Sunday, January 27, 2013

My Stock Market Gains and Losses 2012

By popular demand (seriously people, vote more!) here are my stock market results for the year 2012. A two to one vote means you get to see how poorly I did this past year. 

Stock Market Gains and Losses 2012

First, A123, what a disaster. This is why long term options may be a good idea. I lost huge on this trade. I lost $1235.08, that's one thousand two hundred and thirty-five dollars and eight cents. I bought in only weeks before they announced bankruptcy. I looked at quarterly reports and things like cash on hand, book value of assets, debts, and the typical value things I think about. I totally neglected the cash flow or profitability of the company. Plus, I have a friend that used to work there. Knowing him I thought it would be a good bet because he does quality engineering, but in my ignorance I forgot to check if he still worked there and turns out he stopped working there a few months before I invested. In other words, I invested because I was looking at old account numbers at a fixed point in time and based on a person that did not in fact work there. The dynamic (cash flow trends) and current picture was not good. Second, I panicked. The day they announced bankruptcy I read their report (this is a more recent update that says about the same thing) and it said that shareholders would probably end up with nothing. The stock plummeted to $0.06 and I sold. A few days later it was more than double that as bankruptcy investors jumped in to see if they could gain any value. Had I just been a little patient I could have saved hundreds of dollars. Developing patience, in the middle of October I spent $1235.08 on that lesson. It's worth at least a few college credits right?

Jiangbo Pharmaceuticals Inc. (JGBO) I mentioned early in the year, I didn’t understand the business and the books looked to be cooked so I lost nearly everything. The CFO left abruptly, and again, I didn't really understand what they did in the first place.

Ralcorp and Post were a classic spinoff that I ended up not having to wait terribly long on. Spinoffs are situations where a company gets so big that divisions don’t really communicate or use many shared resources and management is estranged from the daily operations. This is the difference between Apple and Exxon Mobil, General Electric General Motors, Caterpillar and others. At Apple the head guys sit in on design meetings for new products, at Exxon the head guys probably don’t spend a huge amount of time looking at valve, pipe and system designs. Most large companies are probably similar to Exxon, GM and Cat. So one nearly guaranteed way to “create” value, or more appropriately realize value, is to break the company into smaller pieces so that management has more contact with the products and there is more incentive on how to increase profitability. Plus there are fewer standardizations that limit innovation. In other words, compensation becomes more aligned to shareholders and innovation becomes more likely. Plus, investors can own the business they want to own and sell the business they do not want to own. Basically Ralcorp and Post were a classic spinoff except that Keith Meister decided to get involved and with the pending sale of Ralcorp I made hundreds of dollars sooner than I expected.

Bank of America was a classic value investment. The price to book ratio, price to earnings, and government bailout, which means you would never lose all of your money, made it very attractive. However, it stagnated around $9.80s and with the fiscal cliff I was impatient and sold early, had I waited a few weeks for it to go up another $2, I would have made hundreds more. Lesson: be patient. However, no one goes broke booking gains, so I shouldn’t whine over 40%+ gains in one year. 

US Oil is one of my favorite things to invest in. I didn’t do terribly well, but I have not lost money on US oil yet and I always play it for a few months at a time. Oil is one of the most basic things to bet on. For USO You could make money just buying at $32 and selling at $36, repeat every eight to twelve months. In fact, that’s about what I do. Long term commodity prices decline, but long term some commodities are fixed quantities. Short term as long as we have wars in the middle east the price will be volatile and a great thing to invest in. Oil future usually hit a low near the end of the year and a high beginning in summer, with gas prices following a month or so behind with highest gas prices the end of summer and lowest prices early in winter. Perfect example was gas hit $2.99 a couple weeks ago here in Dubuque but it has begun it's summer climb towards I would guess $3.70-80 this year.

Gravity GRVY was a classic value investment. Low P/E and P/B. Had I waited a little longer I could have doubled my money but after a bad quarter the stock has since plummeted so I will take my gains. Plus I bought in again recently. The interesting thing is that most of the stock I hear is owned by one guy, which means it’s a candidate for going private, which is good because the fewer the large shareholders are the fewer people to please and typically the longer term horizon the small group has.

GTAT was another value investment. However, it was in the solar industry and I had to buy more when the price dropped to make money on the rebound. Lesson learned? It was part of the solar bubble which burst, which sector in general might now be oversold, but that depends on things like carbon tax or government subsidies to renewable energy technologies. In other words, the actual target price of renewable energy sector companies depends on political realities currently. However, I expect the scientific reality of pollution to make renewable energy a more commercially viable business in the future.

ITT, Exelis and Xylem was a classic spinoff. A defense contractor with a water business. That does not make sense, but it was a great spinoff opportunity. I sold ITT back in 2011. Really this was my first spinoff and a success of a few hundred dollars. Spinoffs are classic value realization opportunities.

All one has to do to make money is read a lot. Now I know I lost ground compared to the stock market, and for those that know I am invested in DHT and AAPL which have both dropped significantly in price this year. But that’s how investing goes. Plus, drops in value create buying opportunity. Did anyone buy BOA at $5 per share? You could have more than doubled your money. 

In total I made .7% based on buying and selling alone, but I did make $484 in dividends, mostly from the above mentioned companies but there are a couple others I prefer not to mention thus I will not share the details of my dividends received for the year. Including dividends rounding to the nearest percent I made 5%. So for the year I did better than a savings account by a few percent. Also, had I been a few days or weeks more patient in a couple cases, or done more research I could have made hundreds more, or lost hundreds less if you prefer. And that’s all part of the learning process, failing. Losing $1235.08 is memorable. It hurts. Fortunately, I did learn quite a bit from the year 2012 about investing. Not the 8.4% that I made last year. I still lost to every big index, but I recognize a few mistakes that I made, and I hope to not make them again. 

Finally a note on short term gains and losses. I expect more in the future to own companies for longer amounts of time and have mostly long term gains (and inevitably losses), but being new to investing I felt the need to get some sales under my belt and book some gains. 

Disclosure: I am long AAPL, DHT, GRVY, and USO. Some of those are also value priced right now so I might buy more of any of them in the near future.

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