Farwell 2013

I've never been so sick during the holidays as I have been. It's been 3 weeks of off and on colds including what I think was the flu last week and I still have this annoying cough that won't go away. I ended the year with a 32% gain and just like I said last year at this time, I'm not satisfied with this gain.  I don't say this out of arrogance or greed but because like last year, I don't believe my holdings; in this case Greenstar, is anywhere close to being properly valued despite making gains on the year. If the stock just traded at 3 times 2013 earnings at year end,  it would be at $1.30 which would have resulted in a 58% gain instead.

I've been trading/investing full time since the start of 2009 which makes this 5 years. I've averaged an annual rate of return of 25% during this time. My goal was to achieve an average return of 30%+  and so I fell short of my goal. I think I know why. The main reason was lack of conviction early on. For most of 2009 I was sitting primarily in cash as I didn't have much conviction on either side of the market but around summer time I became LT bullish and felt more comfortable doing the buy and hold thing. I ended that year up only 14% and I really missed out on some of the low hanging fruit. There was some staggering gains in some metals and materials small cap stocks I had on my watchlist but I failed to pull the trigger. I did really well with bev.to which I purchased in Sept 2009 and sold in March 2010 but I should have bought a lot more shares that I did. 2010 was my best year as I had a 50% gain largely due to bev.to but as I said, if I had more conviction that could have easily been a 75%+ year. 

Despite the healthy gains I've made, it hasn't always been a bed roses. Throughout these 5 years there's been ups, downs, boredom, excitement, frustration, despair and even tears. Due to my concentrated style, especially the past 2 years, I've been on several roller coaster rides and let me tell you, I fucking hate roller coasters. I haven't been on a real one for over 20 years. The swings I went through however, where not going from -10% to +15% type swings, it more like +40% to +15% type. 

I usually review the good the bad and the ugly for the year that has passed but I'm going to do so this time in regards to the past 5 years.

The good

Over the past 5 years I have achieved strong annual returns every year without any down years blowing away the performance of the TSX and probably over 90% of the hedge fund universe.  Although account volatility was high (which was to be expected given my approach), I didn't have downside volatility i.e. I was never in the red during the year aside from minor losses early in a couple of years (< 5%) .  I was able to have success all on my own. I followed nobody else's trades. I'm proud that in 2011 I returned  24% while most world indices had negative returns.  I did very well in avoiding losses. The biggest loss on any one position that I took was about 4% of my account value which is pretty low considering that I take concentrated positions. I have learned and developed over these years and found my niche which is micro cap value investing.

The bad 

As good as my numbers are they could have been better....a lot better have I had more conviction at times especially in the earlier years. My cash position was probably too high during these past 5 years. On average I would say that my cash position was 40%. When you have a concentrated portfolio I think it's wise to have significant cash on hand as a  reserve in case one of your positions get's  blown up but I definitely think I held too much cash. I think I also got too comfortable and lazy at times with holding only a few positions as I felt there was no need to look for other opportunities.

The ugly 

I missed out on some really big winners because I either hesitated too much or was too picky with my conditions for entry. I made some undisciplined moves, namely overtrading when I should have been patiently holding. I have put myself under unnecessary emotional stress and wasted lots of time by watching my positions intraday several times a day like a day trader would. I didn't do this every day but often enough for it be a significant problem. This is something that must stop.

Going forward my goal is to once again get above the 30% return mark. I want to do better, but I know after a 5 year bull run, it's going to be harder to find the type of long side opportunities that I uncovered which made me a lot of money. I use a value approach but I'm in no way locked into any one style of investing/trading. The whole point of being in the market is to make money and I will do so in a way I believe gives me the bets odds given the conditions that are present. When conditions change I need to adjust accordingly.

I'll talk about the 2014 outlook next post.