Wednesday, December 24, 2008

The Big Big Review

Happy Holidays to all and thanks to our most frequent readers (DC, TC, Samir, Drs. T and Mike, Anon, and my family) for your continued support throughout our first. Thanks as well to our international readers and all of the hedge and mutual funds who have logged in if not on (Schwab, Lehman, Annaly....).

Well, I think by any measure, The BBB has had a great year in what was otherwise a horrible year for investors. As the market descends towards 40% from it's late 2007 highs, we should finish the year post-fees, pre-tax, about 65%-70% ahead of that market. Our willingness to stand fast in the face of constant analyst optimism and sanguine projections has allowed us to take chances on out-of-the-money positions with great reward. Ironically, it was the pre-Lehman collapse flinch (I chickened out), that cost me (but hopefully not you) even much greater gains. But all in all, not bad for a PA who does research in his spare time and avoids "market wisdom" like the plague.

Let's review the mostly good and some of the bad from our 1st year. Hope it was a profitable one for all and I hope to do as well if not better next year.

Winners:

1. These were the big ones. Just based on these, had you held them to melting point and put enough cash in, you were looking at maybe a lifetime's worth of good returns. The following were shorted and went to $1 or less.

a. Lehman (recommended puts at $32, and again at $27 after bouncing back from $20)
b. GNW (recommended puts at $17)
c. GGP (recommended puts at $30)

2. Almost as good, these stocks crapped out below $5 after I recommended shorting them.

a. WaMu (recommended at $20)
b. Wachovia (recommended at $10)
c. Citi (recommended at $18)
d. National City (recommended at $9 for a strangle, could've made money on both ends)

3. Homebuilders. Like banks at the beginning of the year, I refused to believe that there wasn't a lot more downside. These puts all did well.

a. Centex
b. Lennar
c. MDC (had to be more patient with this one)
d. Ryland (still holding this one, but could've sold for 50% profit from reco point on 4/10s and 4/15s)

4. Retail! We were waiting, perhaps too long, for these opportunities but they turned out to be some of the best picks of the year.

a. Williams-Sonoma (200%)
b. Cheesecake-great food, crappy stock (200%)
c. Darden-looking good on this one, shorted at $25, got out at $15, now up to $28

5. Jumbalaya. An assortment of other recos, while not going to zero, would've done very well had you followed my short points.

a. East West Bancorp (800%)
b. Sovereign (almost 300%)
c. Saks (300%)
d. SRS-What looked like our biggest loser in July turned out to be a homerun at $295 a few weeks ago. It has since plunged to $56 and I recommend playing this game again. I am.
e. XLF (reco short at 38, down under $10 several times)
f. XLY (reco short at $30, around $20 now)
g. Capital One-I really hated this stock all year. I recommended shorting it the 4 times it went over $50 and this trade would've worked each time. Now at $28.

Now for some humble pie....

Losers:

1. As I watched the no-short rule, bailouts, and printing presses all conspire to knock down my shorts, I felt that a Lehman bailout was inevitable. I underestimated the pure hatred Dick Fuld inspired and that his company alone would be that last to fail. What I thought we be a huge bear-market rally turned out to be the jump off point for the real bear market that I had been waiting for all year. I folded a week early, and turned winning positions into losers on AN, KMX, BAC, and WB. Had you shown more manhood than me, you would've been sitting on real gains in all of these positions.

2. Long positions. Why? As I look back, I don't know. The thought that even strong-earning, dividend boasting stock could perform in this environment was silly. While PXJ and Cummins were both up 25% from reco dates at one point, they are a long way from there now.

3. Perhaps the ugliest of all, Freeport (FCX) calls to 2010. With the stock dropping from about $130 to under $20 at one point, I am reminded of that strange term, "stop-loss."

While I'm sure neither of these lists are complete (the beauty of archived blogs, and feel free to remind me of even more losers), I think you get the picture. Pretty good. Going forward, I expect a shift to even more of a black swan portfolio, conserving cash and retaining a portion of our investments for out-of-the money homeruns/gambles. Currently, we are sitting on the following:

1. Gold 2010 calls. If we continue to print fiat money at record pace, gold must go up. With demand destruction of world commodities though, will 13 months be enough time for a small deflation cycle followed by rampant hyperinflation? I think so.

2. Ryland puts. Homebuilders and owners are bankrupt. Will a bailout save these guys too? Don't think April is enough time, especially if one of the big 3 blows through all of their loan before then.

3. Citi. Won't be allowed to fail, that we've seen. Bought it at $8. Check back in a couple of years.

4. Build-a-Bear. C'mon, if this company survives next year I'll be shocked.


2009 Insight? Probably save that for 1st blog of the new year. The only things I have a close eye on are BAC and USO. If BAC gets down to $10 or $11, think we're going long for all of the same reasons we did with Citi, plus the already in-place insurance of the Merrill purchase. Oil gets more interesting by the day. USO closed at $29 today. The question is whether or not to just buy the ETF or go long to 2011. Can oil get stuck in the $25-$40 range for 2 years? Yep. Might it go to $70-$80 though? Place your bets.

Happy New Year everyone and I hope you will continue to enjoy The BBB!

4 comments:

DCNorth said...

Doh! Yah beat me on the Christmas wishes!

Merry Christmas to everyone over the holidays! Eat, drink, and be merry(even if you don't celebrate Christmas). Here's looking to a profitable 2009 for you and all the readers!

Special cheers to you Ax and the BBB posting AAA profits!

Regards,

DCNorth

AX said...

Same to you DC! Be merry indeed and keep playing for the homerun. Looking forward to your comments in the new year. Be safe up there!

Tiger Coach said...

Ax...
What a good year it was... I have been biting my tongue every time tells an investment horror story. I simply mention that there are opportunities to make money when the market goes down as well.

I am making a list... and will ask that you and DC North check it twice... There's a lot of time to find winners and losers here boys!!!
usmegatrends.blogspot.com

AX said...

No need to bite your tongue, TC, taking chances when others won't can be a reward unto itself. Looking forward to the list along with USO crashing to $25 and perhaps shorting the remaining newspapers to 0. Let's do it again in 09'.