In 2013, Altisource was the best performing long position in my portfolio. In 2014, I unfortunately made it the largest position in my portfolio. Because of that, I am badly lagging the market.
Lately, independent E&Ps have been beaten down due to lower commodity prices. Drilling stocks (e.g. NADL) have been beaten down due to US sanctions on Russia and lower oil prices. Some shipping stocks (e.g. DRYS, PANL) are beaten down. In these situations, I will not be greedy when others are fearful.
Overall, my portfolio is down several percent YTD mainly due to a longshot bet on Yongye put options and mark-to-market losses on Altisource common shares.
On the short side, shorting common stock has worked incredibly well for me this year. Unfortunately, my gains were offset by losses on Yongye puts.
On the long side, I made massive bets on Kinder Morgan warrants and Altisource common stock. The former has been profitable while the latter hasn’t. Altisource has been beaten down -53% YTD and I have been adding to my position on the way down. While Altisource continues to have absurd earnings growth, its share price has fallen dramatically due to fears that regulation may hurt the company.
The warrants may still be slightly undervalued. However, my instinct is to sell stocks/securities on rallies and to reinvest the proceeds into stocks that have dipped (e.g. ASPS).
I sold slightly below $4 (which is terrible trading on my part because I sold near the day low). I still have a few call options which I plan on riding out to maturity. This trade worked out well.
I don’t think that investors should panic over Ruger’s drop in EBITDA and distributor orders. Going forward, I see the company gaining market share as its continues to release new products (which it has done so in the past). Volumes and profitability should recover and grow.
That being said, a huge contraction in the gun market or intense competition can hurt Ruger shareholders. I have no special insight into what will happen to the overall gun market.
So far I have shorted the common shares of more than 80 stocks this year. On common shares, I have been profitable overall despite a rising market. Unfortunately, losses on put options (mainly YONG) have more than wiped out the gains on my common stock shorts.
I think that I’ve gotten fairly good at spotting bad stocks. My CAPS account is a reflection of that. (*CAPS does not consider the mechanics of borrowing shares. It’s unrealistic.) Unfortunately, I’ve been losing money on put options this year. Part of this may be because I mainly short small cap stocks which are too illiquid to buy put options on. As well, many of my shorts are volatile so the put options would be neither cheap or attractive.
See below for commentary on certain positions. Keep in mind that due to the sheer number of positions, my research on short positions is typically very shallow.