Sunday, February 26, 2012

It Is Different Every Time



Herr Bic has been urging (pestering) me to write a post for a couple of months, but I've been reticent about revealing my ideas on markets because my thoughts on regions, countries, and currencies, sectors and specific stocks, the global economy, can change direction, turn in the opposite direction, over my afternoon martini. For example, I am long-term bullish Chinese solar companies but price action could dictate that I must be short-term bearish, making me a cursed man to any investor who was foolish enough to buy my idea without knowing when I started to sell. Even if my call was right on the money, in such a volatile sector as solar, one week or even one day can be the difference between banking a profit and getting scalped.

Last February, I made this mistake when I was a guest on an investment show. At that time, I was an analyst/strategist at a German "green" fund and was in New York for a clean-tech conference. A good friend of mine, who was my mentor in a former life when I was a journalist, is the host of the investment show and he invited me on to discuss solar for a half hour. Long term I was bullish the sector and I still am, as the technology is still in its formative stage. During the show I spoke about the market in Germany and Europe, the US, the incredible sums of money China was pumping into companies, subsidies, etc. During the last commercial break before my time as a guest would be over, my friend told me to recommend two stocks. I told him I didn't want to tout any stocks, but he was insistent and I was weak.

After the break, my friend asked me on air what stocks I was looking at and I said that I would give two names that I currently believe will move up, "but with a strong caveat: the renewable sector is incredibly volatile." My top pick was JinkoSolar Holding Co., Ltd. (NYSE: JKS), and the shares got a bit of a lift immediately after I mentioned it, and closed that day at $28.02. Two trading days later, after Jinko released its 4Q and full-year 2010 results, the shares opened at $32.07, and climbed as high as $32.21, up approximately 15% since my recommendation less than two trading days earlier.

I nailed my Jinko call and was a fool too. Why was I a fool? Though Jinko spiked just as I was certain it would, the spike was too high and raised a red flag for me, so I immediately told my colleague who was managing the fund to start selling a good chunk of our position. Jinko ended up closing that day at $28.18, and from that $32.21 high it has been dropping ever since, though the fall off a cliff didn't come for another few months. An investor who had listened to me could have made a nice chunk of change if he had “sold the news” after Jinko released its earnings, and he still could have eked out a profit if he had sold in mid-May, but if he had held to present he would be without a shirt. Jinko closed Friday at $7.81 and that is why I was a fool for naming it.

Maybe I own Jinko shares and no, I would not been holding since shares were above $28 or even above $10. I would have started building a position when Jinko struck a pose for a few days at $4.90. It would have been a small position to build upon. I might also have started positions with LDK Solar Co., Ltd. (NYSE: LDK) and ReneSola Ltd. (NYSE: SOL). And yes, I am long-term bullish Chinese solar companies, but I will never again recommend buying shares unless I could say in real-time when I was selling.

Lately, I've probably been buying shares of German banks, specifically Deutsche Bank AG (NYSE: DB) and Commerzbank (CBK.DE). I could say I've had a remarkable run with both, that I'm considering adding to my Commerzbank position if it can climb back above €2, but I won't say because it is better for a man to learn by himself. I know Herr Bic wanted to buy Deutsche Bank when it was sub-$30, but he said it looked too risky to him. All I said to him was, "Josef Ackermann."

Besides the above, what I am probably following closely is the euro/US dollar trade. My thesis continues to be that currencies rise on weakness and fall on strength, and this trend will continue until it does not. This time it is upside down but it won't always be. It is different every time, and that was one of the most difficult and costly lessons I've learned.

Before I go, I want to mention one other lesson I've learned along this path I've taken: Good traders except all the blame for poor decisions; poor traders always look to others on whom they can pin the blame, or on "unforeseeable" events. I make many mistakes and try to learn from them and to not repeat them if possible. It sounds easy, but it's not. Ego often gets in the way. That other stock I recommended on the investment show was Cree, Inc. (NASDAQ: CREE).

What can I say? Move forward.

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