Monday, January 2, 2017

Year in Review: 2016 Trades

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 2016 - 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 in the 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.

2016 Trades
2016 is probably going to be best described as a year of missed opportunities, despite the lessons I "learned" last year.  On a positive note, I started the year with a large cash position.  As a result, you can see I basically spent the year building positions.  Given that the year started down so stronly on a variety of fears, it opened the opportunity to purchase shares as stock prices got beat down.  That said, I found myself getting frozen way too much - fearful that the market was going to crash more and I just needed to wait longer to obtain a lower cost basis.  So while the trades show some potentially positive work, it's going to be what you don't see in this list that I'll likely be noting more.  It also says I'm not paying enough attention as to when to sell a portion of some positions to have cash on hand and buy back at a better time.  After I get done with what really did happen, I'll take some time to reflect on what was missed too.

With that, I'll start with my purchase of Citigroup early in January.  When I purchased this stock, it had already tumbled over 10 dollars from its 52-week high and quickly had dropped about 7 dollars from where it was in December, prior to the Fed raising rates the first .25%.  This was rather surprising, given that a rate hike was supposed to help the banks, but everyone feared that the economy couldn't take it and that we'd quickly fall into a recession, so they sold financials.  I found this to be an opportunity to better fill my position and grabbed some at rates that seemed to be a solid floor for the stock historically.  Little did I know then that the stock would drop almost another $11 in the following 6 weeks.  I got cold feet buying more around that $40 mark even though I knew that these prices didn't seem sustainable.  The price was so far below book it was ridiculous, but I started to get too caught up in the idea that there were too many shares available, so the price couldn't climb - despite the fact that the stock was already to prices much higher than they were at that time.  I may have taken some advantage of an opportunity, but I also lost focus on my homework and got caught up in the day to day movement of the stock.

Next, I'll summarize the purchases of Cedar Fair on lines 2, 3, 5, 6, and 7.  The purchase on January 8 was also in reaction to what had happened to the overall market ever since the Fed decision.  This one, essentially, countered the Citigroup theory.  The stock was yielding around 6% in a market where everyone was fearful of the economy's health.  A high yielding stock should've been exactly what people wanted if the 10-year was dropping, as it was, yet it was acting like rates were rising dramatically and this MLP couldn't compete with 10-year rates.  I maybe missed a chance to better fill my position a little lower yet, but overall I didn't do too bad at reading this stock and jumping at a price that I didn't think I was likely to get.  I have to remember to keep that "unattainable" price in my mind so I don't forget to just step in and buy when I do get those prices instead of getting fearful of the action.

The final purchase I made was on line 4 when I purchased a stronger position in Ionis Pharmaceuticals.  At this time, the stock had dropped from its $70 highs mostly on the fact that the biotech sector had fallen out of favor.  You had politicians using the sector as discussion points regarding the prices they get for drugs and how "fair" they were, you had a CEO going in front of a congressional sub-committee to talk about dramatic price hikes and the stocks were just getting destroyed.  While I bought a position at this time, I was smart enough to keep the purchase small so I had more powder to use because I had a feeling the stock might get cut in half.  It did, and then some.  When a press release came out about one of the phase 3 tests being halted, followed by news of some platelet count issues with a couple patients in phase 3 studies, the stock got destroyed.  In June, it was below $21 per share.  At the time, I felt the price was too low, given how many potential therapies were in the pipeline, but at the same time, people (including me) were questioning whether the type of therapy, itself, was what was at risk - meaning nothing in the pipeline would end up working.  As such, I had no choice but to wait for further news.  Some would say I was stupid to stay in the stock, which is hard to argue, but I was willing to wait things out and find out what was going on.  The problem is, I never bought anything more.  It's not that I didn't pay enough attention to the news, it was more of a question of freezing and not focusing on the right things.  A positive piece would get posted and instead of acting on my decision to act, I said I couldn't buy because the stock was up 5% that day.  But I didn't consider what that 5% meant in terms of my cost basis.  I was so far under that basis that even up that 5% it was a steal.  It was well below the 50% cut from highs I expected, so there shouldn't have been reason to avoid the stock.  Instead, I got improperly caught in "not buying stocks on up days" and even if not every day was up, I didn't buy on the down days because it wasn't down to levels it was previously.  In all reality I should've doubled down my position under $30, but I just got froze way too deep in the details.  I knew the stock I had, I knew how wildly it could swing and set my purchases accordingly, but as it came to filling out my position I froze because I became afraid of missing a lower, better price again.  Instead, I got no position and watched as the company got its issues resolved, pressed forward with their phase 3 tests, and news release after positive news release has pushed the stock from the low $20s in June all the way up to the mid $50s.  That's right, the stock has doubled itself.  I was down tremendously and now I'm in the green.  I know my poor execution also left a lot on the table that could've helped me perform much better than the S&P500 this year.

My final trade is the sale of a share of AdvanSix Corporation (ASIX).  This was a non-taxable dividend payment from spinning off Honeywell's (HON) resins business.  While the stock is priced a bit higher today, I'm generally satisfied with this sale.  It was only 1 share, so it didn't make sense to keep tabs on the stock or company.  I was better off getting the money and letting the stock go.  The down side is that one share at these prices don't do much good when you factor in trading fees.  There's not much I can do about that though.  I just did what I could, set a price I wanted to get out at and followed through with it.  I may have left a little on the table, but it wasn't going to impact my portfolio much no matter what, so it just didn't make sense.

So I talked about all my real trades and I also covered some missed opportunities with those stocks, but I don't think I have covered everything.  In particular, I really didn't do a good job following through with my plan with On Semiconductor.  I could've sold the stock over $10 at the beginning of the year and bought it back later.  Unfortunately this didn't match my anticipated timeline for events and I got caught holding stock that was eventually below my cost basis.  Then as the year progressed, I basically called the bottom for the stock and yet didn't go and buy any to improve my cost basis and get a better position for a stock that was bound to go higher - not that I had expected it to go as high as it has in the subsequent months.  Like Ionis, I got caught not wanting to buy up, when in reality I was under my cost basis, so how was I up?  Buying on a day it's up 7%?  Sure, maybe that's not the wisest idea, but it doesn't have to be below where you were to buy it again either.  Need to do better at setting price points and reacting to them.  I understand some flexibility given the market, but I'm taking that too far and its hurting me.

There you have it.  My year of stock purchases laid out.  All in all, I did better this year at setting a plan and acting on it, but when things got wild (like with IONIS) I lost my discipline.  I may also question if I traded enough.  I have learned through the year that if I have strong stories it's probably not best to jump in and out of stocks because I'm not fee enough to time the market, but at the same time, I could've made some more moves and had less fear of filling a position with too much down side.  Either I did my research and know things or I didn't and my theory gets blown out (as should my stock at that time).  I'm not going to get every decision and move right.  That said, the real qualities is being able to understand when I'm wrong and taking swift action.  Finally, most of my abilities shown on this year are directly related to the buy side.  My positions are mostly full now and as I step into 2017 my abilities have to transfer to knowing when to sell, doing so, and then finding new places to put those funds.  This means 2017 might be where the real work comes in.  Until later, folks.

Nothing on this site should be taken as advice, research, or an invitation to buy or sell any securities.  All views expressed are solely of my own and I am not a professional money manager.  Please consult with your financial adviser before taking any action in your own portfolio.