The 1H’13 is in the books & despite the labels “BearTard, PermaBear, Per-MAYAN” and/or derivatives thereof erroneously heaped upon us, we managed to produce returns of +20.21% through Q1 & Q2 2013 ( https://docs.google.com/spreadsheet/ccc?key=0AkUPKZxe8PS-dGV1em1YZEduZHd5bF82UUtMQk51amc#gid=1 ).
It goes without saying, we’re pikers compared to those TwitTraders who’ve suggested they posted +348%, +600% & +900% or more in 1H’13 but we’re pleased with the returns based on the AUM we run & the transparent way in which we chose to share. ** Open Offer **If any reader can show us audited returns of +348% or more in 1H’13 on over $25MM in Total AUM, send me your offering documents & your minimum immediately; we’re in!
Jokes (or should we say “jokers”) aside, there’s ALWAYS room for self reflection & certainly improvement. Many have asked questions regarding our review of 1H’13 & outlook for the OPEN/HELD Swings we carry into 2H’13. We’re happy to address both & will start with this “Part I – Reflecting on the 1H’13,” before a follow up “Part II – Outlook for the 2H’13″ here, with a thought first;
- THOUGHT: Despite the erroneous “labels,” we outperformed all benchmarks relative to our charter & AUM size (L/S Market Neutral Hedge Fund Index – assets over 25MM – SPY & IWM) & did so net long.
- TAKEAWAY: Worry less about “labels” and remains steadfastly focused on “a process, plan, risk management & trade action” because at the end of the day, only the PnL counts.
SELF REFLECTIONS & REVIEW OF THE 1H’13
- 1H’13 OBSERVATION #1: Frankly, the contribution of our 2013 initiated Swing holdings to Total AUM returns ….. sucked. For the amount of time, effort & energy we dedicate to stock selection, trade location & risk management, to only have generated +3.64% with those ideas is pathetic.
- 1H’13 OBSERVATION #2: Worse, the contribution of the sum total of our 2013 Scalp trades to Total AUM returns sucked WORSE. It’s a complete embarrassment to have navigated through the first 6 months of ’13 and have Scalps – trades sized under .5% AUM – generate a NEGATIVE Total AUM return of-0.35%. Totally unacceptable.
- 1H’13 OBSERVATION #3: Pairs to the THOUGHT above, we found it ironic that the largest volume of unsolicited or unprovoked, inbound “mentions” we got on the Twitter feed occurred at the time our STOP was triggered in our first Swing SS: ES_F, our largest loser, which clipped Total AUM for a -1.38% loss. People appear to enjoy when a winner has a loser. Fortunately, two folks actually realized, in that same week, we realized gains from other Swing holdings to the tune of +1.66%, making for a + week. That’s what PM’s running a L/S Market Neutral, Hedged book do; offset losers with a greater amount of winners, all the while raising cash.
- 1H’13 OBSERVATION #4 – The Good: Our exits to realize gains in RIMM, ICAD, COSI, QTM, MCHX, MT, NFLX, OCTX & INVN all met or exceeded trade plan objectives. The sales of EBAY & GOOG, long time holdings that offered “cushion” to “clean up” missteps like that which was realized on our first Swing SS: ES_F, also occurred near highs (at the time & compared to present trade levels) which is “good,” although we’d have preferred to keep both holdings “full.”
- 1H’13 OBSERVATION #5 – Things to Improve:
SIZING, LACK OF FOCUS & STYLE DRIFT: We didn’t get enough size in MNTX, MKL, REXI, BGCP, REGI or MGAM and we were flippant & unfocused with our management of exits, leaving gains on the table. MKL, specifically, annoys us. We bought the name smartly on the poorly received M&A announcement (and have known this company – intimately – for nearly 8 years) but flipped it once the “gap was filled,” straying from the buy thesis modeling “sum of the parts, portfolios and likely accretive nature of the M&A.” Likewise, our sale of REXI – a Leon Cooperman “piggyback” name – strayed from a solid FA rooted thesis & was taken off TA, a foolish action that “missed” another 15%+ of gains.
STUBBORNNESS: Plain & simple – YHOO. Our view remains that the Company is junk, the Dan Loeb posturing was/is ‘noise,’ the Marissa Mayer ‘hype’ was/is overdone & that the endless rubbish about ‘sum of parts’ re: YawnHOO’s Far East assets were/are overvalued but rather than modeling a proper short thesis & mapping trade locations to scale the name short, we made an “emotional trade.” Result, as is often the case when you trade on emotion, a loss. In this case, a -0.22% Total AUM ‘ding.’ The AMOUNT isn’t the issue, net-net it was paltry, it’s the fact the trade was placed & stopped due emotion, not work.
OPTIONS GUYS NEVER SAY THIS BUT ….. : Sometimes the “big, smart money” is wrong. Shocker, right? It’s our least favorite thing about even the best options posters on the stream, you NEVER see them highlight or update “big money trades” that got/get fileted. Well, let our FTNT trade serve as a reminder that sometimes the big guys get it wrong. We’re not professional options traders but we know our way around the instrument & into EPS – knowing the equity & sector fairly well – we decided to “join” the big, smart money that was looking for big downside out of FTNT & took our largest option trade of the year. FTNT blew the roof off in the Q report we were playing short & we ate nearly a -0.5% Total AUM loss.
SOMETIMES IT’S … THESIS RIGHT, TRADE WRONG: Plain & simple – NAV. We know a couple sectors very well & have outlined those in the Home Page. Truckers are one. Carl Icahn is chasing a dead horse in money & market share losing NAV but the Street responded positively to Q4′s loss. In “short order,” our short blew through it’s -9% stop & we were left to chase covers -12.8% which yielded a -0.70% Total AUM loss. Despite the post EPS Street reaction, our FA thesis remained intact (actually, it was further confirmed) but we added insult to injury, sat gun shy (emotion) & didn’t re-enter short over 36 missing, what would have been, a +20% type move. Shhhhhhhhhh …. it happens.
1H’13 OBSERVATION #6 – Last & Final: We had a great conversation with one of our most respected follows re: our views on both Trucker & XHB + related names. We took away great insight from this person’s share regarding how many on the stream read or value commentary (PERCEPTIONS) vs actually pay attention to the correlated trade run in accord or parallel to said commentary (ACTIONS). Carrying over 12,300 followers, we (as does the person who had the exchange with us) feel it’s very important to be clear, concise & thorough when we share or reiterate trade shaping opinions and believe we can improve our feed going forward based on the June ’13 exchange we had that went something like this (not direct quotes);
OH – Dude, you’ve been negative on the Truckers & Homebuilders for, like, 18 months & all they’ve done is go straight up. I mean, you’ve got a lot of readers & that’s what they see … you negative on these sectors over & over and all that’s happened is that these things go up & up, seemingly, everyday.
LT – Well, we’ve posted & talked a lot about both, as they’re core competency sectors. I think the “you’ve been negative on Truckers for 18 months” is a little off base, as our first trade actions came in Q1’13 & that only came in two names, NAV – which we got stopped on – and PCAR which, admittedly, isn’t the best short target in the sector. As for the Homebuilders, we’ve openly shared we bought REO baskets in ’09, ’10, ’11 & our last in SC early ’12. Anyone who looks at pricing trends over that period in the 9 states we own know those have done quite well. We posted short trades of size in XHB names in ’10. Those trades – which gained 30% to 50% – contributed significantly to the ’10 Total AUM returns, that wasn’t too bad. Finally, in just our second foray short Homebuilders started just this year, scaling short Jan ’13 end, mid March ’13 with a last & final “add” mid May ’13 – thus far – isn’t such a terrible pre-mapped plan of action on a Risk : Reward Ratio basis. What’s wrong with any of that?
OH – I’m glad you made money on those but what I’m saying is I don’t follow you – nor do most people – to mirror your trades. Those trades sound great but you have a lot of readers that don’t follow for trades; they follow for commentary, idea generation, sentiment, information exchange, etc. & what I’m saying is that you’ve come off, for months & months & months, as bearish on these sectors.
TAKEAWAY: Admittedly, we presumed – especially since we provide such clear detail denoting L or SS (direction), DAY / SCALP / SWING (duration), stop (risk) & targets (objective) when posting a trade – people were/are smart enough to value & place merit on the result of an ACTION moreso than they lay weight on words, views, opinions or other PERCEPTIONS held about any sector, MACRO or MICRO view on the market.
We all know that it’s the PnL that matters in this business, however, what we appreciated from this exchange is that we need to be more “self aware” of the PERCEPTION that some may take, as there’s only 140 characters to get certain views across. To hear from a smart, thoughtful, high value stream participant, who we’d call a “friend,” the importance of the PERCEPTION one gives off on their feed, regardless of one’s ACTION, and how it’s “valued” on the feed was eye opening.
RESULT: We’ll use the insights gained from this great share in attempt to avoid future MISPERCEPTIONS, while still sharing as honestly as always. Perhaps we’ll post less, as we often only have time or care to share ACTIONS & resultant PnL contributions that come from the trades we make as that’s all that really matters. Alternatively, we may post more & if we do so, we’ll pay more & particular attention to make sure that clarity & solid follow up – especially when our opinions or views are wrong – is done to alleviate a PERCEPTION that’s different from REALITY or ACTION.