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Nov 30

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Week 177: Perspective

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

Oct 24

11 Comments

Week 173: Done for now

Two weeks ago I made the following tweets describing my latest and last investment decision:

finaltweets

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…

Good-bye.

Oct 4

23 Comments

Betting some more on BXE

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.

Read more

Sep 20

19 Comments

Week 168: Cutting my gains

Portfolio Performance

week-168-Performance

 

See the end of the post for the current make up of my portfolio and the last four weeks of trades.

Recent Developments

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

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