Reflection for 2016

 

 

 

The number everyone is probably waiting to hear is -11.48%. That’s my performance for this last year with all fees included and dividends received. I haven’t done a sharpe ratio or quarter by quarter performance because I didn’t track that this year. This year was my first down year against the S&P 500 since 2011 where I blew out my much smaller account with a lot of trading racking up commissions.

So why did I perform so poorly? I think a lot of it was massive holes in my process and learning big lessons from the world of options. When it comes to options, about ¾ of my loses this year was through options. I started to use options after trying them out for a while on the paper account that is provided through my broker. I thought I had learned it all, but this was of course a mistake. I mainly used options to be able to hedge fast like in the sharp decline last January. Or making lots of little bets. I never risked more than 3% of my account in anyone options play, but the small losses I took with my stops in place added up along the way. On the process side, I had so many holes that looking back are kind of crazy. A good deal of these holes were uncovered during my internship with Avory & Co this last July.

I was lucky to spend a month with their CIO Sean Emory (@_SeanDavid). He helped me reveal the holes in my process and help me realize how to close those holes. We went through everything like my faults as an investor, my major one is getting too emotional, and not having valuation targets. Looking back, it seems crazy that I never had defiant targets for when to get out of my investments, something that has hurt me in the past. This was mainly due to not ever modeling, but after a month with Sean I could whip out a model with my eyes closed. He also helped me develop a firm process with finding various Ideas as well such as using various screeners.

A lot of the plagues that affected me this year was not having a definitive process in place for a lot of things, like those mentioned above, I struggles this year with a lot of my equity positions not preforming and I just didn’t know when to reduce to keep those gains that I had. A great example this year was Under Armor. I held it all the way until the election and watched a great deal of my money disappear. I have since then introduced ways to stop this from happening.

Another big thing that I have also introduced is economics into my process. Throughout my investing career I have always said I was a equities guy and I could only pay attention to some economic factors, I always thought that was the realm of the global macro guys. This year taught me that Where we are in terms of the economic data greatly effects what equities perform well and when. Over this holiday period I have created a couple of economic models that tell me when the data is accelerating and where we are in terms of a sine curve. If you want to learn more about this feel free to email me or DM me on twitter.

This year has become a great, but hurtful learning period. Like every year, I look back at where I was and am amazed at how far I have come as a investor. I had some of my best trades of the year whether it be short Volatility ETFs into the election or being long Deutsche Bank puts into Brexit, but this also came with me having one of my worst returns for my core portfolio that I have ever had. I have also come to realize just how long it takes to get a firm process that works for a investor can take. I for one am glad I am learning this with my own money and not having to figure this out while I am investing the money of others. For right now I am happy with having higher knowledge gains than monetary gains. I don’t think a hedge fund is going to come calling me because of my track record over these past eight years. I would rather take the knowledge I gave gained or these years then what I have earned and with this I hope to continue this journey and hopefully some of you can take something away from my journey and apply to your own.