2013 Year in review and my plan for 2014

My portfolio was largely:

  1. Long US stocks.  This did fine as Altisource (ASPS) was one of my largest positions.
  2. Short US stocks.  Unsurprisingly, I lost money here.
  3. Long volatility/options.
  4. Long Canadian junior mining stocks.  I am slightly profitable here despite the bloodbath in the TSX Venture.

I lagged the S&P 500 index but still had a profitable year.

Areas where I could have done better

Mining in general

Part of me wishes I had never looked at mining.  While I have made money in mining, what I did wasn’t that great of an idea.  Technical report fraud is rampant in this sector.  It is not a good place to look for long positions.

KWG Resources and Noront

Had I known earlier that Cliffs’ chromite deposits were uneconomic and done more homework, I would not have invested in these stocks.  Unfortunately for me, Cliffs did the right thing and stopped throwing money at their chromite deposits.  I have taken my losses and sold out of my position in both stocks.

KWG Resources was a little sketchy to begin; perhaps that is something else I should have picked up on.  Frank Smeenk, the CEO, is a lawyer who has gotten into trouble with the law.  He lacks mining experience.  As CEO, he pushed KWG into wasting money on drilling the Black Horse deposit (which is too deep to ever be economic in my opinion) and on “investor relations” (an euphemism for stock promotion).

Altius

Management is the best that I have seen in the mining field.  Altius has been sitting on excess cash for years and has only recently become fully invested.  Perhaps I should have realized earlier that mining stocks were overvalued in 2011 and 2012.

Crocs

I was wrong about Jon McCarvel’s honesty and his ability as an operator.  While I’ve lost money going long this stock, I might also lose money shorting it too.  The stock has shot up due to news that:

  1. Blackstone will be buying preferred shares in Crocs.
  2. McCarvel will be leaving the company.

I personally don’t think that the preferred share deal makes a lot of sense for Crocs shareholders.  Crocs has too much cash and doesn’t need to borrow money at very high interest rates.  I’m not sure what the board was thinking.  I think that a new CEO will make the outcome of this stock difficult to predict and will create uncertainty (which may be good or bad).  We’ll see if I will be wrong twice on this stock.

Short selling

The short positions that mattered were CRM, FMCN, GME, IMAX, JOE, and TSLA.  Of these, JOE was my only profitable short.  All of the other major short positions resulted in big losses.

Were these bad trades?  I’m not sure.  I have made profitable trades that I would consider to be worse ideas.  For example, I made money going long Canada Lithium in 2012.

Things that went well

In mining, I mostly avoided the TSX Venture bloodbath and the effects of falling commodity prices.  I had big positions in KWG, NOT, and NFD.A that lost money.  However, almost all of my mining money was in ALS.TO so my mining portfolio did ok.

The other thing that worked for me was buying call options.  Given that the S&P 500 was up over 30%, it shouldn’t be surprising that this worked out well.

My plan for 2014

Puts and calls

Volatility is low so I think that there will be many opportunities in options.  While I think that options are a form of gambling (it’s like a racetrack with ticker symbols instead of horses), options can be attractive because the upside is much greater than the downside.

Oil and Gas

I have a grim outlook on the independent oil and gas industry.  It seems to me that most companies are aggressively inflating their reserves and using aggressive accounting.  G&A in the industry tends to be excessive, likely because money is being wasted on corporate jets and stock promotion.  Underwriters (especially small ones) have been helping bad management teams raise money from naive shareholders.  Hopefully there will be more compelling put options in this sector.

Circle of competence

A problem this year was that my circle of competence was concentrated in industries that are bad for shareholders: mining, film/video technology, etc.  I have some understanding of oil & gas, drybulk shipping, semiconductor manufacturing, etc.

Hopefully I will develop a better understanding of industries with good economics.

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4 thoughts on “2013 Year in review and my plan for 2014

    • 1- Cherry pick between: analogy, volumetric, pressure, reservoir simulation, etc.
      Suppose that the analogy method is the main method used. You just compare your wells to other wells with low decline curves.

      2- Understate G&A. For example, you may not need to include corporate G&A at all.

      3- There are many little areas where costs can be fudged a little. I’m guessing that the errors are cumulative, much like in mining.

      4- Look at ATPG. That’s a company that inflated its reserves a lot.

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