Some lessons from a value investor

[wisdom]

Cardboard that is awesome that you are able to share an experience such as this so openly. It will only make you better if the lessons learned are correct.

 

Regarding being close to the bottom:

 

Will there be secondary effects from the crash in oil/commodities, the Swiss decision on CHF, negative rates in Europe and China continuing to slow. It is too early for all this to have played out. How will European banks and insurance companies deal with negative rates especially when their banks are still so leveraged? The drop in Euro could force the Japanese to devalue the Yen more. What if the Yen moves to 200 against USD as some expect? How will this impact Germany and the rest of Europe and Asia?

 

Meanwhile, debt levels aren't exactly low around the world leavinng no room for error by any major country. Where does demand come from unless the debts are reduced?

 

The risks are pretty high until the de-leveraging cycle is completed.

 

Obviously, this does not imply that the markets could not run up for the rest of the year from here. Who knows what happens in the short term?

 

The movie is probably just beginning. Better to be prepared, just in case, things do not go the way we expect.

[txlaw]

5- Whenever a thesis is brought to you by an "expert" be skeptical.

 

I don't care if it is Watsa, Ackman, Buffett or whomever. These guys rarely make money with the idea that you have retained and it is often the one that will make you lose money.

 

You really have to make an idea for yourself about an investment and remove from your head target prices, buyout possibility or whatever rosy scenario someone may have mentioned. It includes things that are said on this board and that stick in your mind. It is something very hard to do, but you have to purge from your mind anything positive or that is not a cold hard fact.

 

For example, Sanjeev had mentioned that TPG-Axon would try to sell Sandridge. Sanjeev is successful and right much more often that he is wrong, but that thing stuck in my mind and seemed to make a lot of sense. This was reinforced by Cooperman's $10 target. Fairfax also held a very large position and Watsa mentioned publicly that SD was worth $20. The CEO mentioned not that long ago $15. Unfortunately, TPG-Axon was likely greedy and did not do the sale. Maybe they could not either. The reasonable target now if things don't change rapidly, is much less than $5.

 

It was not that hard for me to realize that this investment was much worse than all my Canadian oil & gas names: higher debt, tougher reservoir with lower oil content. What kept me in was hope of a take-out.

 

This one hits close to home.  I would say that SD is probably the worst mistake I've made since becoming a full-fledged "value investor." 

 

I've invested in a few O&G-related companies, and for the most part, my theses were all my own and focused on my views with respect to US natural gas (and not oil).  However, with SD, I got pulled into an oil company with the "special situation" lure.  I was expecting SD to be sold at $7 to $8, and in short order as well. 

 

Why?  Because I attended the FFH shareholder meeting/dinner and heard the following:

 

-SD is sitting on good rock.  (This is not necessarily inaccurate, but it perhaps reflects too much faith that SD themselves can survive long enough to lower costs and increase their hit rate to make IRRs attractive.  It would certainly be good rock for DVN to own.)

 

-Continued support for Tom Ward from HWIC and the view that TPG was just going to flip the company as soon as they got on the board

 

This screamed "special situation" to me, and I got pulled in, despite not being that interested in oil at the time.  I also think my natural skepticism of O&G promotion was tempered a bit too much because of the support from HWIC and the very skeptical yet optimistic valuations set forth by TPG and Leon Cooperman.

 

Well, I paid for it with my results last year.  So I feel your pain.

[CorpRaider]

Regarding being close to the bottom:

 

Will there be secondary effects from the crash in oil/commodities, the Swiss decision on CHF, negative rates in Europe and China continuing to slow. It is too early for all this to have played out. How will European banks and insurance companies deal with negative rates especially when their banks are still so leveraged? The drop in Euro could force the Japanese to devalue the Yen more. What if the Yen moves to 200 against USD as some expect? How will this impact Germany and the rest of Europe and Asia?

 

Meanwhile, debt levels aren't exactly low around the world leavinng no room for error by any major country. Where does demand come from unless the debts are reduced?

 

The risks are pretty high until the de-leveraging cycle is completed.

 

Obviously, this does not imply that the markets could not run up for the rest of the year from here. Who knows what happens in the short term?

 

The movie is probably just beginning. Better to be prepared, just in case, things do not go the way we expect.

 

Yeah, sorry I meant close to the bottom in oil (maybe) and more specifically in the small cap E&P stocks; the ones that are down ~50%.  I'm sure there will be some bankruptcy filings before the dust settles.  I'm keeping an eye out for some PE activity in the sector, but I'm probably not going to do anything about it.  You are of course right there are seemingly a lot of risks out there and the only markets that seem to maybe have discounted those are outside of North America. 

[Uccmal]

5- Whenever a thesis is brought to you by an "expert" be skeptical.

 

I don't care if it is Watsa, Ackman, Buffett or whomever. These guys rarely make money with the idea that you have retained and it is often the one that will make you lose money.

 

You really have to make an idea for yourself about an investment and remove from your head target prices, buyout possibility or whatever rosy scenario someone may have mentioned. It includes things that are said on this board and that stick in your mind. It is something very hard to do, but you have to purge from your mind anything positive or that is not a cold hard fact.

 

For example, Sanjeev had mentioned that TPG-Axon would try to sell Sandridge. Sanjeev is successful and right much more often that he is wrong, but that thing stuck in my mind and seemed to make a lot of sense. This was reinforced by Cooperman's $10 target. Fairfax also held a very large position and Watsa mentioned publicly that SD was worth $20. The CEO mentioned not that long ago $15. Unfortunately, TPG-Axon was likely greedy and did not do the sale. Maybe they could not either. The reasonable target now if things don't change rapidly, is much less than $5.

 

It was not that hard for me to realize that this investment was much worse than all my Canadian oil & gas names: higher debt, tougher reservoir with lower oil content. What kept me in was hope of a take-out.

 

This one hits close to home.  I would say that SD is probably the worst mistake I've made since becoming a full-fledged "value investor." 

 

I've invested in a few O&G-related companies, and for the most part, my theses were all my own and focused on my views with respect to US natural gas (and not oil).  However, with SD, I got pulled into an oil company with the "special situation" lure.  I was expecting SD to be sold at $7 to $8, and in short order as well. 

 

Why?  Because I attended the FFH shareholder meeting/dinner and heard the following:

 

-SD is sitting on good rock.  (This is not necessarily inaccurate, but it perhaps reflects too much faith that SD themselves can survive long enough to lower costs and increase their hit rate to make IRRs attractive.  It would certainly be good rock for DVN to own.)

 

-Continued support for Tom Ward from HWIC and the view that TPG was just going to flip the company as soon as they got on the board

 

This screamed "special situation" to me, and I got pulled in, despite not being that interested in oil at the time.  I also think my natural skepticism of O&G promotion was tempered a bit too much because of the support from HWIC and the very skeptical yet optimistic valuations set forth by TPG and Leon Cooperman.

 

Well, I paid for it with my results last year.  So I feel your pain.

 

I was at the same meeting when Tom Ward took questions at Joe Badali's. I have never gone near Sandridge after that.  The guy just oozed unbridled greed.  BTW, not saying that I am any better than you txlaw.  People assessment is something I am good at, partly from innate suspicion, and partly from experience of 13 yrs in pseudo law enforcement.  I have other weaknesses. 

[txlaw]

5- Whenever a thesis is brought to you by an "expert" be skeptical.

 

I don't care if it is Watsa, Ackman, Buffett or whomever. These guys rarely make money with the idea that you have retained and it is often the one that will make you lose money.

 

You really have to make an idea for yourself about an investment and remove from your head target prices, buyout possibility or whatever rosy scenario someone may have mentioned. It includes things that are said on this board and that stick in your mind. It is something very hard to do, but you have to purge from your mind anything positive or that is not a cold hard fact.

 

For example, Sanjeev had mentioned that TPG-Axon would try to sell Sandridge. Sanjeev is successful and right much more often that he is wrong, but that thing stuck in my mind and seemed to make a lot of sense. This was reinforced by Cooperman's $10 target. Fairfax also held a very large position and Watsa mentioned publicly that SD was worth $20. The CEO mentioned not that long ago $15. Unfortunately, TPG-Axon was likely greedy and did not do the sale. Maybe they could not either. The reasonable target now if things don't change rapidly, is much less than $5.

 

It was not that hard for me to realize that this investment was much worse than all my Canadian oil & gas names: higher debt, tougher reservoir with lower oil content. What kept me in was hope of a take-out.

 

This one hits close to home.  I would say that SD is probably the worst mistake I've made since becoming a full-fledged "value investor." 

 

I've invested in a few O&G-related companies, and for the most part, my theses were all my own and focused on my views with respect to US natural gas (and not oil).  However, with SD, I got pulled into an oil company with the "special situation" lure.  I was expecting SD to be sold at $7 to $8, and in short order as well. 

 

Why?  Because I attended the FFH shareholder meeting/dinner and heard the following:

 

-SD is sitting on good rock.  (This is not necessarily inaccurate, but it perhaps reflects too much faith that SD themselves can survive long enough to lower costs and increase their hit rate to make IRRs attractive.  It would certainly be good rock for DVN to own.)

 

-Continued support for Tom Ward from HWIC and the view that TPG was just going to flip the company as soon as they got on the board

 

This screamed "special situation" to me, and I got pulled in, despite not being that interested in oil at the time.  I also think my natural skepticism of O&G promotion was tempered a bit too much because of the support from HWIC and the very skeptical yet optimistic valuations set forth by TPG and Leon Cooperman.

 

Well, I paid for it with my results last year.  So I feel your pain.

 

I was at the same meeting when Tom Ward took questions at Joe Badali's. I have never gone near Sandridge after that.  The guy just oozed unbridled greed.  BTW, not saying that I am any better than you txlaw.  People assessment is something I am good at, partly from innate suspicion, and partly from experience of 13 yrs in pseudo law enforcement.  I have other weaknesses.

 

Unfortunately, I never made it to Joe Badali's.  I think it would have been very helpful to have seen the guy in person, as I probably would have had the same feelings.

 

In any case, the problem was not relying on Tom Ward -- I put him in the same camp as Aubrey, i.e., not to be trusted except to promote like a typical O&G CEO.  Hearing PW talk about "good rock" and Paul Rivett discuss the "flip" by TPG is what really kept me in SD because I thought the company was very likely to be sold.  If TPG Axon hadn't gotten involved, I wouldn't have been in SD.  (I still think that the assets themselves are likely to be fantastic over time as operators figure it out, but I have very little confidence that SD can get the job done.) 

 

I think I even told ourkid at that meeting that I had no desire to be in SD as an owner (I think he was a bit surprised that I said that, haha), and I was just there to participate in the sale of the company to someone like DVN.  And then I would reallocate back to CHK. 

 

That never happened.

[kiwing100]

 

Thank you all for sharing your experiences with the board.  Many of us have learned some valuable lessons from you ...

 

[alertmeipp]

It seems to me that the obvious lesson is missing from your list, and it's called diversification and risk management.

 

How dare you mention those two things on this board.  Don't you know only lousy investors diversify?  Buffett only has 20 punches, Munger says 3 stocks are all anyone needs, how can that now work? 

 

All Cardboard needs to do is put 100% of his portfolio into SD, someone above said it will double this year.  There you go, all his losses back in a single gain.

 

In all seriousness, I appreciate the candid post Cardboard.  Introspection into mistakes is where growth comes from.

 

You miss understanding my point about SD. I am not saying SD will double. All I was trying to say is being down big at a given time isn't really that important, it is the price you sell that counts. I used SD as an example because many of us were in. It was 4 bucks 2-3 months ago. And many said it's cheap. And pumped when management and the company buy back the shares at 3.

 

Now we are 1.23, will SD trades back up to 4 next 3 months? Who knows? If it does, what will the lesson be?

 

If Cardboard is right on his oil prediction, all this paper lost will reverse.

 

 

[Investor20]

The main reason for the disaster is being heavy into oil & gas name since 2013,

Cardboard

 

Hi Cardboard, I am not into Oil & Gas.  But how do you know it is a disaster?  Personally during dotcom bust I sold a stock at a big loss and that company is  a very big company now.  During 2008, I learnt my lesson and kept a position even with 80% down and it came back pretty well.  I am generally not very good at taking such fluctuations and hence try to be more diversified.  But a short term change by itself should not be called a disaster.  It comes with the terrirtory.

[Packer16]

I think a fundamental difference between now and 2009 is the lack of a string demand rebound and the larger supply now the result of the investment between 2009 and now.  At some point the price may go up but it will be because supply is going down.  Are there any factors that would drive supply down from here?  The only ones I have heard are that drilling will decline but that will not effect price for quite awhile, meanwhile, the levered players will continue to drill to stay alive.  Historically, this has not played out too well.  The only event I can see that could curtail are large scale bankruptcies or a major Middle East supplier being pulled off the market.  At this point I would only feel comfortable owing an integrated as they can make money is all types of markets.

 

BTW I was not immune from O&G/mining related holdings as I have lost alot on Emeco to date.

 

Packer

[Jurgis]

meanwhile, the levered players will continue to drill to stay alive. 

 

This is already not true. Look at the announcements of levered players that have cut 2015 investment budgets by 70%+.

[Packer16]

I think the question is did they cut them because they were anticipating more financing and will they need to keep producing to cover existing interest payments?  If these are true then the current production level will be maintained to pay the interest but production will not increase. 

 

I think another underappreciated issue is that the worlds low cost producers are running against the clock.  If technology advancement continues, the reserves may be worth considerably less as alternatives become economically viable.  This may the reason SA decided to keep production the same despite lower prices.  Not a good trend for future price appreciation.

 

Packer

[alertmeipp]

If SA really doing this because they see the future pricing going much lower, why would they invest billions on new refinery capacity.

 

 

[Packer16]

Because it diversifies them away from upstream and provides an offset to crude's volatility much the same that integrateds have versus pure E&P companies.

 

Packer

[bookie71]

Back in the late 1960's or early 1970's at a real estate taxation class the instructor pointed out that many people had lost everything because they didn't want to pay taxes.  He also pointed out that real estate should be valued on cash flow and not tax brenifits (save those for what you might have missed in your original assumptions).

[sys]

i don't believe many of the shale producers can maintain current production from cash flow.  they have to borrow in order to maintain production.  i don't think it will be easy to borrow money to fund drilling at current prices.

[alertmeipp]

Because it diversifies them away from upstream and provides an offset to crude's volatility much the same that integrateds have versus pure E&P companies.

 

Packer

 

If they think some techs will make oil price much lower, they should diversity away from oil completely.

[Packer16]

Because it diversifies them away from upstream and provides an offset to crude's volatility much the same that integrateds have versus pure E&P companies.

 

Packer

 

If they think some techs will make oil price much lower, they should diversity away from oil completely.

 

They are doing that also in the large technology universities and cities they are funding.  I think diversifying to downstream makes the most sense as the end products (chemicals and plastics, etc.) will still have demand independent of the input price it is just that the input price will go down.  Also refining allows SA to provide end products (more value added) versus raw crude.

 

Packer

[opihiman2]

Sorry, late to the discussion.  I thought this was an excellent post.  Really good points made by Cardboard, and reflects some of what I've also learned along the way.  I used to think concentration was important.  But, over the past several years, I've done enough modeling and simulations to show that diversification is actually better.  I've also heard this from some of the most successful quant/hedge funds like Bridgewater and RenTech.  They go for uncorrelated and diverse bets rather than the value investing way of getting deep and concentrated.  I see and understand the rationale for the later, but I also know that no matter what, there is just no way for the average small potatoes investor like us to know everything about a company or predict with great accuracy about future events.  Guys like Ackman, Buffett, and Einhorn can do away with these things since they have way more capital to force changes and make things happen in their favor.  They have a competitive edge in that sense.  But the rest of us smucks have to just make due with all of our mistakes in investing.  Not to say those guys don't either, but they just have much more resources and tools to fix or alleviate their mistakes.  So, nowadays, my portfolio consists of 20-30 positions.  Although, I'm only ever 40-50% invested at any given moment.  I can only tolerate that much risk, and I adjust my investments for that.  I realize that had I taken a much larger swing, 100% in or even leveraged to the hilt, I would have returned 40% CAGR over the past 10 years or much more if using leverage.  But, if I had some major blow ups along the way, that could have easily dwindled to 10%.  I've seen one large asset management company in Canada go from 33% CAGR over 10 years to now just around 10% in the past 14-15 years including their blow ups during the financial crisis.  I'm just targeting 15% CAGR, and anything over is icing on the cake.  I'm not willing to blow my entire return on crazy huge bets like I've seen some people on this board make time and time again.  I just don't have that kind of risk tolerance. 

 

Another thing that Cardboard said that I agree with is that people don't consider the overall risk/reward ratio when making investments and bets.  BAC is a good example.  I know people on here love BAC, but at these levels, I don't understand why.  Does anyone here really see BAC going over $330 billion market cap in a reasonable time frame to return over 10-12% cagr?  That would mean it would double from these levels.  And, is it a worthwhile bet considering all of the risks out there for a major mean reversion event?  I don't understand these kinds of investments.  There are not that many companies worth $300 billion plus in market cap.  The odds are WAY against you in making a bet on BAC to more than double within a reasonable time frame.  But, people on here are doing this kind of non-sense all the time.  They start plying into O&G when oil was priced at a higher level than it was back during the period of the oil shock.  You see guys like Yadayada and all these other new comers talking about how oil will never fall again and that $100 / barrel is here to stay.  What ever happened to the contrarian thinking on this board?  It really seems that people have stopped thinking critically about these risk/reward profiles. 

 

I think that the next couple years will yield another big mean reversion event.  It's about time.  For everyone fully invested in the market, good luck.  I don't see a favorable risk/reward setup in equities or anything else for that matter.  It's because of this that I'm only 10-20% invested in the market and setting really tight stops (10% on the downside) to prevent large losses. 

 

Anyways, good post, Cardboard. 

[ERICOPOLY]

He also pointed out that real estate should be valued on cash flow and not tax brenifits (save those for what you might have missed in your original assumptions).

 

Imputed rent for a homeowner is tax-free income.  It's hard to see why that would be ignored.  I certainly don't put my head in the sand and pretend it isn't there, but there again I'm not a real estate instructor.

 

[ERICOPOLY]

Another thing that Cardboard said that I agree with is that people don't consider the overall risk/reward ratio when making investments and bets.  BAC is a good example.  I know people on here love BAC, but at these levels, I don't understand why.  Does anyone here really see BAC going over $330 billion market cap in a reasonable time frame to return over 10-12% cagr?  That would mean it would double from these levels.  And, is it a worthwhile bet considering all of the risks out there for a major mean reversion event?

 

What do you mean by major mean reversion event?  An annualized ROTE of 6.9% last quarter is far below the mean, but you seem to imply something other...

 

A major mean reverting event might mean a yield curve that restores their profits.

 

We're currently living in a phase that is far below the mean, and we're HOPING for a reversion to the mean.  It's just not here yet.  Mean bank profitability is WAYYYYY higher than this.

 

[Crip1]

 

Two major themes of this posting

 

 

Cardboard:

First and foremost, I’ve been reading Cardboard’s postings for more than a decade and have found him to be brutally honest, very intelligent, knowledgeable and, when warranted, critical. He was quite vocal of FFH-bashers back in the days of the short-attacks on Fairfax. He has also shown to be critical of several aspects of the very company he was defending, Fairfax, over the years. Now he has turned traits noted herein and set his sights on himself. One cannot help but applaud that. All too often people are reticent to do that for what are likely a number of reasons. As my expertise is not in the arena of psychology, I’ll not attempt to explain this. But I will state that challenging one’s own beliefs and actions is effective in either changing for the better or reinforcing said beliefs.

I have to disagree about dividends, though. As I get closer to retirement, a well-covered healthy dividend is becoming more and more attractive. Not easy to find, but quite valuable to a “set it and forget it” portfolio.

 

 

Oil:

My max concentration in Oil was under 3% so the sector’s rapid decline has done relatively little damage to my net worth. Being the contrarian, I am looking for two things. First, an entry point which would be at or close to maximum pessimism. And based on the comments seen in multiple articles, I do not think we’re at or close to that point (something akin to February of 2009 when our CFO told me my recent investment in Wells Fargo was dangerous). We’re not there yet. The second challenge is to determine which survivors will be best served by the inevitable increase in oil prices. At this point, I’ve no opinion on that, but that’s the work that needs to be done in the coming months, IMHO.

 

 

-Crip

 

 

[benchmark]

Hy, I had the exact same thoughts -- waiting for it be long-term in Feb/15, but now i'm sitting on a loss...

 

cardboard,

 

awesome posts.

 

#4 and #6 has bit me in the ass many times

 

just recently with BAC around end of Dec 14 BAC was around $18. I was thinking I need unload some of this, but then i thought its almost 2015 will delay the cap gain until 2015. Then 2015 comes around the stock started to drop, I thought/hope it should pop back up a little then I'll sell some etc. :(.

 

#4 and #6 working hand in hand.

 

hy

 

As I enter 2015, I do feel horrible. After a wonderful start to 2014 or being up just over 40% in June, I am now down 50% from that lofty level. My portfolio now needs to double to just get back to that important psychological level. Trust me it is hard to accept. You look at the value of your portfolio and you realize that you are now back to where you were 2 or 3 years ago. You feel like dumb shit.

 

The main reason for the disaster is being heavy into oil & gas name since 2013, not selling enough of them between May and July and using my cash reserve to buy more of them too early or in September and October.

 

Despite the dangers of investing in commodities related names, here are the lessons that I believe should be useful to all value investors:

 

1- Whenever your price to value ratio of your portfolio goes above 50% you have to get worried. Or a portfolio of at least doubles based on a reasonable fair value assessment.

 

Back in 2013 and 2014, I could not find very many sources of value. Some oil & gas names however seemed to meet the test, so I bought. Where I got wrong is to not sell all of them when the remaining upside based on my reasonably calculated fair value appeared to be only 30 to 40%. They were barely doubles when I got into them anyway, so the test would have also kept me clear of that entire area.

 

Food for thoughts: There are many people invested in BAC on this board currently. I exited the name at around $15 in 2013 after buying in late 2011 around $5 because I could not see more than a 30 to 40% necessary jump to fair value over the next 18 months. So I will simply say just be careful if you are holding something for little upside left. It means that your margin of safety has declined significantly.

 

2- Whenever you feel knowledgeable and are making great gains each week or month you have to get worried.

 

Every time I started to feel great in my 18+ years of investing, there was a humbling moment right around the corner. And being a value investor and having relatively long holding periods (2 to 3 years), it takes a while to shake out the facts that you assumed were right and to react adequately. So if you start feeling intelligent, please look carefully at your portfolio, weightings, cash balance and hedges.

 

There were signs that oil production was in a bubble. I actually visited Fort McMurray in July and could not believe the level of activity. It was impossible to predict $48 oil, but to realize that optimism was too high back then, not hard at all. There was also a small supply glut in NA from the time I bought in 2013. When the price did not spike much after the Ukraine issue and ISIS, it was a big danger sign.

 

3- Whenever I bought a stock with an appealing dividend, it almost always got into trouble.

 

This must be a disease affecting many value investors. I would have to look long and hard in my trading history to find a stock with an above average yield that did not result in, at least temporarily, significant losses. These stocks are often decent value, held artificially high by the dividend and ripe to be taken down hard on any more bad news. Dividends should never be part of your thesis.

 

4- Whenever delaying taxes is on your mind, you are prone to make big errors.

 

I was sitting on big gains in June. Selling all oil stocks to meet my point #1 met an issue in my mind or a large tax bill this year. Not being my number one reason, still slightly thinking about it affected my judgement.

 

How often have you lost money because you held on to a stock in November and December only to sell it in January at a lower price to avoid paying taxes that year? And all you are doing is delaying the tax bill by one year. So basically, all you are saving is the capital cost on that tax bill for 12 months. In fairness, you also have decreased installments. However, at a maximum rate of 25% of your capital gain in Canada and at the rate that things can change in the stock market, it is not worthwhile at all playing with fire IMO.

 

5- Whenever a thesis is brought to you by an "expert" be skeptical.

 

I don't care if it is Watsa, Ackman, Buffett or whomever. These guys rarely make money with the idea that you have retained and it is often the one that will make you lose money.

 

You really have to make an idea for yourself about an investment and remove from your head target prices, buyout possibility or whatever rosy scenario someone may have mentioned. It includes things that are said on this board and that stick in your mind. It is something very hard to do, but you have to purge from your mind anything positive or that is not a cold hard fact.

 

For example, Sanjeev had mentioned that TPG-Axon would try to sell Sandridge. Sanjeev is successful and right much more often that he is wrong, but that thing stuck in my mind and seemed to make a lot of sense. This was reinforced by Cooperman's $10 target. Fairfax also held a very large position and Watsa mentioned publicly that SD was worth $20. The CEO mentioned not that long ago $15. Unfortunately, TPG-Axon was likely greedy and did not do the sale. Maybe they could not either. The reasonable target now if things don't change rapidly, is much less than $5.

 

It was not that hard for me to realize that this investment was much worse than all my Canadian oil & gas names: higher debt, tougher reservoir with lower oil content. What kept me in was hope of a take-out.

 

6- Oh yes. Hope is an investor worst enemy!

 

Cardboard

[krazeenyc]

Regarding #4...

 

Are you sure there isn't memory bias going on here? There is no logical reason that over a large sample size this would be a problem -- unless you're strategically doing something very wrong.  In fact -- I'm pretty sure waiting an extra week or month possibly to convert a short term capital gain to a long term  capital gain is going to be a net positive over the long run for most people. Like everyone I've had a couple of these bite me in the butt, but over the long term (in taxable accounts) it has been quite profitable to pay the long term capital gains rate instead of ordinary income tax. I'm sure people forget about all the times they delayed a sale for tax reasons -- and stock increased another 10-15%.

 

[constructive]

Regarding #4...

 

Are you sure there isn't memory bias going on here? There is no logical reason that over a large sample size this would be a problem -- unless you're strategically doing something very wrong.  In fact -- I'm pretty sure waiting an extra week or month possibly to convert a short term capital gain to a long term  capital gain is going to be a net positive over the long run for most people. Like everyone I've had a couple of these bite me in the butt, but over the long term (in taxable accounts) it has been quite profitable to pay the long term capital gains rate instead of ordinary income tax. I'm sure people forget about all the times they delayed a sale for tax reasons -- and stock increased another 10-15%.

 

I agree. Holding stocks a few months too long might be a systematic problem for a very small minority of people. The vast majority of people have the opposite systematic problem which is more serious.

[Uccmal]

Regarding #4...

 

Are you sure there isn't memory bias going on here? There is no logical reason that over a large sample size this would be a problem -- unless you're strategically doing something very wrong.  In fact -- I'm pretty sure waiting an extra week or month possibly to convert a short term capital gain to a long term  capital gain is going to be a net positive over the long run for most people. Like everyone I've had a couple of these bite me in the butt, but over the long term (in taxable accounts) it has been quite profitable to pay the long term capital gains rate instead of ordinary income tax. I'm sure people forget about all the times they delayed a sale for tax reasons -- and stock increased another 10-15%.

 

 

We need to speak the same language.  Cardboard lives in Canada.  There is no long term capital gains versus short term.  He was waiting into the new year from June. 

 

I suspect your basic thesis is correct though.  As Opihiman has suggested taxes need to be a part of the equation from the time we buy.  I have been managing my 2015 taxes since January 1.  I have been shifting around positions and taking some capital losses right now.  That will offset gains at some other time.  i.e. I have sold all of my Pwt common position and some Leaps on the same.  I have also sold all my $20 Bac leaps, and bought $15s instead - all 2017 expiries.  If I so desired I could buy back Pwt in 3 weeks and get the wash.  Unlikely though as I think they will dilute at the request of bondholders.