Year-end review, commissions year to date

It’s usually good to pay attention to trading fees and make sure they are reasonable. Determining trading execution quality is the difficult part of the equation (and I do not have a way of measuring this), but the other side is trading commissions. Commissions are also a reasonable proxy for trading activity.

Let’s set 2019’s entire trading commission paid as 4X.

Thus, an average quarter’s commissions paid in 2019 was X.

Here is the series of commissions paid in 2020:

Q1-2020: 1.54X
Q2-2020: 1.48X
Q3-2020: 0.56X
Q4-2020 (year to date): 0.35X

I’ve been mostly sitting on my thumbs for the second half of the year and for the most part am happy I have done so.

Any of my readers out there would like to comment on your relative activity level for this wild 2020 year?

Tax-loss selling / Atlantic Power

One obvious tax-loss selling prospect was Atlantic Power (NYSE: AT / TSX: ATP).

I can see people thinking to themselves… “I’ll crystalize a loss today, and then 30 days later after the wash sale period, I’ll buy back!”

The market has ways of tricking people:

Today was the highest volume day (over 2 million shares on the American exchange) since June 26, 2020 (which was another conspicuous end-of-quarter date) where over 5 million shares traded.

Days like today tell you what the true liquidity of the stock is.

I’m guessing some portfolio managers are trying to dump this out of their portfolios because it has been a dog on price.

Better times will be had ahead in 2021.

What to do if the Robinhood traders grip one of your stocks

Perhaps my most speculative holding is Centrus Energy (AMEX: LEU). I wrote about their predecessor back in 2013 (they went through a recapitalization and name change) and have been keeping track of them ever since.

I won’t get into the investing thesis (or valuation) but LEU is a uranium processor for nuclear fuel. They originally took nuclear missile warheads and reprocessed their uranium cores into fuel for nuclear power plants, but now they obtain their raw material through Russian and French sources.

However, given the current hype on anything nuclear-related, and especially considering that LEU is one of the few publicly traded companies that are into such businesses, over the past couple months they have received obvious retail activity:

We look at the chart and see a stock that has more than doubled, but also with a serious amount of stock volume (after the secondary offering, there is a float of about 11.3 million shares). Examining the social media, we see that there is clear retail activity.

During these periods of retail mania there are extreme ups and extreme downs. You see this in any stocks that were relatively inactive but then gain a mass following – the daytraders, speculators and short-term technical traders dive in, and then it causes intensive volatility when they jointly decide to buy and sell. These ups and downs are very difficult (if not impossible) to time, but this is where you get people on Youtube making daytrading videos as they scale in and out of such positions.

Sometimes it is right to bail out in these situations, and sometimes you just have to hold on for dear life and get used to the notion of seeing a position in your portfolio gravitate 10% a day. I guess we’re all Bitcoin holders these days, even when we’re not holding them.

AcuityAds Holdings – Part 2

Merry Christmas and Boxing Day everybody.

I can’t get enough of looking at AcuityAds (TSX: AT), which is one of the best TSX performers of the year.

I gave some brief thoughts back in October, questioning the $200 million market capitalization, but fast forward a couple months and look what happened – they quadrupled again!:

Look at the huge amount of volume since December 14th (quadruple over the previous few months of trading). Obviously this got on the radar of the daytraders and pancake flippers, but the straight-line accumulation since July looks to be a steady algorithmic “buy a little bit each day” without regards to price.

On November 16, 2020 the company did a bought deal offering (roughly 3.8 million shares with greenshoe) at $6.10, partly from the treasury and mostly from insiders.

Even the insiders sound surprised at all of this price action, which they been selling willy-nilly since September for roughly $3.50/share. One insider recently got out at $20.69/share, which was pretty damn good market timing considering he cashed out 500,000 shares out of his 542,462 share ownership at the time of sale.

Just imagine if you were one of those people that purchased the stock on December 21st for $22/share. Right now you’re sitting on a loss of 22% for four days of effort.

This is how volatility looks at market peaks. I’m not saying this will not go any higher and resume the course along the blue line that I drew on the chart above. But it is instructive how these kinds of stocks trade.

Note this post is devoid of any fundamental analysis of the company itself – I have no idea whether their technology warrants such price action or not. It could be the case they are the next Google. You’d never see it by reading their financial statements.

Suffice to say, no positions. Also, don’t take advice from people holding the much-worse performing (NYSE: AT) either.

End of year actions and rambling thoughts

Major holders of institutional money are likely on “autopilot” for Christmas so it is likely no major changes in investment policy decisions will be made until the new year, short of some geopolitical calamity.

Canadians have until December 29 to sell securities that are sitting in a loss position to claim a capital loss. Americans have until December 31st.

The real question I’m grappling with is how much more can monetary and fiscal policy continue to drag the powder keg up the hill before something breaks and it all comes tumbling down. Japan has shown the western world the way how you can run massive deficits for a very long period of time without catastrophic consequences. It might go on longer than most people think.

With the rampant speculatory valuations seen in many sectors (for two great examples, look at Peloton (PTON) and Chipotle (CMG) – yes, fast food that should be trading at over 100 times normalized earnings), there is quite clearly a degree of misallocation that hasn’t been seen in quite some time. The origins of such speculative fervor can likely in part be attributed to the supply-demand dynamics with passive indexation coupled with momentum – for example, the larger your market cap is, the more you will be included in the respective indicies. This creates price insensitive demand, and this is all too willing to be sucked up by the marketplace.

This could be the stock market equivalent of Chinese condominium towers being built in the middle of nowhere – to be sold as “stores of value” in absence of other opportunities. Maybe if you’re lucky, in a few years you can AirBnB and make a few RMB of income with it.

You can’t short them (what’s crazy can get crazier), you can’t long them (don’t know when the music will stop), all you can do is get them out of your mind. The mental return on brain damage is too low, although there is a huge gambling appeal which is witnessed by the whole locked-down millennial world discovering Robinhood and thinking they are stock-picking champions as they swap CERB money with each other, with the market makers skimming pennies a transaction. You don’t have to read me anymore, just pay attention to everything these TikTok millionaires do.

Relative performance managers that are indexed to the S&P 500 will have had to reach a +14% hurdle so far in order to justify their pay. Hypothetically, if they put their entire portfolio in Apple for the year, they’d be sitting on an 80% gain. Considering Apple is about 6% of the index, it makes you think about the other parts of the S&P that must be underperforming Apple. Something makes me think Uncle Warren B. was onto something when he ploughed nearly a hundred billion of his capital into Apple stock – it was his version of going into Bitcoin.

Managers indexed to the TSX will have seen a +3% gain this year. Your ticket to glory was Shopify, which did reasonably well during the COVID crisis, but had you held on from the beginning of the year to present, you would be up triple your original investment. My god, what do I do all this investment research for when these superior returns are just staring you so blatantly in the face?

I’ve done a cursory scan of the entire TSX on the loss side and earmarked and looked into a few issues that are of interest, but I’m not at all close to pulling the trigger on any of it.

In fact, when I look at my own portfolio, the most clearest speculative component is the one that is doing the best percentage-wise from cost. The most obviously “value” stock is not doing that well at all (you can probably take a guess which one this is).

For the past couple weeks, I have been trying to visualize how 2021 will emerge.

With infection rates, coupled with vaccinations to bring the SARS-CoV-2 episode to a close in 2021, people are going to have outlets for their money from avenues that were previously inaccessible. Travel, entertainment, socialization, etc., will continue to be demand sinks for consumer capital and this may have impact on the asset side. One big looming question is upon the restoration of the full slate of economic services available, will there be demand, especially after government stimulus programs run out? Or will there be wave, after wave, after wave, as long as central banks functionally pay for it by interest rate suppression? How long can this last?