Offbeat Trading

This Will Be Our Last Song Together

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Well, it is getting toward the end of the SLO. The title of this blog comes from a pretty song written by Neil Sedaka and Howard Greenfield. I couldn't find an English video version but you can find a You Tube video containing a Swedish version of the song by Agnetha Faltskog, formerly of ABBA.

The way the market has been lately, it has been difficult to make any progress. In fact, the market has been difficult to make much headway in since the competition began. The beginning was tough and the end has been tough. I reminds me of the joke about the guy who was on a date with a girl he just met and said, "Do you kiss on the first date?" "No," she replied. "Well then," he said, "do you kiss on the last date?" This market hasn't done much kissing since the starting date of this SLO. Given that, I am pleased to be up about 6% for the competition. As I write this (based on data from the close, yesterday), my portfolio stands in the 79th position out of only 317 competitors left. That is just about in the top quarter, which is exactly where I said that I was hoping to be when I wrote my second blog in October. (By the way, if anyone has any idea what happened to the over 1000 competitors who have disappeared from the competition, I would appreciate hearing from you.) Of the remaining competitors, 144 (over 45%) or so have lost money overall and only 40 have gained 10% or more. Another surprising statistic is that of the 78 people ahead of me, an astounding 59 (75.6%) are flagged as not being in compliance with the rules! If we only count those in compliance I am in the top 20! Although I have not summed the numbers up, the compliance rate looks even more abysmal for those portfolios below mine in the rankings.

Since I last updated my stock portfolio there have been a few changes. Global Santa Fe was bought out by Transocean (RIG). I made money on that one. I also bought stock in an British oil tanking firm, Frontline (FRO), attracted by the high dividend (at the time over 15%; currently 12.5% or so, but probably not sustainable). I lucked out on this one, making almost 20% in a very short time. In order to hedge my portfolio a bit, I bought $50,000 of an exchange-traded, S&P 500 short fund (SH) which is currently ahead about 1%.

My worst performing stocks to date are Blackstone (BX) Titanium Metals (TIE) and Fastenal (FAST), each of whom have lost close to 10% or more, but all of which I still believe in. My top performers have been Berkshire Hathaway B shares (BRK.B), the above mentioned Frontline (FRO), Archer Daniels Midland (ADM), Fording Coal (FDG) and Chesapeake Energy (CHK), all of which have gained about 10% or more.

I had a comment on my last blog from Don L. Ferk, alias Viking Warrior in the SLO, a petrochemical engineer. He implies that fastenal (FAST) is not a very sexy company, because they make nuts and bolts, and asks me to use my expertise to evaluate a series of biotech type companies. First of all, let me defend FAST. The price of their shares has more than doubled in the past five years and quadrupled in the last 10, a return of more than 14% per year, exclusive of dividends. Compare that to the S&P 500 rate of return of under 3% over the past 10 years.

Don, over the years I have learned that it is important to know one's limitations. I don't believe that I have the expertise needed to evaluate the biotech companies you listed. I have been involved in basic research in academic settings over the past 35 years, but this does not help me much, because my expertise in basic science is relatively narrow and because basic science itself is only one small component of what it takes to succeed in these businesses. For example, in the pharmaceutical business, the delivery of the drug is critical, clinical trials are a major hurdle and unanticipated side effects can always shoot down the most innovative science. For a lot of these companies, the legal department's ability to manipulate patent law may be more important than anything they discover in their laboratories. These biotech companies generally offer no track record (or in the case of Sanofi-Aventis, an unimpressive one) to go by, so investing in these companies involves a great deal of faith and making money in them involves a great deal of luck. I avoid them, both in real life and in the SLO. Sorry.