Saturday, January 2, 2016

Year in Review: 2015 Trades

Notes:
Stock Ratings: 1 = buy at current stock prices, 2 = buy on a 5-10% dip in stock price, 3 = sell on a 5-10% increase in stock price, 4 = sell at current stock prices to raise cash.  Ratings are based upon 12-18 month outlook on stock direction and not necessarily related to moves I make due to financial positioning.

The purpose of this discussion and review is to analyze the trades I made in 2015 - what went bad, what went well, and what's still undecided.  Hopefully we'll be able to glean some lessons from the experiences I've had and use those to become better in 2016 - so let's dig in.  Below are all of the trades I made this year.  I'm going to try to break things down stock by stock, not trade by trade, but I'll do my best to keep all of this straight.

Trades Made in 2015

I'll start with the easiest topic to discuss, which was my "win" with NPS Parmaceuticals (NPSP).  As I went into the year, I was up significantly on this holding - approximately 140% if I recall.  Market conditions had me to a point where I wanted to take claim to the gains I had and take out the money I put into my holdings.  Oddly, it was maybe a week after I sold my shares, rumors I was seeing and hearing came true and the company was bought out by Shire PLC.  It took me a little while after the announcement to get my remaining shares sold.  In reality I could've (and maybe should've) sold immediately, but I waited in hopes to gain a few more cents because the sell price wasn't as high as the agreed price.  In the end waiting for the actual buyout of my shares would've resulted in a transaction fee that would've hurt my overall income, so I sold and ran with my winnings.  

During that same period of time, I was counteracting my win with a big loss.  In line 2 I sold my remaining shares of Encana Corporation (ECA) at a significant loss.  The oil and gas sector was falling apart in the second half of 2014 and it continued into 2016 with strength downwards.  While I didn't sell the stock at its highest points, I was near the top and I sold into strength, realizing it was my only chance to get out and just take my losses.  In the end, this was fortunate because the top was right around $14 while the stock has since plummeted down to about $5.  It's a shame that I didn't see the overarching theme, though.  I considered this to be a one company problem and it wasn't.  It was an industry problem.  As such, I ended up selling my shares of Ensco PLC (ESV) a couple months later (line 7), also at a significant loss after the company slashed its dividend to protect itself from the market conditions.  The stock was getting hammered because they were predicting this would happen and I turned a blind eye.  The drilling industry was already overflowing with rigs, Ensco was retiring rigs left and right, but I thought their youngest and more technically advanced rigs would have an edge in the market.  Had I realized the oversupply in the market, I should've been able to also put together the fact that it doesn't matter what you have to offer if people need to stop using your services to cut that supply back.  Again, I would've been able to sell at a better price later in the year (it got as high as $27.50 at one point), but at what cost?  I sold when I knew things were no longer favorable and put that cash to work somewhere else.


You'll notice at the same time I collected my winnings in NPSP, I also took a small stake in ISIS Pharmaceuticals.  I saw the biotech sector to be favorable and wanted to find some new winnings like I did with NPS Pharma.  I chose ISIS (Now Ionis Pharmaceuticals - IONS) for its patented technology with a deep pipeline of potential hits and home runs, including some drugs, like its anticoagulant, that were showing exceptionally favorable results so far.  I knew the company, and the sector were extremely hot, though, so I only bought a very small portion of my anticipated position, waiting for better entry points than 10% down from its recent highs.  It took a long time to reach that opportunity.  In fact, the stock ended up surging to around $77.  I knew I felt uncomfortable about the price being that high on little-to-no news.  There were key pundits, whom I respect, saying biotech was getting too hot and it was time to take off some winnings.  I had such a small position, I couldn't justify selling the whole thing and take a chance on whether or not I could get in at a lower price, so instead, I held my shares and they quickly dropped in price - so quickly that by the time I could've made a move, it was already too late to make any decent profits.  Sure, this could be seen as a missed opportunity to make 10% on a trade.  The thing is, I didn't pick up the stock for a trade.  I picked it up for a speculative investment and I didn't have anywhere near my full position to trade around.  So I held it, wanting to assure I continued to hold some shares in case something huge happened, like a buyout or a sudden change in direction.  It may sound kind of stupid, but honestly, I think I did a good job of maintaining my investment strategy.  When you're trying to position a stock, you want it to go lower and lose some value for awhile.  That way you can increase your position.  Eventually, that's exactly what I got.  In lines 9 and 11, I scaled deeper into my position, each time about 10% lower than the last purchase.  I was closing in on my full position, so I had to slow my buying and be careful.  I wanted to "double down," buy twice the shares than I did my last purchase and both the biotech sector and the market had fallen out of favor.  When I originally looked at the stock, I anticipated that it could and likely would be cut about in half at some point again.  That would put the stock down to about $38.  My thought process and strategy seemed sound.  And then the stock does it, it hits $38.04.  

But I didn't buy any.  There are 2 reasons for this.  The first is that I was fighting with the emotion of "what if it keeps going down?"  The good news is that I was watching the stock, I knew what I was looking for (the price to go below $40), but as it went down, I did freeze some.  I was getting greedy and instead of just buying at a point I was looking at - even if it goes lower.  I've been wrong before and it made me question myself.  I wondered if I did enough homework, if I was missing a fact that destroys my thesis.  I had made those mistakes in the past and I haven't seen anything that showed I was better now.  So I froze.  Additionally, the opportunity was very brief.  When I wanted to pull the trigger, the price was back above $40 before I had a chance to make a trade and make my catch (dealing with work certainly was a factor to this as I have other duties).  And so I waited, hoping - heck expecting - that the price would drop back down below $40 again so I can fill my position.  It never happened.  And I was unwilling to keep buying up even though the price was still bargain basement.  And now I'm here, with the stock up $20 from that price point.  Greed and lack of conviction kept me out of some significant winnings.  However, I have learned that my approach to homework has improved.  That while I don't know everything, by any means, I am noticing patterns, tendencies, and where value, in at least some stocks lie.  I've also learned that I need to set price points and when the time nears, have trades that are ready to execute.  Bid until Cancel trade orders are going away, this makes dealing with swift drops in the market harder to take advantage of.  However, I will have to have a way to know what I want to order and that it's ready, instead of expecting to be there and ready to order on a moment's notice.

I consider my purchase of shares of Pepsico (Line 5) to be one of my most interesting moves on the year.  Interesting because there could be a lot to learn from here.  Throughout the year I waffled on Pepsico unlike any other stock.  The stock was performing well, but I constantly anticipated a rising rates environment that would come in and crush the stock.  Then all of a sudden, things looked better again.  Despite all of this, After seeing the stock hit 52 week highs, I decided to buy the stock down over 10% from those marks.  This really started my waffling because I became fearful that I bought when I shouldn't have.  I also bought well above my cost basis.  It appears I bought out of FOMO (Fear of Missing Out) more than anything.  I wanted a larger position before the stock went higher.  But why was I so sure it would go higher?  The business was doing well, but I was also clearly calling out risks to earnings brought on by a strong dollar and fears of rising rates (as was the continuous theme in 2015).  I had no real definition of what would cause the stock to go higher - particularly given it's high PE multiple.  Subsequently, the stock went lower.  When it got really low, I didn't buy more shares.  This is a sign of lack of conviction and/or a lack of attention to my actions.  While my conviction in the company was strong, I clearly don't look like I was prepared as needed to have conviction of the stock, and what is a fair price.  It's not to say this is all bad.  I'm now up on the purchase a little and there's still a strong future in front of the company, but I need to be more thought out and direct on my thesis, buy points, and reason to move forward - especially when violating a cost basis.  This could still end up hurting me in the end.

At the same time that I bought Pepsico shares, I also increased my position in Citigroup (Line 6) slightly.  Early on in the year, I was finally starting to understand the stock, but was late to the party.  I wanted to buy stock around $47, but like ISIS, I got scared/greedy.  I hadn't built my confidence yet and 11 months later, I think that has begun to change.  Now I have to watch out about being too greedy.  The stock came back under $50 not too long ago, but instead of jumping, I was waiting for $47 again.  This all in despite of all the comments and research I have done stating that $50 was proving to be a very strong floor of support.  Just a couple weeks ago, I wanted to buy more shares if it dipped into the $50 - $51 range.  It did, but again I wasn't prepared to move and missed my chance - getting greedy and waiting for it to go below $50 again.  I might get my chance, patience may not be so bad, since the market has been rather bearish lately, but were the market bullish, I'd have missed out for sure.  While the stocks movement is rather flat, it is slowly making generally higher lows and now we really are entering a rising rate environment.  I must set my convictions and go with my gut more than I am.  FOMO iseems to actually making me miss more opportunities than do I face cockiness of blowing my wins.  If I can build a little more structure - enough rules that I can stick to and follow - I might do better yet.  That said, it's fair to note that the overall market mood has had me wary and while there have been some jumps along the way, my cautiousness has been relatively correct.  However, I need to assure I know how much more caution I need to have, or I find myself frozen with fear, unable to move until it becomes too late.

The final stock to discuss for the year are my purchases of Cedar Fair (Lines 8 and 10).  With my releasing of my Ensco PLC stock earlier, I was looking for a stock I could leverage as a strong dividend play, but provided growth opportunities as well.  This company has an over 5% yield that's backed by cash flow, and has been posting strong growth numbers for awhile now.  I patiently waited for the stock to pull back from its recent highs and got it down between 5 and 8% when I purchased my first position.  I was hoping for lower and slowly, but surely I got it, and so I bought my second bunch.  I was buying on narrow scales because this stock hasn't shown signs of wild movement.  To expect 10-20% moves didn't seem logical.  I've wanted to by my next bunch at about $52.50 and I've had a few opportunities.  Again, I got greedy at the time, thinking the stock would fall harder because the overall market was moving down much harder.  It wasn't exactly horrible thinking, but the second it started going back up, I should've bought some and said to heck with it.  I still could buy more on the way down anyway.  The lowest I ever expected the stock to get on current information was around $47 anyway, so I should've just said that would be my next buy point instead of focusing so much on trying to get my cost basis lower.  As of now, the stock appears to be breaking out to the upside.  We'll have to see if I get any more chances to buy shares below my cost basis while the story is still intact.

So there you have it.  My year of stock purchases laid out.  If I were to summarize them and the year, it would appear to be time to have more faith in my abilities.  My gut is telling me stuff but my mind is getting in the way.  Be more disciplined, less emotional, pick your points and stick to the process.  The worst that can happen is that you're wrong and after last year, I hopefully have learned how to recognize and get myself out of losing propositions better.  I did have more trades this year, and could've had more.  In the next year, I'd like to fill out my position, if the markets are favorable so I'm maximizing the use of my money.  If markets look unfavorable, I'll want to get even more into cash than my 20% I have now.  I'll leave how I see the market coming up, and the chances I might have to my other annual review.  Until later, folks.