PORTFOLIO UPDATE: BLACK CATS

During the trading day Friday, I tweeted the following:

2-14-14

After listening to CIDM's conference call and reviewing their earnings report, I can't say I was disappointed with anything that company had to say.  The quarter can best be described as positively transitional, with the sum of all their parts being moved into place in order to create the company that CIDM will turn out to be 24-36 months down the road.

In the meantime, however, my focus is on performance. CIDM did constitute roughly 30% of overall portfolio exposure before I sold half of the position. With the reaction to the earnings report, I couldn't perceive a clear outcome for the stock over the next few months. Given that reality, the prudent decision became the best decision. Trimming exposure down to a roughly 15% position overall will allow me to judge the circumstances evenly as they evolve over the intermediate term. I could add back in. I could reduce the position further. I'll simply take it as it comes. 

I have no love for any of my positions. The only thing I am in love with is the consistency of my performance. Anything that has the potential to interrupt that love affair gets kicked out of the house. 

And that is how I differ from the typical special situations, value, restructuring guy. I'm not willing to put up with the inordinately large drawdowns over any timescale. I've weighed the expected value (EV) of this decision as it pertains to long-term performance very carefully. The plain and simple of it is as follows:

A drawdown in excess of 30% has a far more detrimental influence on a) long-term performance b) confidence of client base than any positive outcome of sitting through disturbances that your typical special situations, value manager would be open to doing. To borrow loosely from Paul Tudor Jones, given that I run a smaller asset base I have the luxury of being that fast boat on a choppy sea as opposed to being the large tanker that is immobile and clumsy in nature. I'm going to take advantage of that until I absolutely can no longer do so. 

Additionally, I don't think there is another special situations investor out there who has as good an understanding of the tape/price action/technical analysis as I do. With that said, I'm going to play into that strength with both entry points and exits. I have no need to sit still, allowing the market to have its way with me while proclaiming that "price and volume mean nothing over the long-term." 

Being proactive in studying price and volume as a complimentary function of portfolio management only strengthens the performance of the manager. Those who rely squarely on fundamentals, while shunning the idea of the study of price are as fallible in their reasoning as those who rely squarely on charts while shunning the idea of fundamental analysis. The investor who excels will master both arts of the long-term.

You can't have a point guard that only knows how to shoot from 20 feet out without having an inside game. Well, you can. However, the result will be an average point guard. The goal here is not average, otherwise I would be working at a hedge fund. 

I'll have a new research report on a small NYSE listed company out this coming week. 

Have a good long weekend. 

 

Author: admin

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