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Author: Hohum777 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 1823  
Subject: July 2011 musing Date: 7/2/2011 4:21 PM
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Like Q1, the week ended a day off from the quarter end. But no * this time- I grabbed the important data on 6/30. Q2 ended up a lot more topsy-turvy than I expected- and we didn't have a “flash crash” like last year. I have three accounts- DRIP ac, trading ac and Roth ac, and two were positive at the end of Q2. If I drew a rough sketch, the individual accounts would trend up in April-early May, then start sliding through the last week of June, before a bounce the last four days in June. A short synopsis of each
- Trading ac took a hit, and is still negative.
- DRIP joined the Trading ac in negative territory, but moved to the black the last few days
- Roth remained positive the whole Q. At the end of Apr, account peaked @ 5.9% gain, then gave most of it up (leaving me at +0.6%). Moved back to +2.97% this week.
All three combined eked out a tiny gain.

During the quarter, I might have had 38 ideas with 8 overlaps at one point. But I ended Q2 like Q1, 34 ideas with 7 overlaps. Not planned, just the way it played out.

Top 10 holding
1. Apollo Investment (AINV) - BDC – 6.8%
2. Ship Finance (SFL) - Various shipping sectors, Off-shore – 4.74%
3. Seadrill (SDRL) - Off-shore drilling – 4.69
4. Telenav (TNAV) - Communication services – 4.04%
5. Vanguard Emerging market (VWO) - Emerging markets ETF – 3.77%
6. Aberdeen Asia Pacific (FAX) - Closed End fund - 3.4%
7. Southern (SO) - Utility – 3.24%
8. Grentech (GRRF) - China wireless – 2.36%
9. PIMCO Global Stock plus Income (PGP) - Closed End fund - 2.0%
10. Prospect Capital (PSEC) - BDC – 2.0%

AINV stayed at the top spot. There was an additional purchases of shares, but it would have stayed at the top spot even without the Q2 purchases. The next seven spots were filled by previous top 10 ideas, except their rankings got shuffled. SFL jumped from #7 to #2 with additional purchases. Others that moved up due to purchases were SDRL, VWO, plus #9 & #10. PGP was an existing idea in the DRIP ac. I just made two additional purchases in April and June. PSEC is a new idea in the trading ac. Two bites, one in April (a little too early) and another last week. Both PGP and PSEC are high-yield ideas that pay dividends monthly.

China stocks are risky. More Chinese companies are reporting financial irregularities, especially the reverse take-over/merger ideas. Before one puts all the blame on China, those companies are getting listing help from American entities. Auditing firms are refusing to certify accounting practices, and that's when some of these ideas implode. If GRRF were a reverse merger stock, the positions in both the Roth and Trading account would have been exited. The GRRF stake has been trimmed. I do own a Chinese reverse merger idea, but I can't get out of KEYP. Trading of shares were suspended on 3/31. Very weird because the company paid a dividend on June 1st.

The two ideas that made the Q1 Top 10, and have now dropped off, are Mahanagar Telecom (MTE) and Lynas (LYSCF). Both are still account holdings, just a lot smaller positions. I lost some money on MTE, but turned some LYSCF shares into a really nice ST trade (9 week holding). MTE is break-even now, while LYSCF shares are slightly positive (trades on the Pink Sheets and extra brokerage fees adds friction costs to the trade).

Awrighty, Shipping. Between mid Nov 2010 and June 2011, I added and subtracted various shipping ideas, nine in total. The conditions in both the tanker and dry bulk markets have worried me, so most purchases were quite selective. The first idea, Aegean Maritime (ANW), refueling vessels on the high seas, turned out to be a bloody falling knife. It had already taken a nasty tumble (about a 30% drop) on lower revenue. I thought it might get a little worse, just not another 25-30% tumble.

Navios Maritime Acquisition Corp (NNA) was another idea. Purchases in both the Roth ac and the Trading ac. I had been watching this one since the company converted from a SPAC (Special Purpose Acquisition Corporation). It was trading near $10/sh as a SPAC. There seemed to be a warrants overhang, so I waited for that to clear-up. Then I wait for their VLCC tankers to deliver in mid-Sept 2010. A dilutive share offering in Nov 2010 @ $5.50/sh- I discounted the price further for that. In Dec 2010, I figure $4.50/sh is probably decent. How can I feel bad about an entry price of $4.20/sh (Trading ac)? Or below $4/sh (Roth ac)? The Trading ac position was exited with a small loss in April. The stock price retreated below $4 in May, and stayed below $4 most of May and June. In the Q1 post, I referred to Seth Klarmann several times. In one interview, he offered advice that went along the lines of – if one has done their diligence in reviewing an idea, one should not be afraid of buying at a lower price. At $3.55/sh, was I a buyer? No, Hohum was a dodo, ... and sold. Stock price bounced about 15% in the last 10 days :( That's okay, I think I will see NNA @ $3.75/sh soon.

Frontline (FRO) was similar to ANW. Rather than one big whack, then a downward trend, FRO just trended lower from around $25/sh => $21/sh. I thought it would build a base around $18-$19/sh. Nope, just more room to fall. Call it frustration, call it catharsis, call it a wash sale, call it whatever- June 29th, sold and bought FROshares. Purchase was on the day the price hit a 52-week low. Now I feel better, … and FRO gets a small lift. I always knew FRO was a risky play. FRO operate 70% of their vessels in the spot market, or on spot-related charters. When the market conditions are average or better-than-average, FRO do well. Below-average, … different story. Then, FRO struggles, as is the case right now.

Of the nine shipping ideas tried over the last 7 months, only 4 remain- SFL, DRYS, FRO, TNP. I do also have a small NM stake that dates back to the last time shipping got pummeled (March-April 2009). While some of my shipping ideas got whacked in Q2, I think there will be opportunities. Yes, I'm still waiting for my GLNG pull-back. But other shipping ideas too. I have less than 10% stake in shipping now, and that could get tweaked slightly depending on the behavior of SFL, DRYS. The latter isn't really a shipping bet, but rather an “unlocking value” play on DRYS separating its off-shore drilling subsidiary.

If not shipping, then what? Well, I already mentioned an additional business development company (BDC) - PSEC. While none of the BDCs are deep value plays that many were in 2009, they might be decent 8-10%, base-hit type plays. OTOH, when Blackstone and FIG showed up with publicly traded versions in 2008, that appeared the topping point for these intermediate type lenders. I have read recently that bigger financial outfits - TPG, Oaktree Capital, etc. have been exploring the BDC space. Is that a trend that might be repeating? Again, it isn't the big name entity turning into a public company. It is the big name entity creating or backing a publicly traded entity of itself. One of the arguments I've heard, creating these “mini-me” entities is a way for the senior partners to keep the younger talent from leaving and taking their skills elsewhere.

Tim has his Perpetual Energy (PYGMF), Hohum likes Provident Energy (PVX) as his Canadian energy idea. PVX is now only a midstream and pipeline infrastructure play. A dividend paying idea that pays monthly. Is the dividend safe? Not sure, let me consult with an expert, “Hey Tim, is the dividend safe? :) “ [Okay, that was supposed to be humor, and I provided Tim with his “requisite” smiley ]. FWIW, both entities have slashed their respective dividends in the last 6 months. Some level of risk, but at the right entry point, the yield should compensate for some of the risk. Better return than a CD. A riskier energy play is GMX Resources (GMXR). They got gas i.e. natural gas, but NG prices are ridiculous. The company is working on oil properties in Bakken & Niobrara. I had this idea sitting on my watch-list for six months. So, after dipping in my toes, a 5.2% bump over two days makes me ...okay, not quite genius, but a few levels below that. On a more serious note, if the NNA move was impatience, GMXR has been about patience. TC was a similar play, an idea that sat on my watch-list for months. When I did finally dip in, it worked into a nicely monetized idea in Q1.

Added TEVA in the Roth ac. Perhaps it is an idea better suited for the Trading ac. Not so much for trading, but to offer some stability to the Trading ac. Lots of cash in the accounts. Some will be deployed- I'm just picking my spots.


Hohum
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