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Well, 2001 was certainly a good year for me, but I'd be hard-pressed to say what, if anything, I learned from it all.

#1 Keep your eye on the puck: I felt like the Red Queen last year, running like hell to stay just ahead of the pack. I indicated on Dropout's Den that I was up 60% as of October 31, and that I was going to tune-out for a while, stop trading my face off, and hold into the New Year. But I was still holding a hedged portfolio of what I thought were sensible long-term longs and shorts. I had sugar-plum visions of finishing the year out at 100%. Instead, I gave 25% of it back, most of it in 2 days on a couple of short positions that just killed me (AZO and EBAY). AZO has since dropped back, but not before I harvested the tax loss. New Year's resolution: don't think for a moment that what was successful last year is going to be worth a hoot this year.

#2 The short side has it's moments: I got brutalized going short in the fall of 1999. Total losses in puts on NT, QQQ, JDSU, and a couple others. And it stung enough to make me give up short-sales for a whole year. I climbed back on board in Oct 2000 and did very well, on average, for the next 12 months. But the last 2 months have been no time to be short. I'm realizing that exuberant prices are not enough justification for a short position (e.g. AZO, EBAY, KKD). You also need a fetid corpse in the CFO's office. I shorted Enron back in the spring of 2001, but I was only shorting based on price, and I covered after a $8 move. If I'd of had some conviction based on understanding of the underlying business (or, more correctly, inability to understand it), I might have had the courage to play it for a near-terminal short. I'm reading Kate Staley's book now, and my New Year's resolution is to be more selective about my short positions.

#3 Litigation: I vow never to buy another stock without searching the last 5 years' worth of annual reports for that sneaky word "asbestos." I knew what I was getting into with USG, but thought I had margin of safety on my side. Total blow out (I used calls to hedge some of the risk). I bought National Service Industries without realizing they had asbestos exposure until after the fact. I almost bought Goodrich before you tipped me off that they scurrrying away from asbestos exposure. Right now it happens to be asbestos, but what will it be next? I don't think any company is immune from these concerns, not even a Fort Knox like Berkshire. In fact, Berkshire probably has higher risk because it is Fort Knox. Resolution: stay diversified, among companies and industries.

#4 Currency Risk: I calculate my returns in Canadian dollars, so my U.S. port did better than expected in part due to the Cdn dollar tanking against the U.S. dollar. Right now I'm more worried about the U.S. $ collapsing than I am about further losses in the Cdn $, but I'm not really sure how to address this. It's only an issue because we're considering moving back to the states. But I'm not willing to take the write-off on Cdn $ denominated assets knowing that purchase-price parity is about $0.85, but the market price is about $0.65.

#5 Monster Risk: I generally agree with your thesis that there is no general risk, only specific risk. But as I look at still overvalued equity markets on almost a world-wide basis, overvalued real estate, artificially-depressed interest rates, lurking inflation (i.e., money supply is growing too fast, even if CPI isn't), excessive debt, underfunded pensions, etc., etc., I worry most about Enron repeating itself with the whole U.S.-global economy. But, we're debt free with a decent wood pile and green-beans and venison in the freezer, so maybe I should just not worry about that too much.

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