WHERE I STUFFED UP THIS YEAR, PART 1!

Warning – Today’s post might be the only thing on the internet you read today that makes no comment on the U.S. Election.

With so many gurus on the internet these days, one aspect I wanted to achieve with blogging is for it to not be just an exercise about pumping up my own tyres.

Many blogs I come across are selling something, so I suppose they need to protect a reputation, whereas I don’t have to worry about that aspect so much. Some may say I already did a fair share of bragging by highlighting the good with recent posts on some of the stocks mentioned here, so this post is about decisions I have got wrong this year. It goes for a while so I have even made it in 2 parts, part 2 to follow later!

This is one area that I think blogging can be valuable as I found it easier to go back and search in these areas because throughout the year I have documented my thoughts on the markets. Possibly I may reach some conclusions with some of my mistakes and improve my results going forward.

I will write the call I may have got wrong, then some notes about it. In some cases, I may be clear where I went wrong. In other cases, I may not jump to conclusions too quickly. I consider the 10 months of blogging a short period so it may not warrant reading too much into certain decisions I made. Either way I think the process is useful to go through, and highlight some areas that I will think about more in the future, even if I do not know what conclusions I should draw from the mistakes right now.

Shorting the indices – I run set allocation targets to sectors but will have modest bets around these targets. I don’t make large bets in this regard as have seen the stress in the past it can cause. For example, investors who shorted the Japanese stock bubble in the late 80s, or the tech bubble in the US in the late 90s. In recent years I have tended to hold more cash than my approximate targets and this has proven unnecessary most of the time. This year I tried to let the number of individual stock opportunities drive my cash levels rather than my hunches on what the markets may do. This is how I believe the more successful investors manage things. I still feel though at times I succumb to selling a holding at cheap levels, as I worry about a market correction occurring and not having much cash on hand. A way around this in the past is that I try and hang on to more long ideas, and run modest shorts on market indices instead. I didn’t do that as much this year. When I did, I lost money. Upon reflection, I should have kept this method up and held my nerve, that would have worked out better for me. The U.S. indices I have argued are most expensive and shorts would probably not have done much damage as the market (as I currently write anyway) is up only about 5% this year. I then would have made much more by hanging on to more of my long ideas I suspect. As you will see in a few examples I get to later, where with some stocks I may have sold them too early. On average my stock picking far outpaced the gains made in the S&P 500 as I discovered recently when reviewing the stocks mentioned on the blog.

Underweight the Australian dollar – I have got this wrong in 2016 mostly. Yet it is a view that has worked for me since it rallied to the 90s and beyond parity after the GFC. Earlier in the year I was acknowledging negative sentiment on the AUD was at extremes and not to have large underweights. In hindsight, it was so extreme that one should not have been underweight. I did take some profits on this sub 70 cents but should have gone further and covered completely with consideration to being long on further dips earlier in the year. It is an example that we can fall in love with an idea that has worked for you over a few years prior, that is what happened to me here I believe.

S32 and the mining sector – Without doubt my most embarrassing decision was to sell S32 this year in the 90’s cents range in January! I have spoken a lot about my belief in searching to invest in spinoffs and this should have been another good example of the strategy working. I bought at just under $1.30 only about a month earlier. At the same time as S32 fell quickly below $1, I felt clever in other areas of my portfolio having high cash levels and underweight the AUD. I think I got trigger happy and thought I’d be smart enough to buy back cheaper after markets crashed more. I think if I was more active blogging around then it may have helped me to pause and wonder if writing about my decision to sell would have made sense at that time?

As mentioned sentiment was awful about mining at this stage and I should have been more awake to this and at least searched the market for more opportunities in the beaten down sectors.

BSL – A stock I made nice quick returns buying about $3.20 and selling a little above $4. I made the mistake here thinking because so many other mining share prices were falling, that if this one was strong maybe it’s only a matter of time before it also falls sharply. Most experienced investors will realise that behaviour is a bullish sign! At the very least I could have just ran a stop at $3.50 and then at the 200-day moving average. The stock today is near $7.50 and the 200 MDA approaching $7! On volatile stocks with potentially larger upside (and downside) I have sometimes advocated this approach. It certainly assisted me in not selling all of my RMS & SSM positions too early this year.

I will just add here an article I enjoyed from Forager about keeping an open mind when sentiment may be terrible for a certain asset class.

https://foragerfunds.com/bristlemouth/coal-provides-biggest-lesson-2016/

RNY – This was my biggest loss for some time, and earlier in the year I did reflect on this a lot. Prior to them reporting their results in February I was a bit suspicious as the stock was clearly trending down. I believe I became too complacent in the situation because there were a few fund managers I respect all long in the stock. In hindsight though the operations of the company were not going as I expected even in the results released prior. One lesson learnt is that those fund managers I referred to probably didn’t even have the liquidity to exit some of their holdings even if they wished to, where as I did. So it was probably a false sense of comfort having them in the stock. That is the advantage of me not being a big swinger in the markets and having the “headache” of managing tens of millions of dollars! Although if someone wants to give me that headache I may be able to assist! I should have used that advantage of being nimble to minimize some of the damage and at least lightened up a tad before they reported in February. Edit November 14 – For newer readers I should clarify that I eventually got out of this in 2 steps at 18 and 12 cents. I posted about my final exit on July 18th here. Today’s announcement doesn’t look promising, and a reminder that limiting the damage of some mistakes can be sometimes as important as picking winners.

SSM – I had written on the blog a strategy to stay with the trend on this, and that even at 80 cents I could make a case it was reasonable value despite the large paper gains I was sitting on. Not long after I changed my approach and sold half my position at around 80 cents because the holding was becoming quite large for my portfolio. Since of course the share price has been as high as nearly $1.30, although has pulled back to around $1 now. I should have kept with my first instincts of staying with it whilst it held above the 200-day moving average. That way running a large position size should not have represented a lot of risk anyway. Perhaps the biggest risk would be some left field negative announcement where you get slippage and it crashes through the stop level in a big way, but in a stock like this probably unlikely.

Apple – In late April when the market became very negative about their earnings release the stock fell through $95, having eased back from $110 only a few weeks prior. At the time, I commented that it was a watch to buy on weakness. It even fell below $90 in May, and there was still another opportunity around $91 in late June. Another one I forgot to focus time on, and a little frustrating to see it climb back to $110 and be one of the market’s leading performers.

 

I will try and get part 2 out soon to wrap this up and see what conclusions I can draw from all this. Then I can hopefully focus on some more pleasant topics! Some developments are occurring recently on a couple of stocks I have at times written lengthy pieces on in CLT & APW. By the weekend more info should be available and I’ll try to discuss them more then.

 

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