THE GOOD, THE BAD, THE UGLY
THE GOOD, THE BAD, THE UGLY
It’s that time again that I have to review the year. Despite the ups and downs, I am rather satisfied with this year's performance, more importantly, I have learnt a lot from this year’s experience. After all, this review is a rear-window view and what I have learnt will benefit me in the future. Without further due, here it is.
THE GOOD
1. Learning Experience. I have to put “LEARNING� on the top of my good list, intangible notwithstanding. This is the year that I truly feel that I have learnt a lot from my experience, both bad and good ones. Let’s see if I could summarize them here. I had read more extensively this year than ever. I had listened to everyone, analysts (both buying and selling sides, portfolio managers, economists, Cramer). I started to develop my own system earlier this year and it started to work for me. I will reflect some of the lessens learned throughout this review.
2. Exceeding Target. I managed to meaningfully exceed my targets for fiscal year 2005. We saved more than planed, even though we had our share of unexpected this year (17.7% vs. 10%), and we generated a much greater return than expected (17% vs. 10%). On the managed portfolio, I managed to generate 11.5%, compared to our modest 7.5% target. The overall return of 35% this year will be hard to beat going forward. The total portfolio of $410K exceed our target of $375 by $35K, or 9.3%. The wealth increased by $105K this year. Given our income level and cash flow circumstances, this is rather remarkable. It is even more remarkable given that I have to continue to get rid of my past losers and mistakes. This is an excellent performance by any standard.
3. Good Picks. A lot of terrific picks this year with excellent returns, particularly in the small caps, most after good independent research work. There are so many, and I do not intent to list them all here.
4. Homework. Started to develop my own system. Earlier this year, I started to look for “exceeding expectation stocks, with reasonable valuation� and it worked out quiet well, particularly for small caps. Later, I started to develop a simple system where the growth rate, ROE, and multiples are weighted, scored, and ranked. I have been picking those with relatively high score. I also started to screen sectors by using the score system and it had indeed generated some attractive picks. While the system needs refining, I believe it is a decent system. First and foremost, it will likely avoid bad ones, i.e. those without earnings, have low ROE, or valuation is too high.
5. Showed more flexibility. There were only two major buying opportunities, one in April-May and one in late October. I managed to add more positions in both lows, despite considerable emotional pains and suffering. “When in pain, buy more� becomes this year’s motto. I am still learning how to sell though, as I believe I am still very much amateurish in taking profits.
6. Cleaned up a lot of “deadwood�. I continued to clean “deadwood� of previous mistakes. While the portfolio still have losses, I believe I have more or less gotten rid of all true deadwood and moved forward.
7. Speculated less. After housing cleaning earlier this year, I have made a great deal of efforts to speculate less, or to limit the speculate position or dollar amount to the minimum. While I still have some speculative positions, their positions are relatively small, and their natures well aware.
8. Research. I had done a lot of research work this year. I had gone through a lot of quarter reports, 10Q / 10K. I had gone to a lot of conference calls and I had read a lot of research reports. Most fund managers are not Buffet, but they do possess more information than individual investors. I believe I have narrowed that gap a bit this year.
9. Record Keeping. I had a reasonable plan with achievable target, well in place. I kept every trade made. I reasoned with myself before I executed. The record keeping is important as it really helps me to focus on the forest, instead individual trees. It also helps me avoiding mistakes.
10. Open Mind. I kept an open mind this year, and looked beyond my traditional resource, finance and technology areas. Income trusts had generated a decent return for me this year and I would have missed it had I not kept an open mind this year (I had indeed missed the biggest investment opportunity ever).
11. Limited losses. While I put this in the “Good� category, I have to give me only a “pass� grade as my failure to sell a few positions had resulted in fairly significant losses. In fact, had I been able to limited their losses by half, my return would have been in lower 20s, instead of lower 10s. Having said that, I was very conscious this year and if the fundamentals deteriorated, I generally sold my position without too much hesitation, most of which turned out to be the correct decisions.
12. Informed decisions. I used to take positions before the earning reports, HOPING good results and a spectacular pop. The key word it “HOPING� because I had no clue what the results would be, so were all others. This is exactly what speculating means, even for quality company. One thing I truly learnt this year is to take positions after the earning results, i.e. making informed decisions. And the results have been surprisingly good. Not only was I able to pick a few good stocks, I was also able to dump a few losers as quickly as possible. More importantly, making informed decisions results in more rational thinking, and avoids panic. I shall never take on any positions without first reading their reports.
13. Buying panic. I made conscious effort this year to buy “PANIC� this year. Buying panic only works if you are aware of, and believe in good stocks (which require a lot of on-going research works), when panic selling occurs. I was able to pick up ADS, WCG, ELOS, NSTC, COM.TO at panic prices (not without emotional pain and sufferings, though).
14. Trust Income. I was converted into a believer of Income Trust earlier this year and started establishing positions. While I had come to the party rather late, and despite the ups and downs, the trusts had generated decent return for me. I continue to like its tax efficiency and profit-taking discipline. For me, a trust is a tax reduction for trust holders. If you do not own it, you miss the tax cut. Secondly, trusts take profit every month, a much more disciplined product for me.
15. A few good books. Other than financial statements, 10Q/10Ks, I actually read a few good books this year, and I intend to read a few more in the New Year.
THE BAD
1. Selling too earlier. I continued to have major problems of selling way too earlier, and I believe this is the area that I need to improve the most. My portfolio is littered with these stocks I did not know where to start. For example, I picked WLE at 2.85 and sold it at about 5.0 for a 75% return, pretty impressive, ah? NOT! It went up to 17.5 by the end of the year, that would be a 600% return, and I missed 525%! This pick alone would have doubled my entire year’s return had I kept it. Even I kept half, my return would have been much greater. I picked IIC at 33.5 and sold it at 34, basically lost patience after two quarters. It went up to 55, almost as soon as I sold it! To rub it in, I purchased two securities subsequently, using the cash proceeds, both of which were losers. Ensign, I picked up at 22.65 and sold it at 26.9 for a 17% return, it went up to 50 by the year end, 120.75% return! TEK, picked up at 36, and sold at 45, again, a decent return of 25%, it went on to $60, a 65% return. There were also quite a few positions where I panicked, resulting in losses, and they went on to generate significant returns. On the other side of the ledger, positions I had held for longer time, generated significant returns for me. Lessens leant: let your winners run.
2. Selling too late. On the other hand, a couple of positions there I sold too late. One obvious one is Jean Coutu. I read the earning release, I listened conference call. I knew the results were not good. The stock was held and I could get rid my entire position at 18.5. I hesitated, just for a few seconds, and it was a free fall, all the way to 12. My loss exploded from 2% to 37%. But the honor had to belong to CJC where after the disappointed testing results, I did not sold at 5.0 level. It went down all the way to 0.62. A complete written off! Without CJC, my return for 2005 would have been spectacular. On macro level, there were two major peaks this year, one in March and one during August-September, and I obviously missed both. The March peak was particularly painful for me as my return fell off cliff, from 10%+, all the way to –5%. The end of the year appears to be a peak, at least for 2005, should I learn from experience and sell some here?
3. Trading too much. I did almost 200 trades this year, a lot of them in panic situations. That is way too much for a small investor like me, and that is a lot of commission for my broker. My New Year resolution is to cut that number at least by half.
4. Speculating too much. Although it sounds contradicting to previous passage, I still speculated too much, particularly in early part of the year. I gradually reduced my speculative positions throughout the year to minimum. On the positive side, at least I am fully aware of the nature of these positions and I have made an effort to control their positions as little as possible.
5. Value Trap. One of the major failure this year is the picks of “value traps�. I always have the tendency to look for cheap stocks, which tends to lead to picking up of value traps. I have plenty this year, including but not limited to ABT, BXS, WYN, ORCL, MSFT, PJC.TO, none of which have provided me with decent returns. Another resolution of 2006 is to make a conscious effort to buy “the best breed�, instead of the cheapest stocks.
6. Bad advice from analysts. I still listened too much of what analysts said, not that they were all bad though, but a lot were.
THE UGLY
Drum roll please: The honor goes to CJC, a total written off for this year, although to be fair, it is one piece of the deadwood, as I bought most of them in 2003 and 2004. This was a typical case. I listened the conference all and I pretty much knew the results were not good and the market wouldn’t like it. But when the market tumbled to $5.0 level, I hesitated and did nothing. After which, the thinking went as: “ it had come down so much, how much could it go down further�? It could and it did, all the way to 0.62. The other aspect of this dog is that I knew it was speculative, nonetheless, my position was way to significant for a speculative stocks. I believe this shall not happen again going forward because I will limit it to no greater than 2% and I will sell it as soon as fundamentals deteriorate.
Other honorable mentioned included: DY.TO, SFCC, PFC.TO, TMY.TO.
CONCLUSION
Overall 2005 is not a bad year for me. I achieved all my modest targets and a little bit more in a pretty difficult market. I beat most of the US indexes, although under-performed TSE this year (which is pretty hard to beat, unless you were over-weight energy). More importantly, despite all those mistakes, I feel more confident in 2006 and beyond.
It’s that time again that I have to review the year. Despite the ups and downs, I am rather satisfied with this year's performance, more importantly, I have learnt a lot from this year’s experience. After all, this review is a rear-window view and what I have learnt will benefit me in the future. Without further due, here it is.
THE GOOD
1. Learning Experience. I have to put “LEARNING� on the top of my good list, intangible notwithstanding. This is the year that I truly feel that I have learnt a lot from my experience, both bad and good ones. Let’s see if I could summarize them here. I had read more extensively this year than ever. I had listened to everyone, analysts (both buying and selling sides, portfolio managers, economists, Cramer). I started to develop my own system earlier this year and it started to work for me. I will reflect some of the lessens learned throughout this review.
2. Exceeding Target. I managed to meaningfully exceed my targets for fiscal year 2005. We saved more than planed, even though we had our share of unexpected this year (17.7% vs. 10%), and we generated a much greater return than expected (17% vs. 10%). On the managed portfolio, I managed to generate 11.5%, compared to our modest 7.5% target. The overall return of 35% this year will be hard to beat going forward. The total portfolio of $410K exceed our target of $375 by $35K, or 9.3%. The wealth increased by $105K this year. Given our income level and cash flow circumstances, this is rather remarkable. It is even more remarkable given that I have to continue to get rid of my past losers and mistakes. This is an excellent performance by any standard.
3. Good Picks. A lot of terrific picks this year with excellent returns, particularly in the small caps, most after good independent research work. There are so many, and I do not intent to list them all here.
4. Homework. Started to develop my own system. Earlier this year, I started to look for “exceeding expectation stocks, with reasonable valuation� and it worked out quiet well, particularly for small caps. Later, I started to develop a simple system where the growth rate, ROE, and multiples are weighted, scored, and ranked. I have been picking those with relatively high score. I also started to screen sectors by using the score system and it had indeed generated some attractive picks. While the system needs refining, I believe it is a decent system. First and foremost, it will likely avoid bad ones, i.e. those without earnings, have low ROE, or valuation is too high.
5. Showed more flexibility. There were only two major buying opportunities, one in April-May and one in late October. I managed to add more positions in both lows, despite considerable emotional pains and suffering. “When in pain, buy more� becomes this year’s motto. I am still learning how to sell though, as I believe I am still very much amateurish in taking profits.
6. Cleaned up a lot of “deadwood�. I continued to clean “deadwood� of previous mistakes. While the portfolio still have losses, I believe I have more or less gotten rid of all true deadwood and moved forward.
7. Speculated less. After housing cleaning earlier this year, I have made a great deal of efforts to speculate less, or to limit the speculate position or dollar amount to the minimum. While I still have some speculative positions, their positions are relatively small, and their natures well aware.
8. Research. I had done a lot of research work this year. I had gone through a lot of quarter reports, 10Q / 10K. I had gone to a lot of conference calls and I had read a lot of research reports. Most fund managers are not Buffet, but they do possess more information than individual investors. I believe I have narrowed that gap a bit this year.
9. Record Keeping. I had a reasonable plan with achievable target, well in place. I kept every trade made. I reasoned with myself before I executed. The record keeping is important as it really helps me to focus on the forest, instead individual trees. It also helps me avoiding mistakes.
10. Open Mind. I kept an open mind this year, and looked beyond my traditional resource, finance and technology areas. Income trusts had generated a decent return for me this year and I would have missed it had I not kept an open mind this year (I had indeed missed the biggest investment opportunity ever).
11. Limited losses. While I put this in the “Good� category, I have to give me only a “pass� grade as my failure to sell a few positions had resulted in fairly significant losses. In fact, had I been able to limited their losses by half, my return would have been in lower 20s, instead of lower 10s. Having said that, I was very conscious this year and if the fundamentals deteriorated, I generally sold my position without too much hesitation, most of which turned out to be the correct decisions.
12. Informed decisions. I used to take positions before the earning reports, HOPING good results and a spectacular pop. The key word it “HOPING� because I had no clue what the results would be, so were all others. This is exactly what speculating means, even for quality company. One thing I truly learnt this year is to take positions after the earning results, i.e. making informed decisions. And the results have been surprisingly good. Not only was I able to pick a few good stocks, I was also able to dump a few losers as quickly as possible. More importantly, making informed decisions results in more rational thinking, and avoids panic. I shall never take on any positions without first reading their reports.
13. Buying panic. I made conscious effort this year to buy “PANIC� this year. Buying panic only works if you are aware of, and believe in good stocks (which require a lot of on-going research works), when panic selling occurs. I was able to pick up ADS, WCG, ELOS, NSTC, COM.TO at panic prices (not without emotional pain and sufferings, though).
14. Trust Income. I was converted into a believer of Income Trust earlier this year and started establishing positions. While I had come to the party rather late, and despite the ups and downs, the trusts had generated decent return for me. I continue to like its tax efficiency and profit-taking discipline. For me, a trust is a tax reduction for trust holders. If you do not own it, you miss the tax cut. Secondly, trusts take profit every month, a much more disciplined product for me.
15. A few good books. Other than financial statements, 10Q/10Ks, I actually read a few good books this year, and I intend to read a few more in the New Year.
THE BAD
1. Selling too earlier. I continued to have major problems of selling way too earlier, and I believe this is the area that I need to improve the most. My portfolio is littered with these stocks I did not know where to start. For example, I picked WLE at 2.85 and sold it at about 5.0 for a 75% return, pretty impressive, ah? NOT! It went up to 17.5 by the end of the year, that would be a 600% return, and I missed 525%! This pick alone would have doubled my entire year’s return had I kept it. Even I kept half, my return would have been much greater. I picked IIC at 33.5 and sold it at 34, basically lost patience after two quarters. It went up to 55, almost as soon as I sold it! To rub it in, I purchased two securities subsequently, using the cash proceeds, both of which were losers. Ensign, I picked up at 22.65 and sold it at 26.9 for a 17% return, it went up to 50 by the year end, 120.75% return! TEK, picked up at 36, and sold at 45, again, a decent return of 25%, it went on to $60, a 65% return. There were also quite a few positions where I panicked, resulting in losses, and they went on to generate significant returns. On the other side of the ledger, positions I had held for longer time, generated significant returns for me. Lessens leant: let your winners run.
2. Selling too late. On the other hand, a couple of positions there I sold too late. One obvious one is Jean Coutu. I read the earning release, I listened conference call. I knew the results were not good. The stock was held and I could get rid my entire position at 18.5. I hesitated, just for a few seconds, and it was a free fall, all the way to 12. My loss exploded from 2% to 37%. But the honor had to belong to CJC where after the disappointed testing results, I did not sold at 5.0 level. It went down all the way to 0.62. A complete written off! Without CJC, my return for 2005 would have been spectacular. On macro level, there were two major peaks this year, one in March and one during August-September, and I obviously missed both. The March peak was particularly painful for me as my return fell off cliff, from 10%+, all the way to –5%. The end of the year appears to be a peak, at least for 2005, should I learn from experience and sell some here?
3. Trading too much. I did almost 200 trades this year, a lot of them in panic situations. That is way too much for a small investor like me, and that is a lot of commission for my broker. My New Year resolution is to cut that number at least by half.
4. Speculating too much. Although it sounds contradicting to previous passage, I still speculated too much, particularly in early part of the year. I gradually reduced my speculative positions throughout the year to minimum. On the positive side, at least I am fully aware of the nature of these positions and I have made an effort to control their positions as little as possible.
5. Value Trap. One of the major failure this year is the picks of “value traps�. I always have the tendency to look for cheap stocks, which tends to lead to picking up of value traps. I have plenty this year, including but not limited to ABT, BXS, WYN, ORCL, MSFT, PJC.TO, none of which have provided me with decent returns. Another resolution of 2006 is to make a conscious effort to buy “the best breed�, instead of the cheapest stocks.
6. Bad advice from analysts. I still listened too much of what analysts said, not that they were all bad though, but a lot were.
THE UGLY
Drum roll please: The honor goes to CJC, a total written off for this year, although to be fair, it is one piece of the deadwood, as I bought most of them in 2003 and 2004. This was a typical case. I listened the conference all and I pretty much knew the results were not good and the market wouldn’t like it. But when the market tumbled to $5.0 level, I hesitated and did nothing. After which, the thinking went as: “ it had come down so much, how much could it go down further�? It could and it did, all the way to 0.62. The other aspect of this dog is that I knew it was speculative, nonetheless, my position was way to significant for a speculative stocks. I believe this shall not happen again going forward because I will limit it to no greater than 2% and I will sell it as soon as fundamentals deteriorate.
Other honorable mentioned included: DY.TO, SFCC, PFC.TO, TMY.TO.
CONCLUSION
Overall 2005 is not a bad year for me. I achieved all my modest targets and a little bit more in a pretty difficult market. I beat most of the US indexes, although under-performed TSE this year (which is pretty hard to beat, unless you were over-weight energy). More importantly, despite all those mistakes, I feel more confident in 2006 and beyond.
posted by ZIGZAG at 12/31/2005 05:53:00 PM
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