Looking back on a year of investing and investment writing, it's easy to get hung up on your mistakes. Like Facebook Inc., which I seem to write about every month, and obsessively reporting on why I refuse to say that owning 100 shares, half of which were bought at the IPO price, was a bonehead play.
Enough about that. After a comprehensive review of my Vox columns this year, I can say that … well, Facebook wasn't the only mistake I made. But there were a fair number of successes – well, more than half – to reassure me.
To keep score, I tracked returns on the stocks I wrote about and compared them to the performance of the major index in their home country – the S&P TSX 60 here, the S&P 500 there – over the same period.
Of nearly 100 stocks for which I had an opinion that resembled a "buy" or "sell," about 60 per cent followed the path I suggested. (This sounds like barely more than random success, which is true, but I should point out that U.S. investing magazine Barron's got only about 45 per cent of its picks right in 2011.) Of stocks that outperformed or underperformed by 10 percentage points or more, I made the right call on nearly two-thirds.
Okay, enough self-congratulation; back to the flagellation.
One of my worst calls, to the great delight of patriotic Canadians everywhere, was a warning in late July against buying Research In Motion Ltd. shares as they wallowed below $7. Even with Friday's meltdown, they've outperformed the TSX 60 by nearly 50 percentage points. (The stock closed Monday at $10.50, down 36 cents.) The column was a warning against using a sum-of-the-parts valuation that counted RIM's cash because of the prospect of further operating losses. "Investors who follow [Prem] Watsa's lead and buy are indeed getting RIM for less than it's worth today. But the problem for RIM isn't today – it's tomorrow," I said.
The market now disagrees, I suppose, although it's hard to find people who say RIM is in a better competitive position than it was last summer.
I think RIM has become a "trading" stock, subject to wild speculative fluctuations, rather than an investment. And that may be a fair description of another miscue, my negative view of the long-term value of Netflix in early September, a point where I suggested the market had reached the point of "maximum pessimism." I still think the company has a long-term competitive problem, but in the short term, the shares have zoomed more than 60 per cent.
This is the second time I got Netflix wrong; in October, 2011, I recommended it at $80 (U.S.) before it fell to $55. Since it's now above $90, can we pretend the two wrongs make a right? Or shall I just never write about it again?
Losing 'buy' calls
The single worst "buy" call I made was in February, on Bankrate.com, a Web-based U.S. provider of financial services. I said that despite a price-to-earnings ratio in the 40s, "the company's shares seem intriguing as a near-term proposition" because of the prospect of near-term earnings growth. I also added "Our typical caveat: One wrinkle in the growth story could send the stock crashing." Yes, um, from $24 to under $13 (and just $10 at its low) qualifies as crashing.
The worst "buy" among Canadian equities was my recommendation of envelope maker Supremex Inc., which managed to lose more than 40 per cent of its value even though it was only $1.88 per share when I suggested a flier on it in April. Although, I must note, by September I renounced every "buy" call I ever made on any company that had anything to do with paper, including Domtar Corp. (down about 6 per cent since my "buy.")
On the other hand
So what do I have to say for myself? Héroux-Devtek Inc., Thompson Creek Metals and Easyhome Inc. have all outperformed the S&P TSX 60 by anywhere from 40 to 60-plus percentage points since my recommendation. Canadian Pacific, Richelieu Hardware and Manulife Financial Corp. bested the index by 20 points or more since my positive columns.
Down south, two providers of "alternate" financial services, NetSpend and Green Dot Financial, were big winners, as were more traditional banking companies such as Discover Financial Services and JPMorgan Chase & Co. All outperformed the S&P 500 by anywhere from 20 to 30 percentage points.
Getting out at the right time
The best "sell" calls? Dell Inc. has underperformed the S&P 500 by more than 40 points since my March warning (although it's up about 9 per cent since I reiterated that "sell" in October). Here in Canada, DragonWave Inc. and daycare roll-up Edleun Group Inc. have underperformed the index by 25 percentage points or more.
That's about all I have room for. All in all, a collection of hits and misses, more on-target than off. In an investing world dominated by randomness and noise, I'll happily settle for a 2012 like that.
David Milstead