4 CHARTS THAT WILL ALLOW YOU TO PRESERVE AND PROTECT DURING THE WEEK AHEAD
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SEPTEMBER PERFORMANCE SUMMARY AND LOOKING AHEAD TO OCTOBER
*This is my monthly letter to investors summarizing the month of September. The full PDF version of the summary, including managed account performance data as well as a few added components is only available via email. Return data will no longer be published as a part of the summary posted to Zenpenny. If you would like to be added to the monthly email list, please contact me at mail@t11capital.com - Largest winning position in September: WMIH +19.61% – Largest losing position in September: HMPR -7.84% – New additions to portfolio: SBCF – New liquidations in portfolio: None – Portfolio exposure as of September 30th: 85% long/15% cash Portfolio Highlights For September: ---- WMIH provided a bulk of the gains in the portfolios during September. The position had the fortunate distinction of being both the largest holdings in the portfolios, as well as the largest gainer for the month of September. Since initiating in July of 2012, the position is now up 150%. During that time, I have kept it a large position for several reasons, apart from the obvious “receiving billions in NOLs at a steep discount” angle. The first reason has to do with the general murkiness surrounding the entire situation. That murkiness is what caused the stock to fall into an abyss of pricing depression that had its shares trading at and below .50 cents for a period of several months. You don't get that type of misguided pricing in shares without confusion as to the structure and potential of the company. There simply hasn't been much thought or attention given to WMIH shares until very recently. The second reason is focused on the confusion regarding the mortgage reinsurance arm of the entity that has been in captive, run-off status for a number of years now. Taking a very simple look at the structure of the company, including the tax shelter in the form of NOLs, it would seem that the solution to their problems already exists in the form of cultivating WMMRC (Washington Mutual Reinsurance) into an entity that exists beyond paying maturing policies. It is, after all, true that reinsurance is getting a lot of attention from some of the most influential financial companies, mostly hedge funds, which have taken large stakes and in some cases formed their own reinsurance entities offshore for the various tax benefits. As the era of cloak and dagger transfer and masking of assets comes to an end, hedge funds are increasingly focusing their attention to domestic reinsurance opportunities. There certainly is a market for the business that WMMRC currently participates in. The third reason has to do with the fact that when...
THE ASTOUNDING SIMILARITIES BETWEEN FACEBOOK AND YAHOO POST-IPO: PART 4
The counter-intuitive nature of the markets is one component of speculation that is without dispute. Human intuition is an asset in many situations we face on a daily basis. However, in the markets, it is a tool that investors use to deceive themselves into and out of positions they have no business being in, around or near. Our natural intuition or tendency as people is to want an explanation for not just some things, but for everything. This want has proven beneficial to consistent progress of humankind. Even when things are inexplicable, we tend to make up explanations that allow us to rationalize the situation, whether supernatural, spiritual or otherwise. That want of an explanation for everything that occurs transfers into the financial markets, as well. There are certain things that simply can't be explained. In fact, the need for an explanation inhibits the ability of the investors to profit from the situation. The most profitable opportunities in the markets are always those seem absolutely crazy because they fail at logical explanation. To take that one step further, it is often times the most logical investment thesis that will fail miserably because it attracts a consensus of intuitively driven investors who only choose to view the landscape in black and white without looking at the vast contrasts of grey that surround them. The relationship between FB and YHOO some 18 months following their IPOs fails explanation. It is, however, something I have been following since only a few months after FB came public. It started with the not so subtle headline of Facebook Is The Next Yahoo And That Makes It Very Bullish in August of 2012 when FB was trading at 20. In September I followed up with The Astounding Similarity Between The Yahoo IPO and Facebook IPO Continues To Be...Astounding in September. Part 3 of this study was posted in November with article titled The Facebook IPO in 2012 And The Yahoo IPO in 1996 Continue Their Strange Relationship. Now we have this...and it just gets more bizarre in the similarities as each month passes: click chart to enlarge What makes this study all the more plausible is the fact that we are following a very similar path as the market did from 1995-2000, when YHOO initially flourished. This is another study, although more macro-related, that has come in multiple parts over the past 12 months, the most recent of which was outlined here just this past week. The confluence of events that suggest FB is not just going higher, but much higher is simply too great to ignore. The question of what happens next can probably be...
TRIUMPH OF THE ILLOGICAL, MUTANT HYBRID INVESTOR
Illogical thinking, by definition, runs contrary to prevailing rules or wisdom. It is often times seen as a reckless act that can endanger one in any number of ways. Whether through injury, incarceration, disease or even death. It is illogical thinking that is often blamed for the travails of an individual. It goes without question then that the average investor will have great difficulty in grasping onto the concept of illogical analysis often times leading to the best results. There is no means of contrasting illogical thinking in finance with illogical thinking in everyday life. We can simply put illogical thinking into the basket of bad things to do, without regard for context. Let's look at all of the illogical events of 2013 thus far: - TSLA is up about 400% this year. Coming into 2013 it was heavily shorted, range-bound and overlooked as an investment by most. It is trading at 15 times sales, 33 times book and more than 100 times forward earnings. Logical arguments, such as comparisons in valuation to other car manufacturers, are thrown at the company everyday. Illogical by any stretch. - YELP is up nearly 250% this year. This is the only social media stock that I have issued a research report for way back in April of 2012. My core reasoning for the investment was that it was so illogical that it would be proven correct. In fact, I ended the research report with this: I am comfortable, however, that there is substantial upside to be had here as rational thinking fails investors once again. An illogical move in YELP this year by an stretch. But once again, a powerful move. - LNKD continues to appreciate dramatically on the basis of seemingly illogical appreciation. I 2011, I posted an article about how the dynamic between logical/illogical thinking makes LNKD a better investment than AAPL. Logical thinking doesn't win on Wall Street, in any way, shape or form. - FB is up nearly 50% this year. When the company was trading below 20 there was nothing but logically based praise for a market that was treating FB as it was supposed to be treated. Logic explained perfectly well why FB not only didn't deserve a valuation at $20 per share, but likely was a single digit stock. The typical articulate incompetents that reside in the hedge fund world even chimed in, this time via SumZero, with a research report about how FB was headed to $10 per share. Logical thinking maims investors again. - The market itself is the perfect study into the power of illogical thinking. There is not an analyst out...
PORTFOLIO UPDATE: THE 3 LEAKS OF THE SUBLIMINALLY BLIND
During the trading day today, I tweeted the following: Back to the default stance of 75% invested with 25% in cash. This is a default allocation, so to speak, for my strategy. I'm comfortable with it, actually. It helps with cushioning volatility in what is otherwise a volatile sector: small/micro-cap companies. It is interesting that in bull markets the aura of prosperity seems to blind the lessons of time. I can promise you that a vast majority of those who are making money in this environment will not be able to maintain that success over the next 2, 3, 5 or 8 years. It is the nature of the beast. The markets cannot cater to a majority of participants making money most of the time. For that reason, an investor must be conscious of the leaks that cause those around them to bleed equity at a much faster rate than they can create it. The leaks that plague investors across all categories are too many to mention. I will make note of three that immediately come to mind: 1. Love: Investors love to fall in love with shit. I don't mean shit in terms of investments that seem wonderful but turn out to have putrid underpinnings. I mean shit in the blanket sense of the word. It is as if investors view the market as an extension of their lives instead of an arena where capital is constantly shifting. The markets are not the place to make up for your mommy, girlfriend or mistress issues by becoming starry eyed in the face of abuse. The only thing you should fall in love with as an investor is your equity curve. The moment it starts suffering, you had better make that relationship right. 2. Confidence: We are all terrible at investing. To date, those of us who are positive on the year are simply lucky. You are a footstep away from disaster. Enter the markets each and every day with these thoughts and I promise you that prosperity will follow. Confidence in your ability to profit consistently leads to a slippery slope of mistakes that will not be corrected because your confidence doesn't allow for adjustments to take place. I'm not saying that investors should be a shivering, scared, pale bunch that jumps at every shadow that shows up in the marketplace. I'm just saying that questioning yourself often can make the difference between remaining in the game long-term or just being a flash in the pan. The delicate balance between questioning and being an overly-emotional debutante can only with time...lots of it. 3. Activity: Having the need to act...
IS THE SOX FORETELLING A MAJOR CORRECTION IN THE MONTHS AHEAD?
If you came up in the old school, you realize the value of the SOX (Semiconductor Index) as a predictive indicator for technology and thus the entire market. While the SOX is not nearly as relevant in the grand scheme of technology as it was a decade ago, its predictive powers should be no means be discounted by those among us who did not witness the days when hardware ruled technology investing. While it has grown increasingly repugnant to have a bearish slant on anything but Treasuries and precious metals in 2013, there are certain pieces of information that I feel compelled to pass on, if for nothing else but to open the eyes of investors to possibilities that are not currently being entertained. It is after all during the most "feel good" periods that the markets decide to unveil a can of whoop ass on investors, leaving those who are unprepared scurrying for the comfort of their mother's bosom. There is certainly an excess of "feel good" here and now. It is noticeable. Much more so than at any point over the past few years, I would venture to say. The action and attention that is being paid to companies like NFLX, TSLA, AMZN and FB is reaching fever levels. Furthermore, investors in the handful of popular names that are favored in the current market have piled on top of each other to the point that when a pullback does come, whether beginning this Friday or 20 Fridays from now, the downside volatility will be extraordinary. With that said, I would like to point out one valuable piece of potentially bearish information that caught my eye today. The action in the SOX is not only severely lagging the rest of technology, it is correlating perfectly with a previous incident in 2012 that just so happened to take place above the exact same trajectory. To make things even more compelling, let me add that each and every time the SOX has broken this trajectory to the upside and failed since 2010, it has led to a repugnant period for the markets in general. The charts below will illustrate my point, beginning with a daily chart of the SOX, followed by a weekly SOX chart and ending with a weekly chart of the S&P 500 to show how the general market reacts: click chart to...
SEPARATING MICRO AND MACRO IMPERFECTIONS
In participating in the financial markets, we have all made a silent agreement to be subject to the rules of imperfect information. In fact, a better classification would probably be subjective information. In either case, we use a set of data that is highly subjective in nature to make decisions that we hope will positively impact our financial fate. It should be seen as highly unusual then when a market participant who chooses to make his or her decisions public sports a near flawless record. I am always shocked by the nature of fraud that is reported commonly involving investors who believe in a guaranteed return exceeding Treasury yields by anywhere from 500 to 5000 basis points. I am even more perplexed by individuals who choose to pay for information given by financial charlatans who are posting gains not in the 20-30 percent range per annum, but 200-300 percent range. If it were only this easy we would be all be fighting for parking spots at Whole Foods in our Lamborghinis. The truth of the matter is that incorrect decisions, thesis and hypothesis are as much a part of the landscape of the market as a bid and offer. With that said, I have decided to dedicate tonight's post to a study of my micro imperfections, followed by a commentary on how unrelenting and fatal imperfections of the macro variety can be. You can get away with a host of micro imperfections in the markets, but a macro imperfection is death. Let's start with a plethora of my micro imperfections that those of you who have been reading this site over the years have been subjected to: - Recently I have been eating hairy humble pie (mind out of the gutter, please) on TZA. It has been my biggest losing investment in 2013. It shouldn't be a surprise, as we are facing one of the strongest bull markets of recent memory. Anything with a bearish slant will get you killed. Just ask Bill Ackman. - I have been off with AAPL as of late. A lot more off than at anytime over the past couple of years. According to my studies it was supposed to be below $400 by now. I defer. - Off the top of my head, my call on RGR was atrocious. I actually dedicated an entire post titled: The Technical Case For An 80% Drop In RGR Over The Next 12-18 Months Not only was the title too long, but RGR isn't dropping. It is up 5% since I posted this study in October of last year. To be fair, I still have some time...
4 CHARTS THAT WILL GIVE YOU UNBLEMISHED PERSPECTIVE IN THE WEEK AHEAD
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4 WEEKLY CHARTS THAT DEMONSTRATE A MARKET THAT KEEPS EATING AWAY AT RESISTANCE
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5 CHARTS THAT WILL KEEP YOU IN PEACE AND NOT IN PIECES DURING THE WEEK AHEAD
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