My resolution for 2012: brass balls

This is the time of year when I look back to see all the hits and misses I made. First the hits. Coming into the year my longs were almost entirely in Canadian small cap energy services stocks.  These stocks and this sector in general were winners in 2011 despite the TSX being down 12% or so for the year. Despite all the dips in the first half of the year, namely, the March dip due to the earthquake in Japan, I held my longs strong. I then started substantially cashing out in June and early July when I sensed a change in character in the market. My timing was excellent. These stocks tumbled alongside  the market shortly after...but now most of these stocks have either rebounded back to or above where I sold them! I'm not bitter about that because a) At their lows I no longer had the same positive LT conviction about the overall market as I did earlier in the year  b) Oil prices, which these stocks are largely dependent on, rebounded a lot more than I had believed possible.  When oil prices dropped below $80 in the summer I figured it was likely that base building would take place and therefore these stocks would do likewise. Of course, that didn't happen and instead oil, along with these service stocks, did a  strong V shaped rebound thanks in large part to geopolitics, something which is difficult to anticipate and account for.

Perhaps I should have nibbled on the stocks I sold  near their lows in October but even if I did, I could not have justified buying back anything close to the amount I had sold given a) and b) above. Oh well. Hey, shit like that is gonna happen. It's one thing to sell too soon for good reasons only to see the stock go higher and it's another to sell too soon due to emotional factors such as when despite your positive LT convictions you panic during a correction or you try to be smartass trying to bob and weave through every little rally and dip - that's a bonehead move and the latter is what I did late 2010 with PSV.to and got punished BIGTIME for it....you see there's a reason for my avatar.

My biggest bonehead move of 2011 was the failure to pull the trigger on buying TLT calls that I was contemplating  in early July missing out one of the biggest bond rallies in decades. The timing of that entry would have been impeccable. I wasn't planning on making a huge bet mind you....something like 5% of my capital....but that 5% bet would have resulted in an additional 10-15% to my results this year.  

Overall though I think I did Ok but only just Ok. While a 24% return this year seems pretty damn good considering what the world markets did (especially my home Canadian market which is down 12% ), I should have done better because I didn't fully capitalize on my convictions. Why? The answer is pretty simple. A lack of balls. You see, unlike most traders who tend to make the mistake of being overly aggressive and overly confident in themselves, I tend to be overly cautious. In general, my mistakes tend to be trades that I don't make as opposed to trades that I do. To my credit, I had only 1 losing trade this year and it was minuscule....essentially breakeven.  That's not as impressive as it seems because what I think it shows is that I'm playing too tight. I should have been making more trades which no doubt would have resulted in more loosing trades but also more winning ones as well and  the additional winners would have more than made up for the additional losers.

Anyhow, what's done is done. The best you can do is learn from your mistakes. So on that note, my resolution for 2012 is for me to grow a pair of brass balls (as inspired from the movie Glengarry Glen Ross). I need to be bolder. I need to believe in myself more. I need to take on more risk when the risk is worth taking.....the latter part of what I just said is key....being bold when there is little or no perceived edge is reckless and that's not what I'm talking about here. Trying to get "revenge" after you made a losing trade or missed out on what would have been a winning trade is also reckless. There's a fine line between boldness and recklessness....don't cross it.

As far as 2012 goes, as I said before I don't have a clue as to how it will turn out. Unlike last year though, it's very likely the market will be up big or down big.  As Russell Peters often says "somebody's gonna get a hurt real bad" - either the bulls or bears because we are going to find out next year whether the world economy be dragged into recession by Europe or not.

2012 certainty has the potential to be a very good year because expectations are low. There's plenty of "bullish fuel" in the tank given the significant equity outflows overall in 2011 and a rush to safety via money market and bond funds that rivaled what we saw in late 2008.  Despite all the turmoil in Europe, earnings did not roll over in the largest economy in the world, the US. Bears will point out that this is just a matter of time given some of the red flags out there like ECRI's recession call and the rolling over OECD leading indicator. I say "fair enough" to that but until we actually see some hard evidence I'm not going to fully embrace the bear case but nor will I fully embrace the bull case either at this point given the broken market action which suggests to me that this rally we have been seeing is dubious even though it can linger for a while still. There's also a few indicators like the smart money put/call ratio that suggest we're not out of the woods yet. I think there's a good chance we will see a significant sell-off sometime by the end of March and maybe at that point the market will be in a better position to advance in a sustainable way ...we'll see what happens.

So, given these cross-currents I am going to looking for both long and short opportunities. On the long side, I'm looking for deep value opportunities in the small cap/micro cap space - stocks that were perhaps unjustifiably dragged down or held back due to the general market malaise and could be ripe for a rebound via merger/acquisition or otherwise. I recently purchased 2 of such stocks.  On the short side, I'm looking to make an IT bearish bet on the market using put options when I get the sense that the market is "ripe" for the sell-off I envision in the first quarter of 2012.  At the most, I will only commit 50%  of my account to the above long/short strategy. I know I said I want to be bolder in 2012 and beyond but that can only be allowed when I have a substantial  LT edge/conviction on the general market which I don't. As a result I will only be willing to commit up to half of my account on any ideas.