If you recall, 2004 was a very volatile year for me, but things mostly worked out in the end. This was not the case in 2005. I began the year with over 90% of my (margined by 20%) portfolio still in NFI and IMH. I was also short about 60% of my portfolio value. About 40% of this short was in WFMI, with small positions in EBAY, RIMM, YHOO, F, XMSR, and others.
I was shorting because I felt the rally since October 2002 was running out of steam and that the valuations of these stocks were stretched. I was right in the short-term and I profited on trades in RIMM and GOOG. I had shorted EBAY around 95 in October and seen it run up to near 120. It started to reverse in January and when subpar earnings were announced on January 19th, the stock tanked. I closed at 37 (74 pre-split). I also made some money on Ford, but left a lot on the table.
Despite these success, WFMI continued higher. This and large drops in NFI and IMH had me down 20% by the end of February. I closed out IMH in March. I took large gains, these were well below levels at the beginning of the year.
Over the next few months I had some successes, but small in comparison to the many things which went wrong. One of these was non-financial. In April, while playing soccer, I tore my Achilles tendon and spent the next three months in bed or on crutches.
I got back into IMH briefly, but on June 28th after the close they announced they would be lowering the dividend in future quarters. I closed out the position the next morning. I was pretty sure it would continue down. In retrospect, it was so obvious the stock would continue down, but my shock wouldn’t let me see this. I have made a mental note to look at reverses like this as opportunities, but haven’t successfully implemented this technique yet.
The big blows came in the summer. WFMI reported earnings on July 28th and the stock jumped. I jumped out. I had supplemented my short with some puts which I sold for a fraction of my cost. The WFMI debacle was the largest dollar loss I have taken in one position. Too bad since had I held, I’d be profitable now (though not before it went even higher). But with the level of exposure I had, it would have been very difficult psychologically to hold for that long a period. And at that time my psychological state was not so healthy. In addition to the financial losses, my inability to be physically active and general dissatisfaction with my studies and San Diego was throwing me into a state of depression. It took a number of months to recover from this.
The next shoe to drop with NFI, which reported subpar earning the following week. I bailed and my two and a half year love affair came to an abrupt end.
In September Healthsouth (HLSH), which I had bought as a restructuring play announced results below expectations and a small profit turned into a loss. I exited here immediately too. There were a number of other annoyance losses. I took a position in bankrupt United Airlines (UALAQ) as a restructuring play. In September they announced they would be exiting bankruptcy but that the existing common stock would be replaced and was now worthless. I knew that common stockholders are the last one in the queue in cases of bankruptcy, but thought the fact the stock was trading at all meant it would have some value on emergence. Apparently this is not the case. I generally stay away from bankruptcies now because I don’t have a good grasp of the ins and outs (though Calpine has tempted me).
There were a couple of might have beens. In June I bought a small position at under $2 in American-Oriental Biotech (AOB), a Chinese nutraceuticals company. A poster had recommended it, and I liked the fact that they were growing and already making money. But I got skittish as everything else seemed to be going wrong. I sold for a small profit after holding for two weeks. The stock closed around 6 by the end of the year and is around 11 now.
Another almost was FDG. A friend (and broker) had recommended it to me early in the year, but I was late getting on board. Still, it jumped after I bought it in July only to fall back in October. I handled this pretty well, as it was clear the fundamentals were deteriorating. I avoided the subsequent tumble it took and collected some dividends, but felt I could have done better.
The end of 2005 saw a vastly different portfolio than the beginning. Despite the setbacks, I had begun to lay the foundation for a good year in 2006. Specifically, I started to invest in some metal mining companies which were heavily recommended on my investment board and by my broker. These included Southern Peru Copper (PCU), Silver Wheaton SLW, and Eurozinc Mining (since acquired by LUM). I also had some dividend plays including SFL and a few Canadian royalty trusts such as Enerplus (ERF). Finally, I was building a position in Japan through JEQ. The Canadian royalty trusts and Japan didn’t help in 2006, but the miners led me on a wild ride up.
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Dazed and Confused (my trading history Pt. 9)
If you recall, 2004 was a very volatile year for me, but things mostly worked out in the end. This was not the case in 2005. I began the year with over 90% of my (margined by 20%) portfolio still in NFI and IMH. I was also short about 60% of my portfolio value. About 40% of this short was in WFMI, with small positions in EBAY, RIMM, YHOO, F, XMSR, and others.
I was shorting because I felt the rally since October 2002 was running out of steam and that the valuations of these stocks were stretched. I was right in the short-term and I profited on trades in RIMM and GOOG. I had shorted EBAY around 95 in October and seen it run up to near 120. It started to reverse in January and when subpar earnings were announced on January 19th, the stock tanked. I closed at 37 (74 pre-split). I also made some money on Ford, but left a lot on the table.
Despite these success, WFMI continued higher. This and large drops in NFI and IMH had me down 20% by the end of February. I closed out IMH in March. I took large gains, these were well below levels at the beginning of the year.
Over the next few months I had some successes, but small in comparison to the many things which went wrong. One of these was non-financial. In April, while playing soccer, I tore my Achilles tendon and spent the next three months in bed or on crutches.
I got back into IMH briefly, but on June 28th after the close they announced they would be lowering the dividend in future quarters. I closed out the position the next morning. I was pretty sure it would continue down. In retrospect, it was so obvious the stock would continue down, but my shock wouldn’t let me see this. I have made a mental note to look at reverses like this as opportunities, but haven’t successfully implemented this technique yet.
The big blows came in the summer. WFMI reported earnings on July 28th and the stock jumped. I jumped out. I had supplemented my short with some puts which I sold for a fraction of my cost. The WFMI debacle was the largest dollar loss I have taken in one position. Too bad since had I held, I’d be profitable now (though not before it went even higher). But with the level of exposure I had, it would have been very difficult psychologically to hold for that long a period. And at that time my psychological state was not so healthy. In addition to the financial losses, my inability to be physically active and general dissatisfaction with my studies and San Diego was throwing me into a state of depression. It took a number of months to recover from this.
The next shoe to drop with NFI, which reported subpar earning the following week. I bailed and my two and a half year love affair came to an abrupt end.
In September Healthsouth (HLSH), which I had bought as a restructuring play announced results below expectations and a small profit turned into a loss. I exited here immediately too. There were a number of other annoyance losses. I took a position in bankrupt United Airlines (UALAQ) as a restructuring play. In September they announced they would be exiting bankruptcy but that the existing common stock would be replaced and was now worthless. I knew that common stockholders are the last one in the queue in cases of bankruptcy, but thought the fact the stock was trading at all meant it would have some value on emergence. Apparently this is not the case. I generally stay away from bankruptcies now because I don’t have a good grasp of the ins and outs (though Calpine has tempted me).
There were a couple of might have beens. In June I bought a small position at under $2 in American-Oriental Biotech (AOB), a Chinese nutraceuticals company. A poster had recommended it, and I liked the fact that they were growing and already making money. But I got skittish as everything else seemed to be going wrong. I sold for a small profit after holding for two weeks. The stock closed around 6 by the end of the year and is around 11 now.
Another almost was FDG. A friend (and broker) had recommended it to me early in the year, but I was late getting on board. Still, it jumped after I bought it in July only to fall back in October. I handled this pretty well, as it was clear the fundamentals were deteriorating. I avoided the subsequent tumble it took and collected some dividends, but felt I could have done better.
The end of 2005 saw a vastly different portfolio than the beginning. Despite the setbacks, I had begun to lay the foundation for a good year in 2006. Specifically, I started to invest in some metal mining companies which were heavily recommended on my investment board and by my broker. These included Southern Peru Copper (PCU), Silver Wheaton SLW, and Eurozinc Mining (since acquired by LUM). I also had some dividend plays including SFL and a few Canadian royalty trusts such as Enerplus (ERF). Finally, I was building a position in Japan through JEQ. The Canadian royalty trusts and Japan didn’t help in 2006, but the miners led me on a wild ride up.
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