I am going to lay 2014 bare, fairly and without playing pretty. 2014 was an enormous lost opportunity and, indeed, and calamity of masterful proportions. I do this to put it behind me, log it, and prepare to rise above it.
2014, I ended down 33%.
2014 started out as one for the history books. After pacing 28% in 2013, my book exploded to the upside (and by no means was that an exaggeration, if you were following my positions). I had such a hot hand, with names like BAS and HCLP doubling in a matter of months.
I sat out the tech sector carnage in the spring, unaffected by it. I made money even as others languished.
And what may come as a surprise, I actually called the selloff in both oil and the underlying stocks. In August, penning a self-reflecting piece on how disconnected I was from the real world, up 25% for the year while others were holding on for dear life, I deduced that I should sell out of much of my holdings, if only to reorganize and one up fate.
Then, what may be equally surprising – no, the next sentence is not “why didn’t I listen to myself!?” or equally stupid nonsense – I did sell out of half of my oil and energy positions.
That’s what makes this story so strange. I liquidated BAS from a 25% holding down to 10%. I dropped HCLP from almost 30% to 15%. I trimmed everything. I had 50% cash riding into this bloodbath.
And it still didn’t help.
Yes, I was buying the drop at intervals, but that only accounts for a fraction of the total damage. Maybe somewhere between 5-10%. The other 20-25% mutilation was from 10-15% positions dropping 50%-90% in the span of 90 days or less…
To quote the late J. Ogden Armour, whom I ominously wrote about just before it all happened, “I lost money so fast, I didn’t think it was possible.”
That is it; it’s all on the table. 2014, the year that should have been. Where I let a 25% gain turn into a 33% loss, and more or less had my balls cut off in public.
Good riddance 2014! I hope Venezuela at least collapses totally, as some sort of fucked up consolation prize.
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I am sorry that you had this experience. What happened to you should be a warning to others. The Fed illusion hit commodities first when QE ended. This action is coming to the rest of the market at some point this year.
Even though it was happening a day at a time right in front of me I still couldn’t believe it to be true. From +20% to +4% in such a short, dyspeptic plunge. And the +4% might disappear after the friendly IRS man leaves ‘la cuenta’ at my table.
The China illusion hit when QE ended. China can keep the illusion going for quite some time — I think (even now).
But QE is *everywhere* now. Europe will probably QE. Japan is probably QEing. The money needs to flow somewhere, I suspect US equities.
The market is high for sure ,loss potential large ,margin is dangerous , stay nimble and
watch the jobs report. If you that can
interpret it well, it is an edge.
I like you gorby. I have heard you talk about jobs before. here is the deal. at both market tops in 2000 and 2007 NFP peaked. it is a lagging indicator. plus it is a fake irrelevant number. 95 million people have left the workforce.
Blue:
Like Cain you understand math and charts
in a way I cannot and never will. But as
jobs is concerned you mention peak.
Its job growth that’s a tell for me. In terms I get- It means higher revenue
fro gov.-leads to more spending on
infrastructure-you get the rest.
When job growth stops or seriously
slows down Its all I need to know.
Gorby,
Remember its all about the rate of change. second derivative is key. given what just happened to the price of oil what will happen to those jobs? go to were the puck is going not where it has been.
Thanks Cain. But I need to ask the question, “So, with complete hindsight, what would you have done differently?” As a studious investor what you have laid out is completely rational. Take gains, pare size etc…..but that still wasn’t enough. Should you have shorted the weak? Bought puts? Sold /puts against remaining holds? Thanks
I have thought long and hard on this, and I believe the answer is “almost nothing”.
I will explain…
Had the market hit another recovery (which it has done with consistent frequency), I would have ended 2014 50%+ in the black, easily. Maybe more.
The one thing I would have done different was not buy the drop, which would have saved me 5-10%. The euro and bonds were flashing warning signs and so that was pain that could have easily been averted.
But as a rule, positioning for the third (is it second now?) worst decline in oil ever recorded – a highly infrequent and low probability event – is a suckers bet.
If I just said “oil is going to selloff”, the expectation is “selloff”, as in 15-20% and the froth loses. Not freaking 50% and the industry folds.
The trouble is, you must remember half the losses (and indeed, almost everything that put me in the red for the year, whereas I was basically breakeven) occurred in the span of a week or two after Thanksgiving.
Before that, I was more or less positioned perfectly for any recovery and thought we were still experiencing a non-exceptional correction.
Thanks again. I asked because some (Likely Bluestar LOL) are calling for something similar in equities at some point this year. A sell off has occurred now in Gold then oil/commods and the “rest of the market is next ” sort of thing. So I ask myself “How should I avoid a similar calamity should it occur? The problem with being short or hedging always appears to be the timing…Cheers
Well hold on, that’s a different question.
Bear in mind while the tech sector was getting beat down, economic numbers hadn’t turned over that visibly yet and tech sector multiples were very high.
You could have reasonably expected the mild selloff.
But now that you’ve witnessed two complete collapses and major economic disruption in the EU, you need to start thinking about this as a rolling, single event.
This is Bayesian statistics – update as you get new information.
If another sector starts rolling over, right now, I would be very cautious.
I think remarkable success can be exceptionally dangerous to a trader, especially when those around you are all losing the game.
In other predominantly performance-based professions such as those found in sports, film, and music the players have handlers to help keep their heads straight. Traders don’t have handlers, or if they do, it is not to the same degree that other performers have them. After all, there is a level of discretion that is innate and unique to the profession.
Best of luck this year, Cain.
I agree completely, that’s sort of why I sold out in August.
Like I said, what was shocking is that it barely helped. I guess I would have been down 60% or worse if I hadn’t.
Natural gas futures historic historic monster squeeze w up now can see a move above 5 to 9
I Followed you through the great chase for alpha last year and it was quite the adventure.Watched your early joy ,then
some hubris,then the what the fuck moment and then I’m out. In golf
It’s called – don’t let a birdie opportunity
turn into a bogie. Of course I do that all
the time . Some times you have go for
it , It’s called life.