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