"The world is round and the place which may seem like the end may also be only the beginning." Ivy Baker Priest
As you might have already guessed it- it's that time of the year again! The most recent round of Strategy Lab has finally come to its torturous (as measured by the amount of fresh gray hair I've accumulated since last August) end. And thus it's time to recount some of the successes, acknowledge some pretty obvious mistakes and say the final "good-byes" to all of my readers out there.
First of all I wanted to thank all of you who supported my posts over the last twelve months with your votes, emails and fair or sometimes emotional critique. I simply can't stress enough, how privileged I feel to have been able to share my investing ideas here at Strategy Lab over the past twelve months. Given the predominately warm feedback from many of you, I hope that you have somewhat enjoyed my commentary, and that you might even keep visiting my blog in the future.
By the time the final results are calculated on Friday, I expect that my portfolio might show a slightly positive return of maybe 1-2% over the last two rounds (negative 8-9% in the Round 18) vs. market's decline of nearly 40%. On any other occasion, I would be the first one to quickly shrug off the talk of beating the market by being barely "in the green" as a typical Wall Street "happy talk". Unfortunately, the reality of last year's collapse makes me feel slightly less sarcastic than usual.
Preserving capital during the period that likely represented a once in a life time "black swan" sequence of events, is something very few achieved during the last 12 months. No strategy outside of being a 100% short seems to have worked. Even many of the "doom and gloom" perma-bears have lost spectacular amounts of money for their clients. And thus while the mighty market has certainly humbled my "every year up in double digits" strategy, it has also proved to me, that my core strategy of being flexible at all times is the only way to go.
As a quick review of my trades during the last round suggests, I have certainly made my share of mistakes Largest one of them being the fact that I left my portfolio unattended without any stop limits during a prolonged vacation late last summer, which has led to a complete fiasco in the form of double digit losses by the time I came back. I have also been stung quite noticeably by my unusually stubborn "conviction" of the phenomenal value of the China Natural Gas (CHNG). Limiting losses on the CHNG stock alone could have moved me closer (or may be even into the positive territory) during the latest round.
And while I might still be very convinced in the validity of my original thesis behind this pick, absent a fairly quick move to the larger exchange with ensuing focus on the prompt disclosure of all potential related party conflicts and better focus on investor relations, CHNG may just stay what it has been for quite a while- a stock, where financials alone easily support value multiple times greater than the current price, but the one, that cannot deliver on its potential, because no one is sure if this potential is a real thing.
On the other hand, as an example of success behind my original core "long/short" strategy, one can also recount some of the successes of my plays in the loss ridden banking sector. These came both from both bank preferred shares and shorting the ultra short ETFs transactions. In addition, during the last several months I have also made money in the emerging telecom sector picks, called a turn in the stock price of AAPL, bubble in commodities and agriculture, the fall of Goldman Sachs and many other key events...
But outside of numbers alone, I also became convinced that over the last round we've had a very unique opportunity to share with readers our thoughts on various events of the period, where even many of the seemingly normal "go- nowhere" days' like yesterday, are likely to be studied over and over in the years to come by many historians. I will even go as far as to even say that we might have very well witnessed the beginning of the end for the "wild west" version of modern capitalism.
Yes, you heard me correctly- "the end"! Despite all of the cheerful screaming that "things will get back to normal" sometime in the nearest future (usually three quarters out for some reason) - I now firmly believe that unfortunately, we simply can't go back to the old borrow more/ spend more routine any more. Period of the ever increasing leverage that led to the miracle of the "great prosperity" of the last several decades is now officially over and is not coming back, period! Many companies that question this "things will be different" thesis, could easily find themselves out of business by the time it's all over...
The unveiling of today's "no real plan" plan by the Treasury Secretary Geithner has likely sealed the fate of many important financial institutions... By the time the US economy actually comes out of the current "Great Recession" on the back of the bottomless government spending, never ending bailouts, stricter regulation and altered consumer behavior, we will be faced with inevitable payback in the form of higher taxes, lower productivity and standard of living in the decades to come.
I know it's not what most of us want to hear, but unfortunately "there is no free lunch" out there, plus "sugar coating" the truth is not what I do too well anyway...
Does it mean that we should now all sell every asset we own, buy a gun, stock up on bottled water and build a bomb shelter? Most certainly not! I personally never bought in into the "doom and gloom" theories out there. However, I also don't believe in the fairy tales.
The beginning of next "great bull market" has not yet made it even close to my "investing" radar. And thus as usual, all investors should exercise full caution and very carefully question every "common wisdom" advice they are given by their investment advisers. The assumption that "stocks always go sharply" during the early stages of the "bull market" could very well turn out to be a false for quite a while longer.
But to make sure I finish on the positive note- the good news is that despite all the negatives, the S&P 500 simply can't decline another 500-600 points from here, and thus as Jesse Livermore could have said many years ago- "in the long run the path of the least resistance is likely to be up".
Stay safe out there, and e-mail me your questions/comments at skepticalcapitalist@gmail.com
