Jan 18, 2011

Investing Performance for 2010

2010 proved to be a very favorable year for me and as I will explain a little further, it is mostly due to the high concentration of almost half of my holdings in one specific company and the use of options contracts that were severy undervalued. More on that later.

The broad rally experienced by stocks during the year is fundamentally attributable to the quantitative easing measures by the Federal Reserve in the US and the rising price of commodities. Because of the intricacy of the canadian economy with the US economy and also because the canadian economy is so greatly influenced by the price of commodities. Provident Energy Trust helped fairly while providing a nice 10% dividend yield during the holding period.

My biggest position was certainly Winalta Inc. The company was going through a tough restructuring process and the uncertainty surrounding the company got it's price gyrating at historic lows during the summer of 2010.

There is also something new this year, options were a fair part of the performance. I acquired them at the end of the month of august as it seemed to me that the investment community was pretty pessimistic about earning results that would be soon announced by several companies and two of them had unfair bearish sentiment surrounding them. I was greatly rewarded as those position took full advantage of the earnings surprise inherent to those companies. 

I also managed to commit some mistakes. My position in Le Chateau Inc. did not perform the way I expected and it ended up slowing my performance. I also succumbed to greed at some extent when I decided to hold my position in my November out-of-the-money call options of Dryships Inc. after the earnings announcement, which caused them to decay as their maturity was getting closer, this proved to be a great error since the stock started sliding  in the days following their earnings release. Ironically, I departed myself from my options on Microsoft, which went to get deeply in the money. 

Here are my positions for the year:


Call options long:

Taking those positions into account, my performance in 2010 was a surprising 80.4%, and the S&P/TSX did 14.4%, so it makes it that I over-performed it by 66%. This is very encouraging but I remain cautious, this performance might be due a great deal to chance and it is very improbable that I will be able to replicate it in the future. The downside is that even if I showcased a better performance than this index, it will get harder in the coming year to find such attractive opportunities and repeat a relative performance of this magnitude.

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