Category Archives: year in review

2016 Year in Review

My 2016 Year in Review is going to be really easy because I didn’t make any changes in 2016. I added a small amount of GTIM early in the year, but that was it. I was down around 34% in 2016, compared to the S&P 500 which gained 12%.

I continue to hold all my GTIM, I have not sold a share. I think my investment thesis is still intact. Fundamentals have become a little tougher in the industry, and sentiment towards the industry has become decidedly worse, but I think GTIM continues to perform largely as management indicated they would. GTIM is a young growth story in the sector, taking share from the larger players, so I do not think their growth is as dependent on the macro conditions in the industry.

Importantly, same store sales, average weekly unit volumes, and restaurant margins at Bad Daddy’s are still at management’s target model in this tougher environment. 2017 guidance for new store openings and revenue are still on track, despite the company deciding to shift planned new openings from the Phoenix market to the Midwest and Southeast instead due to a minimum wage/health care law that was passed in Arizona.

I think the next 12-24 months will be key for GTIM. If new markets perform as expected, then the Bad Daddy’s concept will have proven itself in roughly a dozen metropolitan markets in roughly a half dozen states, with no reason to think that the concept cannot continue to expand nationwide.  As revenues, margins, and profits continue to grow, I would expect GTIM’s multiple to expand. If new markets do not perform as expected, then it would be cause for me to reevaluate my investment thesis in GTIM.

2015 Year in Review

My winning streaks (of both positive returns and beating the averages) came to an end in 2015. I was down 34% in 2015, compared to the S&P 500 which was down around 2%.  Yet I feel better about the risk/reward of my portfolio going forward than I ever have.

I entered 2015 with positions in AA, GTIM, SFM, HABT and YELP, with around 12.5% cash.

My first move of 2015 was to sell YELP in mid January for around a 7% loss. I had just bought YELP near the very end of 2014, but was starting to become nervous about the overall markets and wanted to raise cash, and YELP was my smallest and lowest conviction idea.

2015-yelp1

In mid February I sold my entire position in AA, largely because I thought other ideas had better risk/reward. I made around 35% on AA. I put some of the proceeds into more GTIM and raised my cash position some more as I continued to grow concerned about the overall markets.

2015-aa1

In early May I sold my entire position in SFM. SFM had been a core position for awhile, but by the time I sold I had become convinced that the story had fundamentally changed for the worse. I put some of the proceeds into RAVE, and raised my cash levels yet again.

2015-sfm1

At the end of May I sold my entire position in HABT, and I added another new position, BSQR. Despite adding a few new positions which I thought had attractive risk/reward, I was still worried about the overall markets and so wanted to maintain alot of cash. So that led to my opting to sell HABT. I made around 15% on HABT.

2015-habt1

Near the end of July I sold my entire positions in RAVE and BSQR. I continued to grow concerned about the overall markets and wanted to pare back to my highest conviction ideas. I lost around 7% on BSQR and 4% on RAVE. This also marked the high point for my cash levels on the year at around 40%.

2015-rave1

2015-bsqr1

In August I bought and sold a position in GM-B warrants. Despite my concern about the overall markets I thought the risk/reward warranted a position, but I shortly afterwards had a few ideas I liked better, so I sold. I lost around 5% on the GM-B warrants.

2015-gm1

Near the end of August I established a position in a new stock, NEWM, and in early September I bought an unnamed nano-cap stock. By mid September concern about overall markets caused me to want to pare back to my highest conviction ideas again so I sold both positions. I broke even on NEWM and lost 5% on the unnamed nano-cap.

2015-newm1

At the beginning of October I bought positions in BABA, BIDU, and HABT. Despite my concerns about overall market conditions, I felt the long term prospects of these companies were sound and their sell-offs were overdone. I sold all three positions a few weeks later for 10-20% gains.

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2015-bidu1

2015-habt2

The only stock I never sold was GTIM. In fact I added to it as I was selling my other positions. I added to GTIM in July, August, and November. GTIM is my only current position.

2015-gtim1

2015 was largely about managing the portfolio to weather growing concerns I had about overall market conditions while still trying to find ideas I felt had attractive risk/reward profiles. So I tried a few new positions while selling off others. Ultimately I could not gain enough conviction in those ideas and my market concerns caused me to concentrate in the only idea I did have strong conviction in – GTIM.

Overall I think I had the right idea, but my execution was slightly off. I feel if I had I executed slightly better it would have made a significant impact on my performance for the year. I feel good about closing out the positions I entered the year with when I did. YELP, AA, SFM, and HABT were all significantly lower after I sold them. Likewise I was happy closing out most of my new ideas when I did. In some cases the fundamental stories had deteriorated or were not as strong as I originally thought, and in other cases they were not the types of holdings I wanted going into what I thought would be worsening market conditions. All the positions I sold saved me from significant losses.

GTIM, the one position I held on to, was the major negative contributor to my performance for the year. I maintained my GTIM position, and even added to it, because I felt the long term risk/reward was very attractive. Even at $10, I thought GTIM could still be a 5-10 bagger in the long run, and the downside risk was limited to perhaps 50% at worst. Although I was prepared for GTIM to decline 50%, I wasn’t really expecting it to drop that far, which is partially why I did not sell any at $10. Attempting to avoid a potential 20% decline did not seem worth taking the tax hit. And when GTIM did fall 20% from its high, I only saw downside risk of about another 20%, not an additional 50%. So selling again did not seem worth it for tax reasons. Instead I decided to start adding to my position, as the long term risk/reward had only gotten better.  I saw the worsening technicals but thought fundamentals would win out. If I had it to do over, I would have paid more heed to the technicals. I probably still would have started adding too early, but I would have added more shares around the $4 level when GTIM had started to base.

Besides making my average cost on GTIM more attractive, another benefit would have been having more cash available for the few trades I did have strong conviction – my purchases of BABA, BIDU and HABT in October. Not only could I have made those positions larger, but with larger positions I might have held at least a portion of them longer into their rallies, both of which would have significantly improved my performance for the year.

As it stands, I was down 34% for 2015, compared to the S&P 500 which was down about 2%. The main lesson I take from 2015 is respecting technicals, no matter my level of fundamental conviction in an idea. Had I done that my performance for the year would have been much closer to the S&P 500, and my upside would be that much greater.

As I stated at the beginning of this post, I feel as good about the risk/reward of my portfolio as I ever have, and am comfortable holding just GTIM going into 2016. I will review my current thinking on GTIM and what else I have on my radar in another post.

2014 Year in Review

I started 2014 with holdings in  several bank warrants (BAC-WS-B, STI-WS-B, ASBCW, VLYWW), old school tech stocks (IBM, INTC, CSCO), a Chinese online game publisher (KONG), and a couple of Vanguard ETFs (VXF and VXUS). By the end of 2014 my portfolio was completely turned over with none of those holdings remaining.

My first move of 2014 was to go long Alcoa in mid January. I added some more AA afterwards but the bulk of my holdings were bought in this first purchase. I thought AA would be a good balance to the rest of my portfolio and could become a core holding.  Thus far it is proving to be.

In February I began initiating small positions in several small to mid-cap growth stocks (SFM, YELP and BNNY). My intent was to average into the stocks I grew most confident in over time. I also bought some calls on KongZhong, expecting the stock would benefit from the release of Guild Wars 2 in China.

Near the end of February I sold my large cap tech stocks (IBM, INTC, and CSCO), to raise cash. I was pretty much break even on all three. I added Zillow (Z) to my collection of mid-cap growth stocks.

IBM

INTC

CSCO

In March I sold two of my bank warrants (BAC-WS-B and VLYWW). I just broke even on both. I wanted to raise more cash and position my portfolio more conservatively.

BAC-WS-B

VLYWW

Near the end of March I added a couple more high growth mid-cap stocks to my holdings with DATA and FEYE.

Near the end of April I bought a couple large cap growth stocks – AMZN and CMG.

By early May growth stocks had been beaten down so low that I thought it best to focus on my best ideas in that space and significantly accelerate my averaging into those names. So I sold BNNY, FEYE, AMZN, and CMG. I was down varying percentages on them when I sold, but they had not become meaningful portions of my portfolio so it was not really material to my overall return for the year. I also sold my KongZhong shares and calls. Those were more meaningful positions, and I made around 10% on both the shares and calls. I used the cash I raised to buy a lot more of the stocks I thought were my best ideas – SFM, DATA, YELP, and Z.

BNNY

FEYE

AMZN

CMG

KONG

In the second half of May I added some large cap growth stocks back to my portfolio, buying back AMZN, and adding BIDU, LNKD, and also VIPS.

In early June I decided to dedicate a portion of my portfolio to buying stocks with insider buying. I added DKS, TFM, and MTDR.

In the first half of July I made several more moves. I sold my remaining bank warrants (STI-WS-B and ASBCW). Those were big positions which I made 50% on each. I also sold my insider buying stocks (DKS, TFM, and MTDR) because I wanted to increase my focus even more. I was near break even on all three and again none of them were big enough positions to make a difference to my overall returns. In July I also added yet two more high growth stocks to my portfolio (ZU and TWTR).

STI-WS-B

ASBCW

DKS

TFM

MTDR

At the end of July I sold Z. I had intended Z to be a long term holding but it ran up so fast I decided to sell. I ended up catching the top almost exactly, locking in big gains and avoiding giving them back.

Z

To start August I added another growth stock, SGEN.

In early August I also started building a position in a micro-cap stock, GTIM, which I continue to hold.

In the second half of August I unloaded most of my growth stocks. I sold AMZN, TWTR, LNKD, BIDU, VIPS, YELP, and SGEN. Like Z I had intended them to be longer term holdings but they ran up so much in so short a period of time that I couldn’t resist locking in profits. I made between 10% and 50% on these trades, with most of them between 30% and 50%. At the same time I added to my SFM, DATA, ZU and GTIM positions, and established a new position in AWCMY.

AMZN2

TWTR

LNKD

BIDU

VIPS

YELP

SGEN

In mid September I sold DATA, same story of too fast a move up as my other growth stocks I sold.

I didn’t make many moves after that until November, when I sold AWCMY, after deciding the falling Australian dollar was too strong a headwind to battle. I was near break even on this trade. I also added a little to some of my existing positions.

AWCMY

Towards the end of November I bought some shares in The Habit, a new IPO. I had an order in on the IPO day but the stock opened above it so it was not filled. However when the stock came down several days later I began building a position.

Near the end of November I sold ZU, taking a small loss but deciding to focus on my very best ideas.

In December I bought a little Lending Club (LC) and an unnamed micro-cap stock, both of which I sold a week later. Neither was meaningful to my returns. And near the very end of the year I went long YELP again.

I also sold VXF and VXUS in stages throughout the year. I had intended for them to be a core and growing part of my portfolio over time, but as I found more opportunities I liked in specific stocks I sold off these two ETFs. I made a small percentage on both of them but they weren’t significant to my overall returns.

2014 was a year with a lot of turnover in my portfolio. I could have timed some of my entries and exits slightly better, but overall I am happy with all the moves I made. I think it was the right decision to exit all the positions I started the year with in favor of the new opportunities throughout the year. Overall I think I did a good job of buying when I thought the risk/reward was favorable and selling when it had become much less so.  And I think I am positioned well at year end with all the positions I am holding going into 2015 having favorable risk/reward profiles. AA and GTIM are both around 25% of my portfolio, SFM and HABT are both around 15%, YELP is around 7.5%, and I have around 12.5% in cash.

AA

SFM

GTIM

HABT

YELP2

In my past year in review posts I ended with some statistics about my trades. This year I went ahead and calculated my returns for this and prior years.  I have a few accounts in which I do my investing, some retirement and some taxable, and I had to account for contributions and withdrawals, so it took awhile to accurately figure out.

I calculated that my return in 2014 was roughly 44%. Here are my returns since I started this blog, and a comparison to the S&P 500 with dividends reinvested.

Year / TSAnalysis / S&P 500 / delta

2011 / +171% / +2% / +169 points

2012 / +22% / +16% / +6 points

2013 / +63% / +32% / +31 points

2014 / +44% / +14% / +30 points

In 2011 I had the majority of my portfolio in a stock which I got a triple on in a couple of months (COOL), which was the main driver behind my phenomenal return that year.

In 2012 I again had a trade which I got a triple on (warrants on UBSFY), however it was not as large a portion of my portfolio this time. I had a major position (KONG) I held for 7 months which I ended up just breaking even on. Still, I ended up beating the S&P 500 return by 6 points so I can’t complain.

In 2013 I had quite a bit of turnover, much of which didn’t contribute to my returns. However I had another significant position which I ended up getting a triple on (ROICW), which was the main driver of my strong return in 2013.

I am perhaps most proud of my performance in 2014. Unlike 2011 through 2013, most of my potential home-run plays in 2014 (such as my bank warrants, KONG options, and AWCMY) didn’t work out as well as planned yet I still managed to handily beat the S&P 500. My 2014 return was driven by strong gains in GTIM and AA, and well timed trades in several growth stocks.

My goal for the years ahead will remain to maximize after tax returns while minimizing risk. However I do not expect to continue to beat the S&P 500 by as much as I have the past four years, especially as I continue to increase my emphasis on after tax returns and minimizing risk.

2013 Year in Review

Time to close the book on 2013 and review my performance for the year.

My first two closed trades of 2013 were positions which I opened in late 2012.  The first was TTWO, which was a play on GTA V.  I bought in mid December 2012 and I sold at the end of April 2013.  Looking back, the hype for GTA V was probably already somewhat priced in all along.  My timing wasn’t optimal on both ends of the trade and in the end I sold when I thought the risk/reward wasn’t as favorable anymore.  Overall I was happy to book a 25% gain on the trade and free up cash for other opportunities.

2013_TTWO_1

I held another position over roughly the same timeframe, and that was my trade in ROICW.  I also bought ROICW in mid December 2012 and sold at the end of April 2013.  ROICW was a warrant play on a grocery anchored strip mall REIT.  I thought it was a good play on an improving macro environment, and the fact that the warrants were trading just slightly in-the-money with practically zero time premium with 2 years until expiration gave them especially high upside potential.  Things worked out great and I got a triple on this trade.  With a move from just under $13 to $15 in the underlying stock, the warrants more than tripled in value from roughly $.90 to $3.

2013_ROIC_1

After I closed out those positions in TTWO and ROICW, I had a rather active period until around mid-year.  I established several new partial positions.  Some of them I grew more confident in and scaled up to major positions.  Others I changed my mind on and closed out fairly quickly.  I will just briefly go over those that I changed my mind on since they never became meaningful percentages of my overall portfolio.

They included warrants on AIG (AIG-WS), Citigroup (C-WS-A), Kinder Morgan (KMI-WS), Comerica (CMA-WS), PNC Financial (PNC-WS), and Zions Bancorp (ZIONZ).  My long-term thoughts on those companies didn’t really change that much but I wanted to raise cash and be concentrated in my best ideas as the Fed taper and debt ceiling worries grew over the summer.  I made money on almost all of them though for the short time I held them.  There was also a speculative SPAC warrant (RMGN) which I just broke even on. There were some ETF trades which I lost money on (ITB, IXN, EWW and EPHE). I think the timing of my initial entries into them was bad and the ETFs were too narrowly focused to serve as core longer term holdings. I also tried another TTWO trade around GTA V, this time on Dec $18 calls, which I also just broke even on.  Lastly there was a housing recovery stock pick (BXC) which I lost a little on, but sold mostly because I wanted to raise cash for other opportunities.

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2013_KMI_1

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2013_ITB_1

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Of the shorter term moves I made over the summer period, the two which were the largest were fortunately also the biggest winners.  I doubled my money in a week in a highly speculative trade in Orchard Supply Hardware (OSH) shortly before their bankruptcy.  I also made roughly 80% in two months on Trio Merger Corp/SAExploration warrants (TMRGW/SAEXW), another SPAC warrant play, which hinged on a warrant restructuring clause upon completion of the merger, which I thought resulted in the warrants not being properly priced by the market.  You can read more detail of all the above mentioned trades in my mid-year update.

2013_OSH_1

The remaining positions I established in 2013 I am still holding.  They include TARP warrants in Bank of America (BAC-WS-B), Suntrust Financial (STI-WS-B), Associated Bancorp (ASBCW) and Valley National (VLYWW).  Overall I am still positive on banks.  They are reasonably valued still and I think they will benefit from improving macro conditions, rising long and short term rates, and eventually improved sentiment.  Among the mega-banks I think Bank of America has the most potential, and the series B warrants have the most leverage.  Suntrust and Associated are regional bank plays, which I thought might more immediately benefit from a steepening yield curve.  I am up on all my bank warrant positions currently.  BAC-WS-B, STI-WS-B, and ASBCW all expire in Oct/Nov 2018, so there is plenty of time for them to play out still.  By mid 2014 I will have been holding them for a year, so they will qualify for long-term capital gains.  When we get into late 2014 and 2015 I will reassess my exit strategy as the time until expiration grows shorter, but for now I am happy to let them ride.  The Valley National warrants are a more speculative play in which I am swinging for the fences with a smaller position.   VLYWW expire in June 2015, and I will probably hold them until they realize their multi-bagger potential or expire worthless.  They are not very liquid so I do not think there would be much opportunity for me to sell them for much value prior to expiration unless the underlying makes a big move.

2013_BAC_1

2013_STI_1 

2013_ASBC_1

2013_VLY_1

I established partial positions in two ETFs, VXF (Vanguard Extended Market) and VXUS (Vanguard Total International Stock). Both are broad based ETFs (over 3000 stocks in VXF and over 6000 stocks in VXUS) with not a large concentration in their top 10 holdings.  And of course Vanguard has low, low expense ratios.  So I think they make great core holdings which I plan to add to periodically.

2013_VXF_1

2013_VXUS_1

In early November I entered back into KONG.  I plan to hold on to this position until Guild Wars 2 releases in China.  The US listed Chinese stocks still require closer monitoring, and can be more volatile as the stock’s recent movements demonstrate, but I think the recent correction provided an attractive entry point prior to a substantial catalyst for KONG.

2013_KONG_1

My last new positions of the year were my recent purchases of IBM, Intel, and Cisco.  All three are attractively valued, have significant cash flow, have been aggressively buying back shares, and I think suffer from overblown concerns/overly negative sentiment.  I think tech (even ‘old school’ tech like the three stocks I purchased) could benefit from the improving macro environment, especially as businesses grow more confident in the recovery to increase IT spending.

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2013_INTC_1

2013_CSCO_1

To summarize, the trades which were most meaningful to my returns in 2013 were the 25% gain in TTWO and the 200% gain in ROICW, both of which were significant portions of my portfolio.  The 100% gain in OSH and 80% gain in RMGNW/SAEXW also made an impact on my overall returns even though they were smaller positions than my TTWO and ROICW trades.  All the other trades I made in the May/June time frame didn’t have a significant impact on my portfolio.  Collectively though they were slightly negative, with the losses (mostly from the ETF trades and BXC) slightly larger than the gains (mostly from the TARP warrant trades).

The positions which I am currently holding are all major parts of my portfolio.  I am about 80% invested, and I look at my current holdings as fitting into 5 distinct groups, each of which is roughly an equal percentage of my portfolio: 1) my mega-bank warrant (BAC-WS-B), 2) my regional bank warrants (STI-WS-B, ASBCW, and VLYWW), 3) my video game stocks (KONG), 4) my tech stock holdings (IBM, INTC, and CSCO), and 5) my ETF holdings (VXF and VXUS).  The remaining 20% of my portfolio is still in cash.  The bank warrant positions are up the most so far, followed by the ETFs and then the tech stocks.  My KONG position is down slightly.  So overall I am up on my open positions, but the book will not be closed on them until I close out those trades.

If I take the major positions I closed out in 2013, and compile them with my results from 2012 and 2011, I can share some observations.

– This was the third year in which I had a major position (by which I mean at least 10% of my portfolio and usually closer to 20%-33%) which turned into a double or more.  That may be the end of that streak however for a couple reasons.  First, 2011 through 2013 were good years for finding stocks which doubled or more, and I expect 2014 to be a more difficult year to find stocks within my realm of competence with that kind of potential.  Secondly, as I’ve mentioned before holding for long term gains has become a greater concern and thus I will be looking more for stocks which will make good longer term holdings which may not have as explosive upside.

– Counting just my major trades for 2013, I had 4 winning trades (two of them roughly doubles or more and the other two double digit percentage gainers) and no losing trades.  So I was able to maintain, and actually even slightly improve, my batting average of percentage of major trades which were winners.  Over the past three years 10 out of 13 major trades were winners (including 3 three-baggers, 2 doubles and 5 double-digit returns), 2 out of 13 were break-even, and one was a losing trade (a 20% loss).

In a follow-up post I will go into a little more detail on my outlook/strategy for my current holdings, how they fit into my changed portfolio management approach, and what is on my radar for the new year.

2012 Year in Review

It is that time of year again when I review my performance over the past year.  

My first concluded trade in 2012 was a long position in EA I established near the very end of 2011.  I went long EA because I thought both the SWTOR and BF3 launches were successful and that would provide some momentum to the stock heading into earnings.  I ended up selling EA a couple weeks later after early UK data showed an unusually steep drop for SWTOR from week 1 to week 2.  Server stats also appeared to be losing momentum.  Technically the stock was acting weak.  I said in my 2012 thoughts that I planned to be quicker on the trigger in 2012 due to greater expected volatility, so all that led me to change my mind on EA and sell.  I made around 3% on the trade, but the main benefit was getting out before a long downtrend for EA.

EA-2012-3

After weak December NPD data I established short positions in GME, EA and ATVI in mid January.  They were very small positions which I only held for a few days however. I also went long TTWO with a small position but closed it out days later as well.   I made a few percent on each of these trades but they were really too insignificant a portion of my overall portfolio to count among my major trades.  I just mentioned them for completeness sake.

My first really big move of 2012 was going long Gameloft in March.  I thought Gameloft dropped for no good reason after reporting earnings, so I thought it was a good time to go long one of the leaders in the smartphone/tablet space ahead of what I thought would be a very successful holiday season for mobile sales.  I sold Gameloft in November when I thought shares had reached closer to fair valuation and the risk/reward was not as great anymore.  After I went long Gameloft the Euro dropped versus the US dollar but by the time I sold the Euro had recovered to about where it was when I went long, so currency translation didn’t have a meaningful impact on my returns.  I ended up making around 25% on the trade.

GFT-2012-1

In late April I made another significant move, going long the recently issued Ubisoft warrants.  I actually kept accumulating the warrants for around three months or so.  My plan was to sell into the hype for ACIII, and that is exactly what I ended up doing, selling in early November for triple what I paid.  Concerns about Far Cry 3 and front-end loaded sales for ACIII caused me to sell when I did.  Far Cry 3 ended up doing better (both critically and commercially) than I thought it would, and ACIII’s sales were also stronger than I thought they’d be (especially in the US), so I ended up leaving a lot of profits on the table selling when I did.  Interestingly, Ubisoft shares themselves peaked around 8 Euros on the day that I sold the warrants, and the shares have yet to break above that level  some two months later, but the warrants proceeded to appreciate another 70% or so.  So my timing was alright on the shares but not optimum for the warrants.  Still, I wanted to be safe rather than sorry and still think I made the best decision I could with the information I had at the time.

UBI-2012-1

At the end of April I made another major move, going long KongZhong.  KongZhong was enjoying great success operating World of Tanks in China, was very cheap valuation-wise, and had a promising looking future.  KongZhong’s fundamentals continued to improve as they signed agreements to operate future Wargaming.net games and Guild Wars 2 in China. So I did not sell, even after KONG’s shares appreciated around 35% from where I bought.  I held KONG shares for over 7 months and would have continued to do so, were it not for news about the US SEC and China’s securities regulatory agencies reaching an impasse about the oversight of accounting at US listed Chinese companies.  This impasse made real the possibility that the US listed Chinese companies could be forced to de-list from US exchanges.  Since my portfolio usually consists of a small number of highly concentrated positions, this was not a risk I wanted to be exposed to.  So I reluctantly sold KongZhong, even though I thought the company’s fundamentals were still very compelling.  Overall I almost exactly broke even on my KongZhong trade.

KONG-2012-1

In October I did some opportunistic trading in Glu Mobile, going long after an earnings warning and selling a few weeks later for around 15% gain.  Even though it was more a swing trade than anything, I did make it a fairly sizeable position and so include it among my major trades.

GLUU-2012-1

That was the last trade I closed in 2012.  I do have two open positions, a long position in Take Two Interactive, and a long position in Retail Opportunity Investments Corp warrants (my first non-video-game-related trade I have written about at the blog), both of which I established in December.  I will include those in my 2013 wrap-up, or whichever year I end up closing them out.

So to review, that was 5 major trades in 2012, with one huge winner, two respectable returns, and two roughly break-even trades:

1) Long EA:  3% return in 2 weeks.

2) Long Gameloft:  25% return in roughly 8 months.

3) Long Ubisoft warrants:  200% return in roughly 7 months.

4) Long KongZhong:  0% return in roughly 7 months.

5) Long Glu Mobile:  15% return in 2 weeks.

Overall I am very pleased with my 2012 performance, especially since I considered it a more difficult year than 2011 to find very compelling long opportunities in the video game space.  I did not think I would be able to find another multi-bagger in 2012 like I did in 2011 with Majesco, but the Ubisoft warrants provided just that.  Perhaps just as importantly, I had no losing trades in 2012 (although my two open positions I am carrying into 2013 are slightly underwater).

2012 built on the success I had in 2011, when I had three winning trades and only one losing trade:

1) Long Majesco:  200% return in roughly 2 months.

2) Long EA:  20% return on shares, 100% return on calls in roughly 2 months.

3) Long EA:  15% return on shares, 60% return on calls in roughly 4 months.

4) Long THQI:  20% loss in 3 weeks.

So over the last two years combined that makes 6 winning trades (2 three-baggers and 4 double digit returns), 2 roughly break-even trades, and one losing trade (20% loss).  I would be very happy to continue that kind of performance in 2013, but I expect it to be an even more difficult year to find very compelling opportunities in the video game space (and the market overall).  One thing the past two years have taught me is that the huge winners really make a difference in overall portfolio performance, so I will continue to dedicate a portion of my portfolio to looking for those multi-bagger opportunities.  Another lesson I take from looking over my trades of the past two years is that my best trades have been on stocks which have based before an expected catalyst or which overreacted to news. So I want to continue to be patient in 2013 and be content to sit on cash for extended periods of time if I have not found any opportunities which meet my criteria.

My biggest regret for 2012 was missing several very profitable short opportunities,  namely Zynga, Majesco, and THQ.  I said in my 2011 wrap-up and thoughts for 2012 that I wanted to be more aggressive in pursuing short opportunities in 2012.  In the cases I mentioned I certainly saw the deteriorating fundamentals early enough.  However I judged the long opportunities I was pursuing as being better bets.  Part of it was like the saying goes – “markets can remain irrational longer than you can remain solvent”, and I did not have a good feel for how to time the declines I expected at some point.  After those stocks did begin correcting, I underestimated just how low momentum would take them.  Thus I did not gauge the risk/reward potential of the trades to be as great as they turned out to be.  So one lesson I hope to take from those missed opportunities is to not underestimate momentum in stocks and to act more decisively on short opportunities if I see clear evidence of deteriorating fundamentals.

In another post I will go over some general thoughts for 2013 and what is on my radar at this point as we head into the new year.

2011 Year in Review

With the last trading day of 2011 in the books I am posting my 2011 performance review.  I am very heavily focused on performance with this blog.  It is why I list my positions at all times at the top of the blog, post my trades in real-time, and even give approximate percentage of my portfolio that each trade represents.

It is possible to be “right” on a stock but have bad timing of the trade really diminish returns.  Likewise it is possible to have good timing make a trade even if fundamental reasoning was off.  Ask me and I’d probably say I’d always choose making money on a trade over being right, but I think that having both is necessary for consistently good returns over time.  With that in mind here is my review of my 2011 trades, with what I felt I did well and where I feel I can do better.

My first trade of 2011 was going long on COOL in January at a little over $1.  I sold this position towards the end of March at an average of around $3.25.  So 2011 got off to a fast start with roughly a 200% return in a couple months on this trade.

Shortly after selling COOL, I entered my second trade of 2011, going long EA shares and calls in early April.  I sold this position in early June, yielding roughly 20% return on the shares and 100% return on the calls.

After closing my EA position I did not remain in cash for long before going long EA again – my third trade of 2011.  This time I staggered my entry into my EA position, starting out with staggered entry into shares in June (link and link) and then leveraging with calls in late July and early August as EA really started to take a beating.  I closed out both the shares and calls towards the end of October, netting around 15% on the shares and 60% on the calls.  It was the staggered entry, in particular the last buy of calls when EA briefly dropped to around $18, which made this trade into a winner instead of something closer to break-even.  At the same time I started this EA trade I also bought a little THQI, but it was a very  small opening position which I quickly sold for break-even so I do not count it as one of my major trades for 2011 as it never grew to a meaningful portion of my portfolio.

My final trade of 2011 was my only losing one for the year.  In mid November I went long THQI with a partial position.  I closed out this position in early December, losing 20% on the trade.  Compared to my previous three trades which I had a very high level of conviction in and made a large portion of my portfolio,  I made this position roughly only 30% of my portfolio so the overall damage was limited.

As I posted last week I have gone long EA again, but that trade is still open so I’ll include that trade in my 2012 wrap-up.  Overall I’d say it was a very good 2011.   I was very pleased with the COOL trade, I felt I nailed everything on that one – fundamentals and timing.  I didn’t catch the very bottom and I left a little on the table at the end, but I constantly monitored the fundamentals and risk/reward profile allowing me to catch the majority of a meteoric rise.  Looking at my two EA trades, I am mostly pleased with those, however I felt I could have timed my entries and exits slightly better.  I had such a high level of conviction in EA that I feel I was a little impatient in choosing my entry points and a little late in my exits.  However I am pleased that I did not let my high level of conviction prevent me from exiting when I felt that the risk/reward profile and technicals were worsening.  The THQI trade was the only one where I feel I was off/incomplete in my fundamental analysis.  I was too focused on SR3 and did not pay enough attention to uDraw.  I should have waited until after “earnings warning season” before establishing a long position in THQI.  Also when I sold my position I feel I should have come to the conclusion quicker about just how damaging this was to THQI fundamentally and should have gone short as well.  So the main thing I want to keep in mind going through 2012 is patience, allowing additional data points to unfold forming a more complete picture, rather than relying too much on intuition and trying to be ahead of the curve too much.  While being ahead of the curve may result in slightly better returns if correct, the penalty for being wrong can be costly.