Trading mistakes. Looking back on 2015, I made the same ones! (Visual—bang head against wall repeatedly). I’m going to tell you what I did wrong and what I did right in 2015, and where I see The Big Money being made in energy in 2016.
The key to investing of course is knowing who you are, and who you’re not. I’m not patient. I don’t like to buy deep value. I like expensive stocks—they stay expensive because of good management teams. One of my gifts is sensing when a trend or a stock is about to have critical mass, and finding the best stock to play that. So that’s a bit of momentum trading. I want to hold my positions for 9-15 months and make 50%. That’s who I am.
(Generally, if subscribers sell my picks 6 months to the day after I initially bought it, they do the best—I’ve let a couple triples and doubles get away from me by not following that self-knowledge.)
My One Big Trading Mistake of 2015?—no stop losses on the stocks I love. I had two big positions this year, one in energy services, and one junior producer, that went down about 2/3rds from their high 15-16 months ago.
(The producer was Canamax, which just got bought out for a next-day-double in early December.)
Why did I hold them, if I’m trying to make money in the market? It’s such a litany of the regular excuses—but basically I fell in love with the company. Traders need to be heartless b!W#$%, and there are times I’m not.
The services company in particular adds value to its customers like no other pubco I have ever seen. They’re innovative, creative, disciplined…and hey, they’ve raised the dividend over a dozen times since I bought the stock 5 years ago. I’m actually getting paid over 20% yield on some of my stock…
OMG, just listen to me there. What I didn’t listen to was the price action—and now the stock is down 66% from its high.
Normally, when a winning stock comes off 20% from setting a new all time high, I really look at the stock again. A 20% drop generally means the stock has to recycle (shareholder turnover) for awhile. It’s a great time to re-look at the business and the stock.
And despite my appreciation and affection for the company, the simple answer is always—sell half. Then you’re always right. And this stock had split 9:1 (nine new for every one old!) on me—so I had lots.
I tell other people—if you look at a stock more than twice a month, sell enough that you don’t look at it more than that. That’s what I should have done with all my energy stocks as they were collapsing.
Some stocks were so junior they were illiquid and had no bids. I still own them but don’t pay much attention to my zombies.
I traded myself out of my Valero position for a small loss in the summer at $58, after calling it The Trade of the Year in January. I got nervous about the stock pattern. I bought it starting at $53, all the way up to $65…so my average cost was about $58. The stock never pierced through support, but it sat at its support line for a month, and I felt I was watching the stock too closely…always a sign I own too much. Instead of prudently selling half, I sold it all, only to watch it run to $71 within 4 months!
I did a few things right this year:
- I believed that nobody knew a thing about where oil prices were going. I didn’t pay any attention to Big Company CEOs, or highly respected global consultants. Fundamentals were changing SO fast, nobody had accurate enough data to really understand what’s happening. And that is still the case. One of my lines is—I don’t care what I think; listen to Mr. Market.
This was the year the Market really understood that the EIA and IEA truly didn’t know anything more than private industry—and in fact generally they knew less. (Yet the Market still trades off of the weekly numbers for oil and gas).
2. What that meant for my trading was–that I was very flexible; willing to take a 10% loss quickly on any trades. Stop losses were some of my best trades.
- Diversify into downstream investments. The global energy complex has
- Upstream–where the energy is in the ground; i.e. producers and service companies
- Midstream—Pipelines; getting the energy closer to the consumer
- Downstream—refiners, energy retailers, power companies
Upstream and Midstream companies have taken a beating this year, but sub-sectors like refineries and energy retailers have actually done very well—and that’s where I put most of my money this year.
If investors wanted exposure to producers in 2015, it was a year of only owning the leaders, which by definition trade at a premium. Generally, I like expensive stocks. They are expensive because they have the best management teams who can survive in down times and thrive in good times. These stocks get A Big Bounce first, before the lesser lights move up.
- Buy Big on your conviction picks. 2015 will still be my first year with a loss in my completed trades account since I started in 2009. But overall, my OGIB portfolio—my real money, not a ‘paper’ or ‘model’ portfolio—is likely only going to be down 5-6%. The main reason for that performance is—and this is true almost every year—my One Big Stock; my Fat Pitch (a downstream stock)—worked out. History says I find one high conviction pick a year, and God Bless me they have all worked except one; Poseidon in 2012 (even that was a triple for a year).
Looking forward into 2016, I confess I’m not focused on catching The Big Rallies in oil. Big moves are almost ALWAYS counter-trend.
I still own small positions in Best of Breed upstream companies to catch upside to a rising oil price…and I will be watching for a big supply response in the US—where oil production drops another 500,000 bopd or more. This would be a catalyst for the oil price and stocks…BUT…oil has to jump a full $20-$25/barrel from today’s $34 for most juniors and intermediates to grow meaningfully within cash flow, and warrant a 6-9x cash flow. Every other move is a trading rally, and I don’t want to stare at my screen all day trying to outguess the Market.
I would rather look for The Big Uptrends. That has been the oil price for the last few years. But into 2016, I think the next bubble in energy could easily be downstream–The Smart Grid, as the US (and really all the world) moves to include wind and solar into their power mix. It means massive new capex spending, and is creating new opportunities with new technologies for energy savings for both utilities and customers.
As an example, cities all over the world—in Asia too—are putting small computer chips in their streetlights as they move to LEDs, creating a new network that can host all kinds of new apps. The power and flexibility of this network is will jump 5-fold in 2016.
The cell phone went from being dumb 10 years ago to now being so smart it’s the #1 economic generator for the entire Third World. The new networks that cities are putting up will reshape how energy is produced and consumed—in the US first, but all around the world.
Investors really can’t even imagine the features and benefits of this new network 10 years from now—just as we couldn’t have envisioned what the IPhone would do 10 years ago.
That’s where I think The Big Money is for 2016.
EDITORS NOTE: This kind of stock rarely comes along. Debt free, highly profitable—and THREE growth catalysts that are just starting to hit their stride. It’s going to make my 2016 one of the most profitable ever. The Street is just warming up to the company now—so get the symbol and all the details before this goes mainstream—RIGHT NOW