Well, apparently I kept my word about not writing after getting nasal surgery. For 2016, I’m going to break the Year in Review into smaller chunks. Today we focus on stocks. I’ll review the good, the mediocre, and the ugly, as well as lessons learned and my outlook for the year.
Some stocks that worked out well this year were Apple (AAPL), Tiffany (TIF), and Boston Beer (SAM). These 3 were more trading positions than core, foundational pieces that are bought opportunistically and then forgotten about.
Apple worked out well as I averaged down on my cost basis when the stock was swooning into the low $90s. As it hit $110, I liquidated some of the holdings. As it hit $116, I liquidated more of the holdings. I have 1/3 of the full position left to liquidate if it nears $120.
Tiffany was another position that worked out well, scooping it up when it was nearing its 52-week lows. I sold the position a few months later around $73.
Boston Beer is a little experiment in my own version of a long/short strategy. It’s something that I’m willing to hold for a longer term, however with the option to trade in and out based on the markets sentiment of the company. Despite it being a terrible pick over at Nelson’s stock contest last year, fortunately, I wasn’t chained to buying the stock at the beginning of 2016 and then holding for the rest of the year. Since July when I first bought into a position, the subsequent in-and-out has produced around a 9.5% internal rate of return since July.
I also started managing a part of a family member’s portfolio and due to the timing of the investments back in January/February when the markets were swooning, it has enjoyed a healthy return in 2016. It is invested in Canadian stocks and returned an internal rate of return of 25% and a time-weighted return of 34%, relative to the total return of the TSX at 20%. I plead that luck due to the timing of the investments were what allowed for such returns and profess not to be able to consistently duplicate that kind of performance.
I made the mistake of selling Hershey’s (HSY) too early when rumours started surfacing in June that Mondelez was mulling a buyout bid. Knowing the history of Hershey’s, the structure of the corporate governance, and laws in Pennsylvania, I knew that it was highly unlikely that Hershey’s would successfully get bought out. With a cost basis of around $92, I sold my stake in Hershey’s around $97, thinking that the stock possible couldn’t run-up much higher given how difficult it would be to buy the company.
Well, I was terribly mistaken. The shares got bid up to as high as almost $118 at the height of the buyout frenzy. Oops. My timing was incredibly bad. And all the while I sucked my thumb like an idiot and didn’t re-establish my position in Hershey’s as it came down into the mid-$90s as I was anchored to my previous cost basis. And now it sits around $103.
Another mediocre performer was Chipotle (CMG). I started a position on the thesis that the turnaround was going to come quickly in 2016. I should have adhered to the wisdom that turnarounds seldom turn. This one kind of just languished around in mediocrity all year and I liquidated the position in November at the cost basis I bought it at. Gained nothing, lost nothing. Well except time and the opportunity cost of the capital.
I’ve also started liquidating what I call “legacy” positions that were bought about 2 years ago as “training wheel” stocks when I was starting out my hands-on learning process. These include such illustrious names like IBM (IBM), Wal-Mart (WMT), Chevron (CVX), and Exxon (XOM). Thrilling. Performance on average was fairly mediocre as they weren’t purchased at the greatest prices. It was surprising to see that IBM ended up working out the best among the bunch.
In 2015, I bought a stake in BHP Billiton (BBL) and then subsequently averaged the position down to around $31. As the largest and lowest cost producer of mining commodities, I figured that as the share price collapsed and the dividend yield went up, it would be a fine thing to hold for the longer term. Then, commodity prices collapsed. Then, the dividend was cut. This was a volatile position. Usually, I’m not perturbed by volatility. However, not knowing much about mining, the commodities in mining, and the industry made the volatility hard on me. I exited the position in May 2016 at around $27, which represented a loss of $233. This is the only position I have ever sold at a loss. Ironically, if I had just held on and not done anything, I would have been at my cost basis by October 2016. This one I will have to unpack in its own post to draw out all the lessons and mistakes that were made.
A big takeaway from 2016 is that timing is hard. Every single position mentioned could have been timed better, as well as positions not mentioned. However, I also understand that timing absolutely correctly is next to impossible in the markets, seeing as I nor anyone possess any accurate crystal balls.
Timing when to sell is a lot harder than timing when to buy.
And interestingly, while this is a lesson I learned vicariously through reading, like many things to do with the stock markets, some lessons just can’t be learned until you actually roll up your sleeves and get messy. The lessons learned through others is never as vivid as learning the lessons yourself hands on. Learning vicariously, though, hopefully helps limit the size of the mistakes you will inevitably end up making.
Outlook for 2017
Going into 2017, some of the newer positions established near the end of 2016 were long-term positions in Nike (NKE) and Starbucks (SBUX), both bought near their 52-week lows in early-November 2016. Also, I’ve been picking up AB-Inbev (BUD) as it got into the low-$100s. And finally, my bastardized long/short position is in Gilead Sciences (GILD) which I picked up near $71. Perhaps in a future post I’ll write out my thoughts on these newer positions.
As for my family member’s portfolio, I tend to keep it as hands off as possible. I will let the portfolio collect its dividends and only look to buy into new and existing positions if the market gives a compelling price, when it inevitably swoons. This is a serious buy and hold portfolio – no trading around in here, just solid dividend payers bought at attractive prices.
The lesson I will be carrying into 2017 is to be much more patient when it comes to the timing of entries and exits from positions. And I think that’s about it for stock in 2016.
Also, I feel like I should put the usual disclaimer: do as I say, not as I do.