2012 Annual Results and Biggest Mistakes Review
Before I do, however, I need to post a giant asterisk. I discussed my investment in two stocks, Cagles and First Bank of Delaware (FBOD), that turned into liquidating trusts and receive zero value from my broker (etrade). There’s no question that both of these will pay out at some point in 2013, but the exact date and timing is certainly in question. With that in mind, I’m posting a table below that shows my results depending on what value you give the Cagle’s and FBOD. (Note: the top left is the value assuming a zero for both positions, which I think would be ridiculous but you’re free to assume that.)
I’ve put in bold the level that I think the shares would be worth if they traded today ($3.20 for Cagle’s and $1.15 for FBOD, roughly consistent with where they were trading before ceasing), though I think the ultimate pay out for both should be a nice bit higher.
So obviously it’s been a pretty nice year. But it could’ve been a much better year without some “unforced” errors. With that in mind, I wanted to go through my biggest losers of the year. I think there’s a consistent theme running throughout that can be picked up on pretty quickly.
1- First Bank of Delaware: Already mentioned above, but this was by far my biggest loser. I started investing when they announced their sale/liquidation and were still trading at a huge discount to book.
2- ALJJ: recently mentioned here, I started investing in ALJJ because of a widespread between a tender price and their stock price. Long story short, the merger is still on holding pending financing, and the huge position I took is down pretty significantly (though it’s recovered in the past few days).
3- SPCO: Again, recently mentioned here, I built up a position once the founder died and it seemed to me the company would be sold. Results have continued to be disastrous, and there’s no news on a potential sale or anything.
So what do all of these have in common?
I saw a stock trading at a discount to payout value with a clear catalyst and no real market correlation, and I got way too aggressive with all of them. In SPCO’s case, I don’t mind investing in crappy businesses trading for less than book, but I took SPCO way past what I would normally do because I thought it would be sold soon. In FBOD and ALJJ, I saw a nice arbitrage opportunity and completely ignored the downside while taking the position well past a normal special situation size.
(Side note: I still think a larger than normal investment was warranted in ALJJ’s case, as I still can’t believe the merger isn’t going through. FBOD was a complete mistake to let it get that big.)
So I’ve clearly been letting special situations get the best of me. While I’m still going to be looking for them in the New Year, I’m going to be paying much better attention to position sizing and focusing on downside risk.
In a post later this week, I’m going to reveal my top three or five positions heading into the new year.
Disclosure- Long FBOD, Cagle, ALJJ and SPCO