If not, you are lagging behind the S&P 500 and are UNDERPERFORMING. So those sitting in a paltry 20% year-to-date return may think they are sitting pretty, but hedge fund managers out there know they are lagging and their customers are demanding heads to roll. Looking at my year-to-date performance, I’m barely ahead, but this is because I’m Canadian and can cheat a little via the amazing accounting practice of mark-to-market for currency translation, (i.e. my returns are always denominated in Canadian dollars, and the Canadian dollar has gone lower this year hence I get a little boost up in performance for having the audacity of holding US-denominated stocks and cash during the year). In my defence, however, is the fact that I’ve had a relatively large quantity of zero-yielding cash in the portfolio for financial Armageddon’s sake.
In the last phase of a bull market (which we are indeed going to be entering, if not there already), all of the naysayers (such as myself and “professional market analysts”) warning of a market crash and chronic over-valuation will suddenly start shutting up and believing there is some sort of new economic paradigm that has caused the markets to go wildly up. I’m pretty close to reaching that point myself, which probably suggests that the end is near. I had these visions of the world entering into a 2009-like economic crisis again when the Greek Debt thing hit in August 2011, which was probably one of the worst calls I made over the past decade, and it indeed cost me.
Of course, the whole world knows the asset inflation is primarily due to the federal reserve pumping trillions of dollars of liquidity into the system, only to end up as bank reserves for JP Morgan and Bank of America, but who cares at this point? Politicians know the general public does not know the true implications of free liquidity, and here in Canada, the government knows that if the central bank raises interest rates, they will end up crashing the entire economy because our debt-to-income ratios are sky high.
There’s clearly no vulnerability or risk here.
For memory’s sake, here is a chart of the Nasdaq from the beginning of 1999 to the end of 2000:
I remember these days as being wildly irrational. I got my start in the public markets a year or two before this and even when I was beginning my journey to compounding assets on my balance sheet, I realized that things were frothy and I had better stick my capital in anywhere but dot-com technology, and that I did. Even when I ventured into technology it was relatively “value-based” – the first company I owned that got bought out was Sterling Commerce, and they were trading at a relatively modest P/E of around 20 at the time. I didn’t keep proper records during the 2000-2002 timeframe, but I do distinctly recall that the overall hit to my portfolio was quite modest compared to the market averages, similar to my performance in 2008.
Let’s pretend we’re sitting at the year 2000 and the Nasdaq is sitting around 4000 (where it is presently). The world discovered the computer systems did not melt down and bidded up the markets another 20% before finally collapsing down to earth again.
A repeat of that scenario would mean the S&P 500 would go to 2160.
So just before somebody thinks “things can’t go higher”, in bubble-type situations, they usually do, a lot longer and a lot farther then most people rationally expect, especially with the winds of the federal reserve still clearly behind the market’s back.
Hello Sasha. Wondered if you still hold the debenture with the maturity late 2014 that you discussed in your piece on October 2 “Q3-2013 Performance Report”? I too hold that debt for many of the same reasons you set out. Any comments after the latest reporting?
I hold some, although by virtue of its precipitous decline, not too much. It is always important to keep position sizes proportioned to risk taken otherwise these sorts of blowups will kill overall performance. I do not believe unsecured debentureholders are going to come out of this very pretty.
Agreed. Are you thinking a recapitalization is going to happen before the end of Q1 2014? The very strong management ownership makes me think not, although it seems that they may have been under reporting the size of the issues with WIP and receivables given the size of the write down. Alas, shades of YPG.
Management has stated the recap plan will be revealed by January 2014 so that is inevitable. Q1 results typically have come out much later in the year.
The AR and WIP writedowns were a bit surprising to me, yes. Makes it sound like there are problems that aren’t going to take a quarter or two to correct, it sounds like there is a cultural problem of bad costing practices, which will take some time to correct.
I drove the little one to the daycare with a smile today.
Numbers tell you what to do, my guy told me to just do it.
I sold off MIC and lightened my BMO and CM positions.
Thanks to you, I’ve made an almost 100% return on MIC (bought in at 17 or 18 bucks…you can lookup my old posting)
Now my promise….what charity shall I make a donation to?
Sorry.. correction
Numbers tell you what to do, my gut told me to just do it.
I am sitting on the sidelines, no more purchases until I get back from the Bahamas in Feb.
Cannikin,
Congratulations. You’ve probably captured most of the gain.
The donation to the CRA-registered charity can go to the Chilliwack Foundation, http://www.cra-arc.gc.ca/ebci/haip/srch/charity-eng.action?bn=118852821RR0001.
Thanks again.
In my early 20’s I would dream of having clairvoyance and making that perfect trade/investment.
I’m older now and I’ve learned that when you double your money in two years, just take the money and run.
Remember COS.UN to corp conversion?……I didn’t take advantage of that little balloon that floated away shortly after.
I think I wrote earlier when Carl Icahn took his 400%+ gain in Netflix by taking some cash off the table that he alluded to as much.
Every perfect trade is desired to be larger, but if those trades are always entered with the same concentration, some will go sour and one doesn’t look like a genius any longer.
The advantage of winning long positions is their concentration increases as it heads in the right direction – i.e. if you take a 10% position in something, if it doubles on you, it suddenly becomes 18% of your portfolio. If it doubles from that point, it becomes 31% of your portfolio. So there is embedded leverage with a winning long position, but it becomes equally important to know when to take some chips off the table and save them for other opportunities or just simply in cash for when the market is going to be more rewarding.
Using call options magnifies this considerably, especially if you use low-volatility and long-dated options – a 2% position in something, if gone positively, will magnify itself into 4% or much higher with a relatively small positive change in the underlying stock. This type of embedded leverage is the only reason why somebody should ever play with options – covered calls are almost certainly a losing game.
About COS, I never played it pre-conversion. Post-conversion I scalped a few bucks out of it in 2011. I still think they are a reasonably good proxy for crude prices and the closest equity proxy for a bond-like investment in oil sands. Fundamentally I still prefer natural gas over crude at the moment (I think the spot natural gas price will be higher than spot dilbit on a percentage basis in a couple years from present prices), but this is purely off the cuff without any serious analysis of the matter other than looking at raw energy to price ratios, and my serious preference for my gas range rather than electric. Considering my amateur convictions on energy, do not be surprised that I have not invested anything on that basis!