This is Yu Deng - some of you remember me as the guy who bought call options along with Ericopoly on Fairfax during the Great Financial Crisis - and am trying to get back into the game

[DegenerateGambler]

Hi All,

 

It has been a while.  Some of you remember me as Yu Deng who bought call options on Fairfax during the financial crisis along with Ericopoly and profited majorly (I got up to 40x on my investment).   I flew to Toronto to meet the Fairfax management to ask about their CDS positions and how could the financial crisis NOT HAPPEN (risk to the trade) and I vividly remember Sam Mitchell telling me that unless the Fed injects another shot of Heroin, it was not gonna prevent the collapse.

 

Since then, I have unsuccessfully invested in Chinese microcaps - I bought a Chinese coal company trading at 0.7 times earnings, visited the company, confirmed all profits were true, met the CEO, and believed it was severely undervalued.  Then it turned out most major Chinese microcaps were frauds on the OTC exchange - except the one I did due diligence with me physically visiting the company.  And as these frauds were exposed, the shares of my company went down 90%.  The CEO of the company did not know what was going on as his shares crashed in price and simply offered to buyout the shares at 0.25 times earnings.  So I lost majorly on that one, I literally thought it would go to 10 times earnings and net me a 12x.  

 

After that debacle, I am trying to get back in the game over the past few years.  Over the past 2-3 years, I have done these trades/investment:

Longed BIDU at 87

Longed BABA at 70

Shorted CAR at 669

Shorted GDXU at 400

Shorted PLTU (2x PLTR) at 90

Shorted RDDT at 208

Longed EWY leaps at 122

Longed HIMS leaps at 21

Shorted ASTS at 95

Shorted 2x Tesla (TSLL) at 20

Long SLRK at 12.5 (a small bank in Denver trading at less than 5 times earnings)

Shorted BE at 195 - this one was not one that worked out well for me

 

I am currently trying to get back into the game of making asymmetrical bets.   I have a net long position via shorting the 2x short ETF on SNDK (SNDQ) and am also net short oil produces via the 2x oil producer index (GUSH), while holding a 2 year leap in Duolingo (DUOL).  I am also thinking of going long ZM - since it has a sizable investment in Anthropic and when Anthropic IPOs I believe ZM will benefit in share price appreciation.

 

I am looking to short the AI Bubble in 2-3 years or when I feel the mania gets to extremes on first glance (first glance meaning no deep research required, just basic economics screaming too obvious as short opportunities).

 

It feels good to get back in the game after the debacle I had with the Chinese microcap (even thought the company was real and the earnings were real as I visited it personally and saw the mines, met the CEO, saw the trucks and the equipment).

 

I hope to share more ideas here with asymmetrical bet ideas here and hopefully it helps me get back into the game as well.   After a few years, I hope to start an investment business and see where it can take me as this is my natural passion.

 

As some of you may be wondering - I forgot my username/pw combo of my previous account.  So I created this parody account to remind myself that investment/trading has risks and never gamble.

 

Hope to contribute and learn more, as I am passionately trying to get back into the process.

Edited May 2 by DegenerateGambler

[moatrep]

I guess your bet was right, but in sizing, on my own experience as someone that likes big concentration, i will be relunctant to go above 3-5% on a single operation business (unless a short term catalyst is there, which can 2x my allocation limit), or 33% on a more diversified business. Also in shorting I hold the opinion that loses are unlimited, so it always carries a big risk. Other than that you should be proud to come back, and I think that kind of mistakes are easy to solve. 

 

With all that, with you invested this way, visiting the site, the probabilities where so low that statistically it was smart. But it happened. It's good for us to learn this stories. Thanks for sharing and welcome.

 

Makes me remember what happened to Monish Pabrai, and I guess from that experience comes my limits

 

Edited May 2 by moatrep

[schin]

@DegenerateGambler - You didn't put some on the side... so, you didn't have this risk of ruin situation?

 

 

[DegenerateGambler]

4 minutes ago, schin said:

@DegenerateGambler - You didn't put some on the side... so, you didn't have this risk of ruin situation?

 

 

I put 80% of my net worth into that 0.7 PE stock since i visited the company and met the CEO personally.  I never would have thought there was contagion risk from other companies.  I think this is a lesson we all could learn - and I paid it the hard way.

[Grenville]

Glad to hear from you after so long! Welcome back!

[schin]

23 minutes ago, DegenerateGambler said:

I put 80% of my net worth into that 0.7 PE stock since i visited the company and met the CEO personally.  I never would have thought there was contagion risk from other companies.  I think this is a lesson we all could learn - and I paid it the hard way.

 

@DegenerateGambler - With a PE of .7, I don't know why the CEO wouldn't just allow the cash to build up. There was no need for a forced sale. He could have just allowed it to compound and buy back stock. 

 

That's really bad in terms of capital allocation. Every year, he was getting his stock price back... eventually, the stock market would reward it.. Cash don't lie.

[DegenerateGambler]

You are right - except he was trying to raise cash in the US at 8 times earnings to purchase another coal mine, and he didn't see the need to be listed in the US anymore since his stock tanked.  It was just a double whammy type of situation.  I wish it turned out otherwise but it was still a poor decision on my part to put 80% of my net worth into it.

[WayWardCloud]

Welcome back! Your risk tolerance sounds off the charts and I'm really looking forward to reading about your adventures. Thanks for sharing your current positions. Is shorting a short a way of capturing beta slippage? It sounds like a free lunch and I am wondering what I'm missing.

 

I understand better your other post now. If I had a x40 in my past I would probably as well be a "degenerategambler" for life, trying to reproduce that high. It sounds like you've already had several other big successes since then, that's awesome. Do you follow a certain method to decide what percentage of your net worth to allocate to each idea?

 

 

Edited May 2 by WayWardCloud

[DegenerateGambler]

1 minute ago, WayWardCloud said:

Welcome back! Your risk tolerance sounds off the charts and I'm really looking forward to reading about your adventures. Thanks for sharing your current positions. Is shorting a short a way of capturing beta slippage? It sounds like a free lunch and I am wondering what I'm missing.

 

 

Shorting leveraged short ETFs is a way to capture beta slippage if you are right on the overall trend.  You still have to be right on the overall trend with the math working for you due to the way the leveraged ETFs are calculated.

[schin]

1 hour ago, DegenerateGambler said:

You are right - except he was trying to raise cash in the US at 8 times earnings to purchase another coal mine, and he didn't see the need to be listed in the US anymore since his stock tanked.  It was just a double whammy type of situation.  I wish it turned out otherwise but it was still a poor decision on my part to put 80% of my net worth into it.

 

He should have hunkered down and not try to raise cash... Ride out the wave. As a microcap, you didn't have any control via board seats or influence him with control?

 

Again, this is all in hindsight, but I'm glad you're trying to rebuild.

[DegenerateGambler]

3 minutes ago, schin said:

 

He should have hunkered down and not try to raise cash... Ride out the wave. As a microcap, you didn't have any control via board seats or influence him with control?

 

Again, this is all in hindsight, but I'm glad you're trying to rebuild.

I was very young (in my 20s) and did not realize anything about gaining a board seat.  I just thought it was super cheap and was gonna 12-15x my investment.  I was too much of a simp back then.

[tede02]

Fun thread to read. I'm in my early 40s now with over 20 years of investing experience. One concept I've come to appreciate much more with experience is sizing bets. When I was younger and hadn't suffered through big losers, I bet way too big. There's always an element of chance in investing and you have to respect it and things that are unknowable. That's what I've learned at least. I was also struck hearing Druckenmiller say that George Soros wasn't necessarily great at making big predictions, but he was a master of knowing when to bet big and when not to. 

[decipher]

Welcome back, remember you from the FFH trade.

How are you sizing your trades now?

[Blugolds]

51 minutes ago, tede02 said:

Fun thread to read. I'm in my early 40s now with over 20 years of investing experience. One concept I've come to appreciate much more with experience is sizing bets. When I was younger and hadn't suffered through big losers, I bet way too big. There's always an element of chance in investing and you have to respect it and things that are unknowable. That's what I've learned at least. I was also struck hearing Druckenmiller say that George Soros wasn't necessarily great at making big predictions, but he was a master of knowing when to bet big and when not to. 

 

I think this is the natural progression in investing, at least it was for me. Reading Op's story I couldnt help but think...man that could have been me, and it was, albeit in a lower capacity back in the day. I was young in age and investing acumen, with a bank roll that outsized my experience and understanding, coming off some early sucess (in hindsight, that saying about hoping your first deal is a loser because you learn when it is cheap, but if its a winner you think its easy and dont learn as much etc...I was overconfident...I didnt even know what I didnt know...and the education was expensive lol.