half of that on Friday morning for a bit of a profit, I held the other half through the decline on Friday and now sit with those shares at a lower price than I had purchased them for.
How this all ends remains to be seen. This blog is not intended to be an account of my infallibility. Unlike many others on the blogosphere and on twitter, I have no omniscient insight into what can be absolutely stated as a good or bad decision. Thus it is that you rarely see me laying out the ridicule, condescension or my favorite, the passive-aggressive rhetoric, that seems to be so prevalent in these mediums. I can only wish for such certitude. Unfortunately my world is far too gray to not feel empathetic for those who hold a different opinion than mine.
The beauty and horror of the ethanol stock is that it only takes a small difference of opinion to lead to a drastically different conclusion. To take an example that I tweeted earlier tonight, in my model I get a $1 quarterly earning swing by adjusting the ethanol price by 20 cents – from $2.05 to $1.85 per gallon (note I originally had written 80c but I hadn’t been making an apples to apples comparison in my model). A similar point could be made about Pacific Ethanol. The significance of course is that 20 cents is about the swing that ethanol prices took in the last week. Read more
See the end of the post for the current make up of my portfolio and the last four weeks of trades.
Note that this update is as of Friday, August 15th. I have been a few days delinquent in getting it out.
I have strayed from my bread my butter of late, away from the tiny micro-caps that pass everyone else by and into the world of still small but not so obscure caps. These are stocks like Air Canada, AerCap and Bellatrix among others, still far from being large caps, but big enough to receive the attention of analysts and funds.
I am not so sure of my own advantage with these stocks. I may be overstepping my own abilities to think that I can see something here the market is not. I am under no misconceptions about my research. There is simply no way that I, as an individual investor with a couple of hours of free time every day, can match the depth and scope of the research that the institutions have. Read more
Sometimes you latch on to a good idea but can’t find a stock that fits it. That’s what happened to me as I scoured through 10-K’s looking for a way to play the fall in corn, wheat and bean prices.
I spent about a week looking and not having much luck. Fortunately one of my twitter acquaintances came to the rescue, as @17thStrCap introduced me to MGP Ingredients (MGPI).
MGP Ingredients looks like a very good way to bet on lower grain prices. The company operates three businesses, all of which stand to benefit from the decline in the grains:
- Distillery Products: via plants in Atchison Kansas and Lawrensburg, Indiana, corn, barley and rye are turned into beverage alcohol and industrial food grade alcohol. The residue from the process is sold as distillers feed. A small amount of fuel grade alcohol (not ethanol) is also produced
- Ingredient Solutions: specialty and commodity wheat starches and wheat proteins are produced from wheat flour
- Illinois Corn Processing (ICP): a 30% ownership in an ethanol plant in Pekins Illinois that produces around 90 million gallons of ethanol per year. SEACOR owns the other 70% of the plant
I’ve owned Sherritt International since January, when I posted about the idea here. The timing of my stock purchase coincided with the start of the Indonesian export ban on ferrous nickel and nickel in pig iron. I bought Sherritt throughout the low to the mid $3’s (my average cost is $3.48) and did pretty well on with it until the last couple of weeks when the stock has dropped back to the $4 range.
About half of that drop occurred after the release of the second quarter results. The stock pulled back because nickel production from the Moa joint venture was a bit weak in the first half and because full year guidance for the Ambatovy joint venture was reduced (from the range of 44,000-50,000 tonnes to 37,000 – 41,000 tonnes). The Cuban oil business saw production in-line with what I had expected and the company has recently signed an extension on its oil production sharing contract with the Cuban government and expects to expand that agreement to include new exploration targets.
The Ambatovy Ramp
The slow ramp at Ambatovy comes as no surprise. Its been slowly ramping for almost two years now. The mine has seen one hiccup after another. Yet there is progress being made towards positive cash flow. By the first quarter of 2015 Sherritt is expecting the mine to operate at 90% capacity (its currently in the mid-70’s) and when it does cash costs are expected to drop to the $3-$5 per pound range. Read more