Managing a Position Through Oil’s Collapse

My initial purchase of SLCA was at around $42. I rode it all the way up to new highs, into the $70’s, only to see it collapse into the dirt and rocks, making a mockery of my patience. It was part of a broader asset allocation model and wasn’t overweight, so there wasn’t a sense of urgency with the name, as it fell. However, before long, that small position started to weigh on my performance. As the shares slid to the low $20’s I began to ponder the meaning of life.

I made a decision to begin a campaign to average in on the shares, bringing the cost basis down to reasonable levels.

I bought some at $25, $26, $27, $28 and $29. I bought the stock about 8 times, all recorded in real time in The PPT. I’ve reduced my cost basis down to the mid- $30’s, a reasonable level in the big scheme of things. During this period of accumulation, I’ve exhibited extreme diligence and patience, something to be expected from a man in my position and caliber. If I could do it all again, however, I’d sell this fucker in the $70’s. Hindsight is always 20/20.

Now I could bulk up on the position here and try to make it profitable on a potential push higher. However, given the recent run in oil, I think the prudent move is to wait for lower prices. If this trades up to $40, I will reduce my position. If it trades back down into the mid-20’s, I will add to it.

It’s never easy wading through shit, bearing witness to great trades turning into losers. But had I given up and sold out in the $20’s, when most did, I wouldn’t be in a position to turn this dog into profit, as I am now.

The market was up today because this is a bulled up market. Join the party or get left behind.

Oil is undergoing an epic short squeeze now. More than that, though, the market is exhibiting new characteristics. It is rewarding momentum, which is a notable departure to the back and forth grind we’ve endured over the past 6 months. If seasonality reigns supreme, during the Forbes 400 billionaire watermark month of February, you want to be long names with heaviest short positions.

My largest oil holding is SLCA, followed by PACD, OXY and FMSA. As you know, I am long AAL as a hedge against oil.

The time has come for the city square to bustle with the severed penises of those who short equities. BEHOLD as the lands turn from green to red, amidst a sea of black.

Part of my once per month purchase program, I added to my HABT position. This is not a swing trade. This is a long term position based around the idea that the 14,000 MCD eateries in America will continue to get picked off by the likes of HABT, SHAK and other burger chains of their ilk.

I also added to my AAL position, further hedging my oil longs in SLCA, PACD, OXY and FMSA.

Since 2008 there have been a number of you hell-bent on discovering the next big short. This is classic human inadequacy, feeble attempts at separating from the pack in order to prove one’s worth. You don’t need to prove anything, lads. Being able to bet against the tide and winning is supposed to be a very low probability trade. Inherently, those who continuously bet on predictably weak outcomes are morons, despite whatever formal education one might have.

Use your investigative skills to find the next MSFT or CRM, if you’re into trying to be different. It always amuses me how people peacock themselves for the dumbest shit. You want to impress someone through the acquisition of personal items via the stock market? Take it from me, there aren’t any short cuts.

I remember when my desk mate, back when I got started in this business, tried to use short cuts. He ended up being arrested at his desk for leading an insider trading ring. He was the nicest guy you’d ever meet. Money tuns people into fucking trolls.

Don’t be a troll.

This is very important shit, so don’t lie.

One of the great features of Exodus (coming soon!), the second iteration of The PPT, is the ability to set parameters for a screen and see what sort of returns would’ve been had over a pre-determined time period. Without question, this market spits in the face of high growth money losers in favor for cash flow generating machines.

The following criteria led to a median return of 20.25% and average return of 25% last year, long 82 stocks.

Market cap over $5 billion

Free cash flow over $100 million

Forward PE under 45

Quarterly earnings growth over 15%

Quarterly revenue growth over 15%

Before I reveal the names, I want you to understand why this investment approach did so well, beating the SPY by 4% and 9.25% respectively. First of all, this basket of stocks is less than 1/5th as large as the SPY, which serves as both an advantage and disadvantage, depending on the market conditions. The fact that investments were limited to companies with market caps over $5 billion excluded most of the pump and dump scams, transient flavor of the month’s and such. The free cash flow prerequisite ensures that you’re invested in a real business, excluding many high flying biotechs in the process. Investing in names with forward PE’s less than 45 leaves out many over-priced stocks and possible blow ups, should earnings begin to turn down.

It’s worth noting that I tried every possible combination and this one resulted in the highest returns.

How do we narrow it down and pick some stocks that are actionable now? If building a portfolio, you’d simply choose the best names amongst the 8 principal sectors. Or, in this case, knowing the short term nature of you poker playing degenerates, we can simply cross-reference this screen against some technical factors, such as names in proximity to the 20 day moving average.

Here are names at the 20sma to +5%, easily screenable inside The PPT.

If you’ve become risk averse and have difficulty knowing from which reservoir of stocks to choose from, this is a good option for you. Of the 82 stocks, just 12 were down over the past 12 months, with the largest drawdown being -39%– long QIHU. The other down stocks were in the oil and gas space, which could’ve easily have been mitigated by exercising stop losses.

Listen to me. I’ve consumed more information, whether it be blogs, movies, books, essays, scientific journals, teevee shows, over the past three years than all of you combined. Because of this, I am a supreme authority of all things, especially cinema. The very fact that you have access to my database of knowledge and information is a massive boon for your existence. That being said, since the departure of our dearly beloved tabbed blogger and 12631 trading mate, ChessNWine, iBC has been without a proper movie connoisseur leaving a dreadful vacancy in its wake. I realize that many of you have suffered since this departure in style and culture and I’ve decided to do something about it.

Alas, Le Fly is here to save the day–yet again.

The Talented Mr. Ripley (3.75 bullets out of 5)

This used to be a favorite movie of mine, before I went on a tangent and saw a bunch of films that generally shit on this. But the message is profound and will be relevant for the next thousand years.

NEVER BEFRIEND BEDRAGGLED MICROBES WHO ADMIRE YOU TO THE POINT THAT THEY WILL ONE DAY MURK YOU AND ASSUME YOUR IDENTITY.

The villain in this film, Matt Damon, reminds me of so many people who’ve attempted to destroy me over the years. If you enjoy a modicum of success and have a bunch of inchworms clamoring for your attention, I advise you to watch this movie and take copious notes. It might just save your lives.

Next week we will analyze and discuss my favorite film in French cinema.

Now +8% year to date, generally bowling on your lazy ham and eggers with a vicious audacity.

Come to Yandex and have big party on the computer. Google is American shit, who only wants to build cars for lazy people and glasses for perverts and spies. In Russia, all the people use Yandex because it’s cool and better than Google.

Look at this favorite search in Russia. See how cool that is, yes? Just buy stock and retire off coast of Monaco. You’ll be big man once shares go up, no?

All of the news you hear about Ruble and Russian economy is big black American lie, yes? Here in Moscow, we are very warm and fat. We have meat and bread and lots of women.

Go to Yandex for the news. It’s much better than Brian Williams.

This message was paid for by the KGB

I sold PEIX and replaced it with VALE.

I also added to my YNDX position, making it a top 3 holding.