September 23, 2009

Positions Revisited

I want to revisit some of my stock decisions and see what was the outcome and analyze if there is anything I should have done better. I will try to be intellectually honest with my assessments and recognize my errors. Also i want to look back and see if there are any mental traps that affected my decisions and recognize when i fall for these psychological biases.

Below is all the positions that I have talked about on this blog for over a year or so. All are businesses that I looked to own but did not or I bought and sold.

General Growth (GGPWQ): I have dismissed the value in this name when it was trading at $.35. now the stock is over $4.5 an impressive 600%+ return. Was I wrong? Off course I was. Would I do the same decision again? Probably yes. There is nothing inherently wrong in how I analysed the situation. I came to the conclusion that there is a probability of permanent loss of capital; this probability excluded the equity of GGP right away.

I honestly can live with the consequences of such decisions. I prefer to err on the side of preserving capital than take a speculative position like General Growth.

Coach (COH): I liked the business and its management but I decided I will only buy at $18 or below to give me enough margin of safety. Coach is trading at $33; some 80% return if I have gone ahead and bough at my buy decision.

My inaction cost me here. This one hurts more than General Growth because there was no reason not to buy. I scummed to the fear and paralysis during the market tumble earlier this year. My bias for the status-quo and regret avoidance have cost me.

Hawk Drilling (HAWK): I did not like this spin-off for various reasons. However, the stock has gone from $22 to $35 in the span of several weeks. The business has a lot of ugly factors in it, which is what you want to buy in a spin-off. But again this one I can live with. The price has gone up not to the specifics of the company but because of movement in natural gas as evident of a similar move by its competitor Hero Drilling as seen in the chart; Natural Gas has also moved from $2.7 mcf to $3.7 during the same period. I concluded that this was a leveraged play on Natural Gas and I did not want to call its direction.

Switch of Bank of America to American Express: After BofA bought Merill Lynch I decided to get out and switch to AMEX. My analysis were right that BofA would have tough time with Merill and I am better with a company that have a great brand name and much more easily understood and analysed than a bank. AMEX return 65% from the switch to BofA -14%.

In this instance I did not have any status-quo bias I acted and I did not have a loss aversion bias. I hope I can have the same capacity to perform the same decision in similar situations.

Preferreds (Brookfield and Bombardier) and Senior Loans Positions: I have bought several positions with the credit theme to be a better proposition than equity. All worked very well with most of them 70% gains plus their yield.

However, equity performed very well since its March lows. All my buying from late 2008 to early 2009 has been tilted toward credit instruments rather than equities. There were several companies that I liked that could have provided me with handsome returns over the last six months. Again, some paralysis on my part to pull the trigger on stocks with attractive prices, similar to Coach above.

Teck Resources (TCK): This position has worked as I expected. The assets were too valuable. When it was trading at $4, I did not think there was any chance of loss of capital. Now that the stock is trading at $30 it still has some room to high 30s.

However I made a silly mental error. I sold too early and left a lot of profit on the table by halving my position. The business did not hit my value estimate and I reacted to the price run and I fell to regret avoidance mode. I should have asked what is the value?

FirstService (FSV): I sold at 8% loss when I realized I made several errors in valuation and business model assessment. My mistake here is that those assessment should have been made before hand not afterwards. I rushed to take advantage of price decline before the opportunity escapes me. Little I know the price declined further. Here it was a process violation; the position should have never been established and because of the error I am 8% poorer.

NorthStar Realty (NRF): I am down some 50% on this one. I can be wrong on this one but I followed my process and my thesis still good. I am willing to hang onto it until I see another opportunity with better return profile.

Sears Holding (SHLD): I am down 30% on this position. Again so far I am wrong and the intrinsic value has declined with the name as its real estate assets have went down in value. Moreover, I realize now that valuation discount alone is not enough it has to be coupled with good business model and economics.

Cardinal Health, Peyto Energy, and Burlington Northern: All of these positions are recent and any analysis is not worth its trouble.

I just wonder how this post would have been different if the market have not rallied. I come to remember the quote " rising tide lifts all boats". So I am thankful that I did well but I always think that there is an element of luck in my decisions.


chrispycrunch said...

All in all, did you make a profit? I track a number of the stocks you mentioned but don't know enough in most of them to invest. TCK was a good one but I think this ran up because of the market, not because of any fundamentals. Resources trade on metal prices and predicting this pricing is very difficult.

Sami said...

The bet with TCK was it would not go bankrupt. The market was betting it will be bankrupt because it would not finance its debt.

My analysis did not factor price increase of commodities. I actually valued their cash flows at lowest commodity prices for copper and coal. And I reasoned that if prices recover it would be a bonus.

Anonymous said...

Hi Sami,

Your thoughts on BPO?

Sami said...

I did not include BPO because it was bought outside the time period outlined.

I made a mistake of buying at the first sign of distress and I jumped in. What I learned is that timing matters when prices are falling I should take my time and wait for stabilization. I do not need to catch falling knives. I am down 30% on it but I still hold it.

WHat I like about them is:
* good properties in good markets
* good management that knows real estate not just financial engineering
* backstopped by BAM
* I do not see their debt, although a bit higher than others, as a risk.

I will start adding to the position over the next few months.

Anonymous said...

Hi Sami,

I disagree with your analysis on Coach. I think you made the right decision in not buying. Macro level armageddon was upon us and it made sense at the time to wait and see. Should you have pulled the trigger when there was uncertainty but no fear - yes but I don't know when that level was reached for you.

Hindsight is 20-20 but I think it would have a taken a leap of faith in the system to invest then. If you remember even investors like Soros had started to liquidate their investements last year when they thought armageddon was coming.

I think you are being too hard on yourself :)


PS: Love your blog

Kobra said...

What type of screens are you running?

Sami said...


I monitor 52 low list. other than that I do not run any specific screens.

Anonymous said...

What roughly is your buy price for BPO?

Sami said...

my cost base is about $16. I started buying it around 17 and I added at the $11.