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constructive (99.96)

Unsuccessful trades



January 23, 2014 – Comments (14) | RELATED TICKERS: FB , HW , WMIH

My CAPS score has declined by 4000 points over the last 6 months. My real life short positions have also performed poorly, although long positions have more than made up for it.

I thought I should do a post mortem of some picks that have performed poorly, and figure out what mistakes I made. There are a lot of them, 64 picks on which I've lost over 100 points, including 1/4 of my open picks.

Facebook (FB), Baidu (BIDU) - I try not to red thumb "great" business at high prices, since they have an awful habit of growing into their valuation. I screwed up here. Especially Baidu.

Maybe I should close my red thumbs on LNKD, P, SSYS, DDD. Unlike most of my red thumbs, I can see they have the potential to be very good businesses.

Headwaters (HW) - Two mistakes here. Overemphasis on earnings versus cash flow, and shorting through a phase change from unprofitable to profitable.

Clearwire (CLWR) - They were acquired by Sprint after Softbank acquired control of Sprint. Don't overweight operating results versus asset value, both are important. When a corporate investor has a large stake, short positions should generally be avoided. They are likely to make irrational acquisition decisions because of empire building and sunk cost fallacy.

American Airlines (AAMRQ, now AAL) - I red thumbed them in bankruptcy and made several errors. Every bankruptcy is different, statistical approaches as opposed to individual approaches should be avoided. Didn't read any of the bankruptcy documents. Underemphasized cash flow.

Ariad Pharmaceuticals (ARIA) - They had a successful phase III trial and introduced a drug to market. Since then the results have disappointed. Phase III results are a dangerous time to short.

WMI Holdings (WMIH) - Didn't consider the value of NOLs. Also didn't consider the reflexive nature of the stock price. With their NOLs they are primarily valuable as a merger piece, therefore higher price = higher value.

Netsuite (N) - See Clearwire. It's super expensive, but Larry Ellison's involvement here is a red flag.

ParkerVision (PRKR) - Should have ended once they graduated from vaporware manufacturer to patent troll. Patents are unpredictable. My thesis changed, 90% of the vaporware manufacturers I've red thumbed have declined, but only 50% of patent trolls.

14 Comments – Post Your Own

#1) On January 23, 2014 at 5:40 PM, chk999 (99.96) wrote:

I think you are quite right. Just because a business is violently overpriced doesn't mean that it can't get more violently overpriced. So shorting companies with a growing business is a bad idea, no matter how over optimistic the stock buyers are.

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#2) On January 23, 2014 at 6:26 PM, portefeuille (98.93) wrote:

Do you have Porsche preferred shares in your portfolio (your megaeurope player (that I think you should reactivate ;)) has it as "top pick")? I still think they are a great way to get cheaper exposure to Volkswagen/Porsche. I like Fiat shares as well, currently. Both could double. Over the next few years ...

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#3) On January 24, 2014 at 1:53 AM, EvanBuck (99.93) wrote:

Good to be honest, Mega - that is one hallmark of a good investor IMHO.  Maybe I should review some of my bad Caps calls sometime.

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#4) On January 24, 2014 at 11:14 AM, FoundryOnStocks (28.02) wrote:

Mega, agree with Evan, very healthy exercise to examine your losers and not let them compound into portfolio drains. I have always been impressed with your ability to find a broken businesses like the couple years you put together the list of the top 5 businesses likely to go bankrupt and I think all went under with the exception of debt riddled Rite Aid. Do you have a new list of bankruptcy candidates for 2014? Once they approve my CAPS posting ability, (going on 4 days), I will be posting a mea culpa on one of my short picks.

To the rest of you top 1% ers.evan, port, is the last day to enter my stock picking contest. Love to get a couple more entries from the community here. Make up for those shorts gone bad by picking a "hometown" long for $100 first prize.

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#5) On January 24, 2014 at 2:15 PM, constructive (99.96) wrote:


I just entered your contest.

My 2012 bankruptcy list hasn't worked that well. Although 2 of them went bankrupt, on average they are way up.

It seems to me that the risk premium has fallen dramatically over the last 2 years and especially the last year. And it is now too low (although it could always go lower).

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#6) On January 24, 2014 at 2:23 PM, constructive (99.96) wrote:


No, unfortunately I haven't bought Porsche. I think it continues to offer very good value, I just haven't wanted to own a car company enough, especially since I missed a much cheaper entry point.

Have you heard anything new about the lawsuit related to their takeover of Volkswagen? Do you think that when the lawsuit is resolved they might merge with VW to eliminate the large holding company discount?

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#7) On January 24, 2014 at 3:00 PM, FoundryOnStocks (28.02) wrote:

Thanks Mega. Good luck!  Risk this decade has been rigged in the favor of debtors via manipulated interest rates. No one is paying the price for operational mistakes and a debt heavy capital structure, they just borrow more to avoid getting crushed, pushing off their demise into the future. They stay on life support even though they are a doomed patient!

If management stinks, chances are they will still stink when rates eventually head higher. (They've been rewarded for screwing up, why change now?) 

Eventually they have less measures in their bailout toolbox to work with. When rates head north, watch secondary offering spike.

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#8) On January 24, 2014 at 4:07 PM, ikkyu2 (98.25) wrote:

Facebook's market cap made the top 30 of all stocks in the US.  It is currently #23, I think, at least according to Fidelity's stock screener which lists them at $137B.

That is nonsense - just ludicrous.  They produce nothing, they will never generate earnings, and they are a fad like Myspace. Young people are fleeing FB in droves.  Let's look at the next 5 stocks on the market cap list:


Philip Morris International

Berkshire  Hathaway


The Walt Disney Company

Ok, now let's get this straight.  The market says Facebook is more valuable than Berkshire Hathaway - in other words, if market makers had the chance to trade all of Berkshire Hathaway's future earnings for all of Facebook's future earnings, they would do so and believe they had made a profit on the deal.

ARE YOU FREAKIN' KIDDING ME???  That's utter insanity.

I don't go short because I am a long term investor and I am not good at spotting a short 'catalyst' or picking a short timeframe.  But if I were going to short 1 stock, it'd be FB. 

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#9) On January 24, 2014 at 4:42 PM, dragonLZ (88.27) wrote:

What are you complaining about? You are up almost a thousand points today... :)

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#10) On January 24, 2014 at 9:05 PM, portefeuille (98.93) wrote:

No to both questions. There are minor news items every now and then on some aspect of some lawsuit, but I think the whole thing is still far from resolved. And I think the Porsche (common shares) owners like it the way it is, controlling Porsche and via Porsche Volkswagen. I quit following the daily Porsche/Volkswagen news flow a few years ago, it got pretty boring ;)

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#11) On January 25, 2014 at 10:46 AM, jiltin (45.51) wrote:

You have thumbs down most of the tech stocks. I have also thumbs up many of them, not only for caps, but for actual stocks (holding it).

Look at your top 10 negative scores TSLA, YELP, ACAD, SCTY, LNKD,P, NFLX. All these are jumped 100% in a year.



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#12) On January 25, 2014 at 5:55 PM, constructive (99.96) wrote:


Yes, that's true.

Were you in the market in 2000 and 2008? High multiple (or no multiple) stocks like TWTR, TSLA, CALD, YELP, SSNI, FEYE, SCTY and AMZN collapsed between 50 and 95% in those periods.

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#13) On January 30, 2014 at 2:29 PM, constructive (99.96) wrote:

dragonLZ wrote: What are you complaining about? You are up almost a thousand points today... :)

It seems like I will give it all back soon enough. With my current CAPS picks I am losing around 800 points per percentage point the S&P 500 rises.

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#14) On January 30, 2014 at 4:07 PM, Mary953 (85.67) wrote:

My take away from all of this is that you are putting a great deal of thought and analysis into each of your stocks.  That accounts for your high score in CAPS and I would suspect it also carries over into your RL investing.  Knowing the specifics of each stock is a good thing and can only work to your advantage.  It is a shame that we cannot choose to give CAPS members a thumbs up.

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