brewer12345
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
- Joined
- Mar 6, 2003
- Messages
- 18,085
After 5 years of investing and even getting through a really awful bear market pretty much unscathed, I finally had my first real melt down today: SGU, down a whopping 80% in one day. Pretty freakin' unbelievable. Good thing this was a rather small (under 3%) part of my portfolio.
I am sure that this will not be the last of the blow-ups I experience, but a post mortem is a valuable way to learn from one's mistakes. So I think this is what I have learned:
- Don't reach for yield too far. One of the reasons I was hanging on to this one is that it was yielding an eye-popping 11% tax deferred. Stupid. It is very important to keep a total return mentality.
- Especially with a leveraged company, run like hell at the first sign of trouble. These clowns cut the distribution on the subordinated partnership shares (SGH) a little while ago. This was a sign of trouble and I knew it. Yet I chose to hang on rather than take the short term pain.
- Pay attention to management. They weren't sounding too coherent on the last quarterly conference call, which is clearly a warning sign.
- Don't fixate on a particular exit price. I was also hanging on because I was hoping that the stock would climb another buck to my entry price and I thought I could get out whole. Nuh-uh. Value is value regardless of what you originally paid for it.
- Don't lose sight of the bigger picture. At first I was really bummed when I saw what had happened. Then I thought about how the money I invested about the same time did overall. I plunked down about 5 times the amount I put into SGU within a 6 month period. even with the blow-up, my total return is in the neighborhood of 35% a year over two years. If you swing for the fences, you will strike out once in a while.
I did a quick review of all my other positions in the light of the melt-down, and I am comfy with them. The only other leveraged position I took some profits on a few months ago because I was uncomfortable with the size of the exposure after a big run. Otherwise, I don't really see any other potential time bombs. I do have some shares of an SGU competitor (SPH), but SPH is far more conservatively capitalized and competently run(hence the lower yield).
Any other lessons to be learned that I missed? Oh yeah, now I have a tax loss to offset oher gains.
I am sure that this will not be the last of the blow-ups I experience, but a post mortem is a valuable way to learn from one's mistakes. So I think this is what I have learned:
- Don't reach for yield too far. One of the reasons I was hanging on to this one is that it was yielding an eye-popping 11% tax deferred. Stupid. It is very important to keep a total return mentality.
- Especially with a leveraged company, run like hell at the first sign of trouble. These clowns cut the distribution on the subordinated partnership shares (SGH) a little while ago. This was a sign of trouble and I knew it. Yet I chose to hang on rather than take the short term pain.
- Pay attention to management. They weren't sounding too coherent on the last quarterly conference call, which is clearly a warning sign.
- Don't fixate on a particular exit price. I was also hanging on because I was hoping that the stock would climb another buck to my entry price and I thought I could get out whole. Nuh-uh. Value is value regardless of what you originally paid for it.
- Don't lose sight of the bigger picture. At first I was really bummed when I saw what had happened. Then I thought about how the money I invested about the same time did overall. I plunked down about 5 times the amount I put into SGU within a 6 month period. even with the blow-up, my total return is in the neighborhood of 35% a year over two years. If you swing for the fences, you will strike out once in a while.
I did a quick review of all my other positions in the light of the melt-down, and I am comfy with them. The only other leveraged position I took some profits on a few months ago because I was uncomfortable with the size of the exposure after a big run. Otherwise, I don't really see any other potential time bombs. I do have some shares of an SGU competitor (SPH), but SPH is far more conservatively capitalized and competently run(hence the lower yield).
Any other lessons to be learned that I missed? Oh yeah, now I have a tax loss to offset oher gains.
