THE LIST: EVERY PORTFOLIO GAIN AND LOSS DURING 2012
I'm going to be posting these numbers in the month/year end summary on Tuesday, along with the year end portfolio performance results. Putting together the numbers for all the researched stock positions taken this year. This list doesn't include hedges taken and the few short-term trades I participated in during the year. Here is the breakdown of all the portfolio investment gains and losses, along with the corresponding links for verification: * = current position Position/Return/Entry Date&Price/Exit Date&Price SYNC +100% 3/28-3/29 @7.10-7.30 7/10@14.50 *WMIH +76% 7/20-7/25@.50 avg Open Position AUTH +73% 7/12-7/13@4.50 7/27@8.16 SPRT +40% 8/7@3.00 10/1@4.20 AUTH +37% 5/8@3.65 6/5@5.00 PTGI +37% 1/17-1/18@12.50 4/16@17.10 PRGS +27% 1/13@18.60 3/28@23.70 SPRT +21% 1/27-1/28@2.60 3/29@3.15 SPRT +15% 6/15@2.60 7/24@3 *PRXI +6% 11/19-11/20@2.60 Open Position GSIG +6% 1/17-1/18@10.90 4/9@11.70 BWC +2% 8/22@25.50 9/21@26.10 GSIG +0% 4/22@12 5/23@12 *SPNS +0% 6/15-6/19@3.98 Open Position *PTGI -8% 11/28@11.50 Open Position GSIG -15% 6/19@12.10 7/24@10 YELP -22% 4/17@25.75 5/10@20 *PXLW -22% 8/4@2.80 Open Position CIS -24% 3/26@3.30 5/8-5/10@2.50 ATNY -30% 4/17-4/20@4 10/1@2.80 *UPIP -38% 9/21-9/24@1.95 Open Position Losing positions were kept small and managed relatively well this...
IT IS THE MARKET THAT HAS ISSUES, NOT THE ANALYSIS
My approach to each new trading week is a mind frame that assumes perfect information. By "perfect information", I mean that the analysis I have performed with respect to general market moves on a technical basis are perfect in nature. I don't say this out of a sense of false arrogance, overconfidence or any of the other pitfalls of ego on Wall Street. Rather, it is my way of functioning at an optimal level with respect to risk control as well as the pursuit of abundant returns. Last week was a prime example of a divergence between perfect information and the market, in general. I came into this past week with no inkling of the substantial amount of downside risk we faced during the week that was. In fact, I had the remainder of the year being bullish with a move up to 13,300 to 13,400 by year end. This analysis is the road the market should have taken in the case of optimal health or as I like to refer to it, symmetry. When the market is dysfunctional and unhealthy in nature, there is no perfect information. There are no support levels that can help. Price action is generally sloppy and broken in nature. All you can do as an investor is hide inside of your home, hoping that this dysfunctional subject doesn't drive a tractor through your front door. Defense becomes the only offensive measure of note. Another way to visualize it is with the simple act of opening the door to your vehicle and starting your car. You know, without any doubt, that there is an order of operation that takes place from the time you press the start button or turn the ignition. Lights start flashing, the engine turns over, your car turns on, the radio starts playing Def Leppard and the heater starts blowing through your feathery hair. This is perfect information. Now assume that you get into your vehicle, press the start button or turn the ignition and none of those things happen. You instantly know that your vehicle has been compromised in some sense. It is no longer functioning as it should. Your perception of the once trusty vehicle changes. For the next few weeks you become paranoid every time you start the vehicle after its repair. Your expectation of it functioning normally based on your analysis are correct in nature. However, your perception and the reality of reliability have changed as a result of an anomalous act. This is one example of perfect information with respect to an uncooperative subject. The question obviously becomes: How does this help me preserve and...
A HEDGE FUND MANAGER, AN ANALYST STARING AT THE WALL, AND INSPIRATION
I will be going over the specifics of each current portfolio position during my year end review to be posted on January 1st. I've made it a habit this year to post my monthly letter to investors as a way of allowing readers further transparency into my process. It has been met with a fair bit of interest and will remain a staple on the site for the foreseeable future. A few months back I had a meeting with a hedge fund manager and several of his analysts regarding the potential to manage a portion of their funds. During the meeting, I was struck by the fact that one of his analysts insisted on looking upward toward the corner of the wall during the entirety of the meeting. I felt like Ben Stiller in Meet The Parents during that scene when Owen Wilson was describing his ex-girlfriend (who just so happens to be Ben Stiller's fiance) to him while looking off into the distance so intently that Ben Stiller's character has to turn his head to see if there was something on the wall he was focusing on. I found myself wanting to turn around to check several times. During the meeting, one of the questions that seem to be more pressing than any of the others was how I planned on raising assets from substantial types when I am giving away all my analysis for free on a public forum? I had never thought of that question so my answer probably wasn't as well articulated as I would have liked. I basically said that I gain tremendous insight from my own analysis posted on this site. It assists me in my management process. It allows me to showcase what I feel is a unique hybrid strategy involving both fundamental and technical analysis as it applies to small-cap companies. Plus I get to help a lot of individual investors not only create some capital gains but learn to look at the markets from a different perspective. What I am doing on this site and many others who post their thoughts, analysis and opinions are doing as well is resurfacing Wall Street. The mindset that demands a type of curtain to conceal the investment decision process is slowly being cut away. 10 years ago I would have never dreamed of a large hedge fund manager making a 2 hour presentation regarding his favorite short position for all the world to analyze and digest. Yet Bill Ackman recently put together the Macy's Thanksgiving Day Parade, with Herbalife as the turkey, for the viewing pleasure of anyone who was interested. This isn't...
5 CHARTS TO HELP YOU FORGET ABOUT THE CISCAL FLIFF
The week that was went pretty much as expected, with one primary exception. If you'll recall, last weekend I put a range on the Dow with upside in the vicinity of 13,350 and downside in the vicinity of 13,050 for the week. The actual high for the week was 13,365 and the low was 13,122. The path the market took to get there, however, was completely contrary to what I had expected. This was primarily due to the perceived shock of another Congressional blunder with respect to the nauseating Ciscal Fliff (I refuse to say it) causing the market to veer off track on Friday. I was expecting the Dow to end around 13,350 this week. Obviously, Friday's action threw a bag of flaming reindeer turds on the doorstep of this plan. I do not expect the bearish price action to last long, however. In fact, Friday may have been the extent of it. Downside for the week ahead is minimal, as demonstrated below: click chart to...
A LOOK INTO PROPERLY STRUCTURING THE MARKET MIND
Long-term prosperity in the markets comes from a number of components that are, over time, refined, replaced and tuned to the point of perfect harmony. Those who get places are those who adapt, especially when it comes to the mental structure with which they approach the financial markets. It is in the mental game that good becomes great and great becomes legendary. The mental aspect of trading and investing will determine a majority of your success, yet it is overlooked time and again. After closing my hedge fund in 2006, I was very active in the poker scene, both online and in live games. I would play strictly cash games, dedicating a great amount of time to studying the game intensively. During that time frame, I played well over one million hands of poker, often playing 4-6 tables at once online. Upon reentering the financial markets in a serious capacity during 2009, I've completely stopped playing the game, all but once a month with a group of friends I have known for years. It is just too much of a time suck. I do, however, continue to study the game. I especially enjoy listening to interviews with some of the great, young poker minds that exist today. The interviews are purely a means of studying their thought process. The great players have a thought process that is both fascinating and extremely relevant to participants in the financial markets. Here are three lessons I have learned from both playing and studying poker that have become ingrained within my own thought process: 1. Probability Rules: Successful poker is 100% about accurately determining your opponents range of hands and tweaking the probability with every new piece of information you receive. If you have been following my analysis for more than a few weeks, you will notice that I always speak in terms of probability. There isn't a point of analysis that I publish whether fundamental research reports or price analysis that isn't, at its core, framed in terms of probability. Additionally, I won't sell an investment, make an addition to a position or buy into a new position without framing my decision in terms of probability. That is exactly why I put so much emphasis on price action, relative to others who invest in small-cap names over a long-term time frame. Truly understanding price is the means of determining probability. I like to think I understand price better than 99% of investors in the marketplace. It is my edge. And it is how I am able to determine the probability of success in buying, selling or adding to an investment at any given...
THE DAY THAT MARKED THE END OF THE RUN IN GUN STOCKS
This has been a long time coming. I commented on the fact that RGR, specifically, was under a tremendous amount of distribution in late October, stating that the stock was due for an 80% drop in 12-18 months. That distribution turned into unmitigated panic selling today, as both RGR and SWHC saw some enormous volume selling that took both companies down significantly. It wasn't the fact that RGR saw its biggest volume down day in years today alone, however, that has finally put a lid on the stock. It was also the fact that its primary trajectory served as the point where the acceleration took place. A gap below the primary trajectory that occurs on above average volume and ends on its lows, following a distribution pattern of some months, is an extremely high percentage pattern. Not only that, it is a pattern that is prone to significant destruction in shareholder equity over an intermediate to long-term time frame. RGR has seen its best days. The bears are now 100% in control, with nefarious intentions for the share price. Here is the technical look, starting with a long-term view to demonstrate the enormous downside volume today, followed by a short-term view to demonstrate a violation of the trajectory: click chart to...
PORTFOLIO UPDATE: ALMOST THERE
During the trading day, I tweeted the following: I'm not a big believer in diversification. Never have been. In today's environment there are simplified choices (read: ETFs) that will allow you to replicate the passive nature of a diversified portfolio without having to deal with the headache of managing 10, 15 or 40 positions. Additionally, I feel that diversifying your portfolio dilutes your best ideas in favor of weaker positions that end up compromising performance in exchange for the FEELING of safety. If you have a comprehensive, well thought out and preferably systematic means of controlling risk there is no reason whatsoever to diversify away from your 6-7 best ideas. If your best ideas suck, that is a function of your research. Diversification, in that case, will only prolong the inevitable. With that out of the way, I am near 95% invested spread out among 6 positions in the portfolio. I don't necessarily like to have more than 7 positions at once. This is perfect. Portfolio consists of WMIH, SPNS, UPIP, PXLW, PRXI and...
4 CHARTS EXHIBITING THE MARKET’S PROPENSITY TOWARDS LIMITED DOWNSIDE IN THE WEEK AHEAD
The primary theme of last week's chart review was technical perfection in the markets leading to a surge beginning the week of December 17th, otherwise known as this coming week. The tight range that the Dow would fall into during this past week played out to near perfection, as the generational trajectory exerted its influence over the markets. We now have the necessary setup for a real effort at taking down this generational trajectory, which is rarely taken out on the first attempt as demonstrated this past week. For a good demonstration of the failure of first attempts take a look at June-August in relation to the trajectory here. Here is the look for the week ahead: click chart to...
BEHOLD THE SHIFTING LANDSCAPE
There are a surprising number of potentially Earth shaking price developments occurring in the market currently. I say Earth shaking because of the manner in which all of these developments seem to be correlating with each other right at important price points. Never mind the fact that all of these instruments are fundamentally correlated throughout the macro spectrum, as well. Here is what I am seeing: - Dow Transports: I mentioned the Transportation Average during the weekend review. Since then it has broken through the resistance mentioned and is now consolidating above the 18 month trajectory. This is a bullish sign for the Dow Transports. A bullish Transportation Average signals a changing landscape for the markets, generally speaking. It has been sometime since the Transports actually led the market up. In the meanwhile, old leaders (think: AAPL) have lost their luster and need to be replaced. Fortuitous timing. - Emerging Markets: For the first time in quite awhile, emerging markets are making multi-month highs while the major US averages lag behind. This is another indication that the landscape beneath the markets is shifting. Last time emerging markets were truly in the lead was 2009. Important to see if this resurgence continues. - Aussie Dollar: Coming up on a very important resistance point. Breakout to the upside looks to be coming. - Euro: Coming up on a very important resistance point. Breakout to the upside looks to be coming. - Gold: I have the next few days as being an important cycle turn date. I will assume, given the way everything is lining up on a macro and technical basis, that the turn will be a low. The acceleration to the upside has the potential to be dramatic. This is especially true given the way the US Dollar is lining up for weakness. Should all of this go the way I think, emerging markets will continue to accelerate, buoyed by a weak Dollar and continuing strength in commodities, especially precious metals. All of this fits into a bullish US equity scenario, which I have taking place into the end of 2012 and throughout 2013. A change in the leadership roles of the market certainly looks to be taking place. Think we are seeing the beginning stages of that...
PORTFOLIO UPDATE: GIVE ME ALL YOU GOT
During the trading day, I tweeted the following: I want more exposure. Ideally, barring sudden and unexpected global catastrophe, I would like to be at 100% invested by the end of this week/beginning of next week. However, my desire does not aide in the proper opportunities presenting themselves. SPNS is now a large position and deservedly so. I went into brief detail regarding the latest developments with the investment in my November month end letter to investors here. WMIH has been a large position since I initiated in late July. In fact, the position in WMIH was increased in late October. Needless to say, following a 32% spike in WMIH thus far in December, portfolio performance has been outstanding. The remainder of the portfolio consists of PXLW, PRXI, UPIP and PTGI. This brings net exposure to 85% long, with a measly 15% still awaiting allocation. I would be happy to add to PXLW, PRXI, UPIP or PTGI. However, the names need to show and prove a little bit more before I make additions. That leaves me with no other option but to wait until opportunities become a bit more clear. I do believe in pushing the envelope, so to speak, with substantial up months, as a result of the flexibility the cushion in gains provide. A month of healthy gains is put to waste by the investor who attempts to protect those gains, as if it is the last time the market gods will smile upon them. Like anything else in the markets, you must utilize what you are given at that moment. Early gains during a month are a tool for aggression in the markets. Do not, however, confuse aggression with recklessness. Lots of casual and even professional investors make this mistake often, with less than desirable results. On the other hand, when an investor is getting wrecked by the markets, you cannot be too conservative. I NEVER get aggressive into losses. I simply continue getting smaller as the losses increase. If they surpass a certain predetermined threshold, I liquidate everything, essentially hitting the reset button. Real simple: Get aggressive when you are provided the comfort zone to do so. Get smaller when you have little room for error. That's all you are getting out of me...