Time to become a student again... year 2 of Checklists investing career
I am sitting in my old bedroom at my parents house, with my son sleeping in my old bed and myself sleeping in my brothers old bed. Or, rather, not sleeping but reading CAPs blogs. This is exactly what I was doing last year, except I was running stock screens, downloading S&P research reports, and reading articles at Motley Fool.
Before one year ago today, and the 10 days or so preceding one year ago today (i'd taken my first vacation in 10 years to come home, avoid big hangovers at new years eve parties, and research stocks, as I'd lost all hope in professional investors ability / willingness to take advantage of the big crash)... anyway, before 1 year ago the only stock research i'd done was reading David Dremans: contrarian investment strategies, the next generation.
But I knew an opportunity was at hand with the epic crash. I looked at how cheap stocks had gotten on Nov 20, 2008, and felt a twinge of pain that I wasn't paying attention that day to buy any. Alot of my first picks like OSK and MTW and stuff had gotten SO CHEAP on Nov 20 that they were already multibaggers at times. Wild.
With alot of stumbling and bumbling, a series of rookie mistakes, I did ultimately succeed in doing at least a decent job of siezing the opportunity of the crash. My best moment was this and this, around the time of those blogs I put my money where my mouth was with huge bets on insurance, BDCs, and banks. Anybody who would have listened would have made a large multiple on basically any stock mentioned or in those sectors, so long as it was out of favor. Begging pardon for any immodesty, I think it was the best call I've read from the March low period anywhere.
So, yay, happy days, mission accomplished (although dammit i could have done better). Here are my regrets:
1. I wish i would have focused more on dividend stocks. No worries about temporarily cut divi's like HIGs or whatever, but why did I buy Casino stocks that aren't likely to pay significant divi's for years? If I could go back i'd buy all stocks I meant to hold for 5 years. None just because they were super cheap and bound to rebound hugely. I don't wanna pay taxes, I wanna hold.
2. I blew it in the BDC space. I made my biggest bet on ACAS, which turned out to be the biggest bomb. It was market timing only that has me way up on ACAS (with vast majority of shares sold), I got it wrong.
I did well, but I could have done so much better. That was a once in a lifetime panic. Always healthy to look back on our actions with a critical eye, even if Tony Robbins wouldn't approve and even if it isn't comfortable.
But here I am a year later... and things are so different than a year ago. A year ago, through 10 months ago, the right move was to buy out of favor stocks. Really out of favor stocks. Bet against the insane bearishness of that era, bet in favor of a return to the normal. Did I win (~250% returns) by being really smart, or just by being brave enough to pretty much go all in against the tide? Could have thrown darts at mega out of favor stocks and done about as well probably.
But, anyway, a year later things are so different, and I feel like a novice again. How does one pick stocks in the absence of severe, violently cheap choices? Much harder. Much harder. And if, in early March, I felt like I was the only guy in the world who got the joke (my blogs linked to above), today I feel a bit like the joke is on me. My investing work is currently suffering from a variety of things including
1. I spend at least 80% of my time reviewing holdings I have, 10% posting on CAPs, and 10% looking at new stocks. That was 80% new stocks, 10% caps, 10% reading "how to" articles about things like current ratio and stuff a year ago. I'm stuck in a holding pattern, at least for a few months here until I clear a year on this and that. Should actually clear a year on many shares this coming week... I am unloading a few names!
2. I suspect that my very-simplifying manner of looking at things last jan-march is no longer the best approach, and a more in depth, methodical manner of stock picking is in order. I will offer some examples:
-XL Capital. My investment thesis was: A) insane valuation (something like 0.1 of book and forward p/e of 2 a year ago) B) negative enterprise value by billions C) billions of cash D) stifel has a buy rating so at least one guy thinks they'll live. Good enough, made it my 2nd biggest position at hte bottom.
-TCK, Teck Resources. Thesis was: A) debt is bad but they got a 100 year resource B) they can cash flow the entire debtload in maybe 5-6 years C) someone will work with them in light of B. So it became one of my 10 biggest positions
-ASH, Ashland Chemical. Thesis was: A) not violating covenants, B) 1/2 the price of the lowest its ever been and that was 1984 so C) yes. biggest position at the bottom
Etc. That was about all the more in depth my picking was. 10-20 hours per pick absolutely tops. I think today, with the S&P at 1100, that type of very simplified outlook is no longer appropriate and much more in depth reserach is prudent. Last February, that type of simplying was essential. Time was of the essence as the crash would only last so long, and if one sat down and looked deeply at this or that you could have found someting negative about all of those. But today I think any stock that falls into the "mega cheap" category is much more likely to be actually troubled.
So, my fine fellow fools, I must begin anew, as a rookie once more. Even if i did beat every hedge fund on earth in 2009, I think that as of today my best interests are best served by re-assigning myself rookie status and starting over. So... how do we pick stocks in the absence of vicious bargains? When just stepping in front of the crashing freight train won't ensure multi-baggers?
Should be fun learning.