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.