Taking Stock (bad pun) After One Year

I started blogging about the markets a year ago, just after Thanksgiving 2011.  I have quite enjoyed both the writing and the research I have been doing on stocks.  But apart from the enjoyment factor, I thought it made sense to look at the numbers, to see if my stock advice was actually worthwhile.  Admittedly I recommended some bad ones in the past 12 months.  Teva and Hewlett Packard were awful, as was my shorting of US treasuries (long TBF).

But there were also winners too.  Apple has done ok, and Netflix crashed and burned in spectacular fashion.  While the NFLX short idea looked like a terrible prediction shortly after recommending it, my thesis eventually worked out.  Content costs rose dramatically, they had to raise prices, and subscribers bailed along with investors in the past couple of months.  Doing the research does pay off.

Over the past year, as I have recommended buys (or sells) I have kept track.  It wasn't hard, all of them I traded shortly before or after blogging about it.  Subjecting myself to this scrutiny can only make me a better investor I think.  Not doing the work, trading on emotions are enemies of long term returns.  So, if you had traded every idea that I pitched either here or on seeking alpha, then this is about what your portfolio would look like.  Rec Date is the date I recommended the trade.  The dollar values are theoretical only.

Rec Date	Bond Book	Pr Today			Purchase Pr		Gain (Loss)	% Change
12/05/10	PLBDX	9.91	Long	933	$10.14	9,249	(218)	-2.3%
08/09/11	EFT	13.98	Long	700	$13.68	9,786	212	2.2%
12/13/10	PUBDX	10.98	Long	933	$10.81	10,248	161	1.6%
01/25/11	FXA	97.27	Long	100	$96.07	9,727	120	1.2%
11/10/10	Short Treasury TBF	31.61	Short	250	$42.22	7,903	(2,653)	-25.1%
12/27/10	CSJ	104.39	Long	100	$102.47	10,439	192	1.9%
						57,352	(2,186)
	Equity Book
12/05/10	WGRNX	13.45	Long	733	$13.80	9,863	(257)	-2.5%
12/08/10	UTF	15.32	Long	600	$15.13	9,192	114	1.3%
01/10/11	NFLX	63.86	Short Sell	(60)	$178.50	(3,832)	6,878	64.2%
09/01/11	YPF	32.58	Long	250	$33.83	8,145	(313)	-3.7%
08/15/11	GLRE	21.91	Long	500	$21.75	10,955	80	0.7%
08/15/11	RJF	26.2	Long	375	$25.50	9,825	263	2.7%
08/15/11	BRK	72.89	Long	150	$71.00	10,934	284	2.7%
08/09/11	WMT	56.89	Long	175	$49.14	9,956	1,357	15.8%
12/28/10	CSCO	17.5	Long	483	$20.21	8,458	(1,312)	-13.4%
09/01/11	FDO	55.8	Long	200	$51	11,160	960	9.4%
12/10/10	NEM	63.77	Long	175	$60.59	11,160	557	5.2%
02/11/10	MU July 9 strike Puts	3.5	Long	1,000	$0.40	3,500	3,100	775.0%
02/15/10	NLY	15.94	Long	590	$16.03	9,405	(53)	-0.6%
2/111/11	GLD	163.4	Long	75	$132.40	12,255	2,325	23.4%
12/08/10	TD AMERITRADE	15.19	Long	533	$18.40	8,101	(1,712)	-17.4%
01/15/11	AAPL	363.57	Long	30	$341.00	10,907	677	6.6%
02/04/11	TEVA	36.91	Long	200	$51.09	7,382	(2,835)	-27.7%
01/05/11	HPQ	26.38	Long	223	$43.46	5,892	(3,815)	-39.3%
12/27/10	SPY	116.2	Short Sell	(78)	$125.50	(9,102)	729	7.4%
						201,507	7,027
							4,841
				Bonds		$     57,352	28.5%	$     (2,186)
				Stocks		$   144,155	71.5%	$       5,439
				Portfolio Size		$   201,507
				Return		2.4%
				SPY yr end 2010		$     125.75
				Market Return YTD		-7.6%

The stock prices are adjusted downward for dividends, in case you are wondering why some of these prices look a tad lower then where I recommended them.  Overall, I cannot complain, despite the fact that this portfolio is only up 2.4%.  The S&P is down 7.6% year to date.  My biggest winner actually was puts on Micron Technology, MU, which I seemed to have timed perfectly.  In theory, $400 in put options turned into $3100 in profits as the stock fell by half.  I am thinking that I will use more options next year.

Real World Portfolio

Overall this portfolio is up 1.6%, but my real world portfolio is barely flat.  Why?  Well, I carefully follow a 10% stop loss on trades, keeping me out of continued losses in names like TEVA and HPQ as they plummetted, but causing me to miss the complete meltdown of NFLX.  That tells me that my stop losses have hurt returns, albeit admittedly my portfolio showed less volatility than this one.  More volatility, more return.  The stock picking isn't bad, but I am going to revisit my stop loss rule, or perhaps trade more gradually into stocks.

Time Arbitrage

There is a phrase I heard recently that makes a ton of sense to me:  Time Arbitrage.  Humans beings by there very nature are extremely short term focused.  We think 6 months is a long time, and nobody can even really conceive of 20 years.  A "lifetime" to many people.  Given the increasing number of dollars flowing into hedge funds, who have quarterly liquidity, the pressure to produce instant returns is high.  One bad year can kill a fund, either from heavy investor redemptions or from the problem of not making money until high water marks are met.

Furthermore, if a common hedge fund rule is to stop loss a trade at down 10%, then is it a coincidence that the market seemingly is gyrating up and down by 10% at a time?  Going forward, I think the best trades are going to be the ones that seemingly won't pan out for at least 6-12 months.  Yes, perhaps there will be some sitting in a value trap name, but clearly its better to be early than late.  Buying late usually means you have missed most of the run, and risk is much higher too.

Tomorrow I am going to buy back Teva around $38.  Its a classic example of this.  Generic drugs have tons of growth over the next 5 years.  However, there aren't any major drugs going off patent until 2012, meaning that their numbers will look weak until perhaps even 2013.  I'll collect the 2% dividend yield (better than treasuries still), and sell some $35 puts too.  That means that if TEVA falls below $35, I will automatically buy more at that price, less the premium I received to sell the put (last quote was around $3.20 for June 2012 puts).