The Bitter Fruits of 2012
Board: Pro Philosophy and Strategy
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In all the areas that really count, 2012 was a very good year for me: kids healthy and happy (but not too happy); medical research suggesting that dark chocolate is actually good for you; a bumper crop of black walnuts and wild blackberries; the best trout fishing in years; apparent discovery of the Higgs boson; growing evidence that the universe is chock-full of planets; completion of a major pond-dredging operation and a mammoth hillside retaining wall – the list goes on and on.
And if these boards were just a community bulletin board, I would stop there, put a check mark next to 2012, and get on with the process of making 2013 even better.
Unfortunately, these boards focus on investing, and I would be remiss if I did not share with you guys the bitter fruits of my investing adventures in 2012. Let me note at the outset that my Pro portfolio did very well (thank you Jeff, Nick and Bryan), as did my Josh Peters dividend portfolio. And, my cash – on average about 70% of my portfolio – only lost about 3% of its value due to inflation. So far so good!
Unfortunately, there was a bit of a hiccup with the rest of my personal investment portfolio. The net return on the investments where I made the decisions independently in 2012 was -35%. You may be thinking that a stray hyphen worked its way into my text there, but no, that is indeed a negative sign.
My overall economic situation was not affected in any meaningful way by these losses, because I kept such tight limits on the amount of funds I self-directed. However, I have to admit that the whole experience was kind of daunting, and not fun at all. I have come to realize that we never escape the emotional framework created in our formative years, and from that perspective, my 2012 losses were staggering – and, honestly, they felt that way.
Here are the chief culprits:
Poseidon Concepts (PSN:Toronto): 88% loss. Recommended by a well-known and respected investing newsletter and a favorite of many Canadian analysts, PSN was an enticing story of a small company earning high margins on its state-of-the-art mining service technology in the burgeoning Canadian oil fields . . .
When life looks like easy street, there is danger at your door
until the story was fleshed out by the Cushing and Canadian bottlenecks in oil transportation, and water tanks on wheels lost their high-tech, high-margin luster. This all happened in a couple of months, meaning that I could probably have stretched these investment dollars further by using them as kindling for my fireplace. Someone got rich off of PSN, but it was not I . . . .
Talk about your plenty, talk about your ills, one man gathers what another man spills.
Petrominerales (PMG:Toronto): 71% loss. Who could imagine that an exploratory oil and gas company operating in Colombia could be risky?
What in heaven’s name was I thinking here? Dry hole after dry hole . . . .
The dog has not been fed in years, it's even worse than it appears, but it's alright. . . .
I would like to recapture the thought process that led to this investment, so that I can avoid it in the future, but it has drifted away, like more than two-thirds of the cash I invested in this “duster” factory. I can only assume hot chocolate was involved somehow.
Daddy made whiskey and he made it well, cost two dollars and burned like hell.
Ultra Petroleum (UPL) LEAPs calls: 75% loss. I dove into this dry hole full tilt. After all, it was a Morningstar 5* company, a super-low cost natural gas producer, and a likely acquisition target. What could go wrong?
Since it costs a lot to win and even more to lose, you and me are bound to spend some time wondering what to choose
XIV short: 30% loss.
Seth Klarman had it right when he said, “The average person can’t really trust anybody. They can’t trust a broker, because the broker is interested in churning commissions. They can’t trust a mutual fund, because the mutual fund is interested in gathering a lot of assets and keeping them. And now it’s even worse because even the most sophisticated people have no idea what’s going on.”
I came up with the XIV short idea myself, but vetted it with a broker friend. He loved the idea, although not enough to invest in it. He was my wife’s first boyfriend . . .
I'll drink to your health, share your wealth, run your life, steal your wife.
We can share women, we can share wine. We can share what we got of yours, cause we done shared all of mine.
In the end, I accept full responsibility for this debacle. I figured that the VIX had to go up; it seemed insane that everyone was so sanguine in the face of a lot of festering issues – but of course I did not fully account for the paradigm, where the free market has been replaced by a strange world where we all dance to the tune of the Fed . . . .
Rat cat ally, roll them bones, need that cash to feed the jones. And the politicians throwing stones, singing ashes, ashes, all fall down
What’s done is done. And, again, let me be clear – life is good; none of this really matters to me, except for the indignity of it all.
One of my daughters stands only 5’5” tall, many inches below the heights of her three sisters and brother. When a sister tries to make fun of her diminutive stature, asking derisively, “How tall are you?” – well, Tory answers, “I go by IQ, not inches, and I am too polite to ask how ‘tall’ you are.”
Like Tory, I use different units -- when I tally up the gains and losses, dollars do not get a lot of weight compared to other things.
I may be going to hell in a bucket, baby, but at least I'm enjoying the ride
All of this has led me, however, to question whether I should be spending time thinking about investing. Let’s face it, I am not a very good investor; there are many things I do better and enjoy more.
Keep your day job, 'til your night job pays
I think it is pretty clear that I should just follow Pro, follow Josh Peters, and invest the balance in steady mutual funds and/or ETFs.
When I make investment decisions, I buy stories; there is ample evidence that this is not a good approach.
Don't be a collector of more than you need, got a lot of things growing, but keep watching your seeds
But I cannot help it; I love good stories. Unfortunately, these stories generally look better from a distance than they do up close . . .
A peaceful place, so it looks from space. A close look reveals the human race
So, from now on, I will say “no” to the siren song of self-driven investments.
I like your smile, but I ain't your type, don't shake the tree when its fruit ain't ripe.
As noted, I will stick with Pro and with Josh Peters, following them without question or independent analysis. As for the rest of my investing philosophy, forget Grantham, forget Gross, forget Hussman, forget Graham and Klarman and good old Howie Marks. Perhaps by now you have figured out where I will turn:
Once in a while you get shown the light, in the strangest of places if you look at it right