Canadian Finance and Economics
In a nutshell, this is why it is dangerous to short companies on the basis of valuation – something over-valued can get even more over-valued:
Many people lost their financial lives shorting .com stocks in 1998-2000 due to their valuation. Many people will be losing money shorting cryptocurrency and marijuana stocks (if they haven’t already). Timing this is nearly impossible, but whoever gets it right will become quite rich.
No positions in WEED (now nor likely ever).
For a very short-term trade, I have shorted Interactive Brokers (Nasdaq: IBKR) today.
There is no excuse for their account management and quotation server system being down for the duration of a trading day, which I believe represents their largest reliability failure at least in the past decade, if not ever.
Their trading systems are still active, but this is probably due to the fact that they need them online in order to liquidate customer accounts that are caught on margin in a timely manner and manage risk. I had issues logging into their trader workstation earlier today.
My suspicion is they got hacked. Perhaps now that Spectre and Meltdown are public knowledge, the people that knew about this in advance are trying to “cash in” on this before the loopholes are closed and major system providers are in the race as well.
If this trade works, it will be a high gainer. If this blows over the weekend, the cover will cost a few bucks but it won’t be anything catastrophic. It is the high risk/reward ratio that I typically like for these sorts of trades, even if the desired result doesn’t materialize. There is a significant amount of information which hasn’t permeated to the public on this and when it does hit, the price will probably take a short-term drop.
(Update, January 5, 2018: They got their data server back up around 1:00pm Pacific Time, which corresponded to the closing of the market… very interesting)
Purely for reference – look at the victims of 2017 market action. A lot of gold, oil and gas, and Aimia!
Some of these are also on the September 2, 2017 screen I did. The only difference with this table is that I did not restrict revenues and had a minimum market cap of $25 million.
Entities included also are ones that have not been delisted (e.g. Sears Canada).
Any pickings on these entrails that are worth looking at?
| Company | Symbol | YTD (%) |
|---|---|---|
| CPI Card Group Inc. | PMTS-T | -82.5 |
| Platinum Group Metals | PTM-T | -80.67 |
| Asanko Gold Inc. | AKG-T | -79.37 |
| Intellipharmaceutics Intl. (D) | IPCI-T | -74.41 |
| Concordia International (D) | CXR-T | -74.39 |
| Electrovaya Inc. | EFL-T | -70.89 |
| Painted Pony Energy | PONY-T | -69.85 |
| Aralez Pharmaceuticals Inc. | ARZ-T | -69.37 |
| Condor Petroleum | CPI-T | -68.65 |
| Neovasc Inc. | NVCN-T | -67.67 |
| Oryx Petroleum Corporation | OXC-T | -66.98 |
| Mandalay Resources Corp | MND-T | -66.88 |
| Bellatrix Exploration | BXE-T | -66.09 |
| Euromax Resources | EOX-T | -60.77 |
| Western Energy Services | WRG-T | -59.68 |
| Dundee Corp. | DC.A-T | -58.49 |
| Pine Cliff Energy | PNE-T | -58.41 |
| Eldorado Gold | ELD-T | -58.1 |
| Perpetual Energy | PMT-T | -57.87 |
| Aimia Inc. | AIM-T | -57.83 |
| Red Eagle Mining | R-T | -57.33 |
| Crew Energy Inc. | CR-T | -56.86 |
| Newalta Corp | NAL-T | -55.6 |
| Peyto Exploration & Develop. | PEY-T | -54.17 |
| Western Resources | WRX-T | -53.89 |
| CRH Medical | CRH-T | -53.84 |
| Bonavista Energy Corp. | BNP-T | -53.22 |
| Birchcliff Energy | BIR-T | -53.04 |
| Tahoe Resources | THO-T | -52.57 |
| NeuLion | NLN-T | -52.17 |
| Cardinal Energy Ltd. | CJ-T | -51.65 |
| TAG Oil Ltd | TAO-T | -50.65 |
| Storm Resources Ltd. | SRX-T | -50.57 |
I’ve been compiling some data for the year-end.
One statistic I track is my transaction costs (i.e. commissions of transactions).
If I’m generating performance that is below the market averages, I should immediately quit and just invest in a bunch of low cost indexes (Canadian Couch Potato is mostly cited in this respect – I will not offer opinion on it, and Vanguard Canada in general is quite low cost). In general, you can invest in a basket of well-diversified stocks and bonds at a management expense ratio of roughly 0.1-0.15% of assets.
It actually isn’t readily obvious whether higher transaction costs is a detriment to performance when one’s performance is higher than the market averages. Can one instead make a case that lowering the volume of transactions will actually increase performance?
The way I try to measure performance is applying the “What if I were to be struck by lightning at any point in time, how would my portfolio fare” test, where if I would arbitrarily freeze things at one point in time – e.g. January 1, 2016, how would I have fared today compared to my present value had I not conducted any transactions since that date? (I don’t answer this question in this post, but consider it for your own portfolios – it is an interesting exercise when you discover that you have two-year streaks where clicking buttons is negative alpha!).
Getting back on topic to transaction costs, over the past decade, this number (as a function of year-ended assets) has been between 0.05% to 0.81% (the 0.81% year was in 2008, which for understandable reasons, was a very volatile year for trading – while losing 9% for the year, I out-performed the S&P 500 by over 25%). The number should decrease over time as asset values have increased.
2017’s year-end number (I do not anticipate making any trades on the last day of the year) is quite close to the low end of my past transaction cost range.
Commissions these days are so low that trading execution is a much more dominant factor in terms of reducing the frictional costs of transactions, but keeping records on raw trading costs I find fascinating. I cannot be accused of over-trading, but always look for methods to optimize how I scale in and out of positions – every basis point of performance counts, especially in today’s non-volatile markets.