On Riding Freight Trains…
December 27, 2020
What The QS???
January 6, 2021

2020 Position Review

Lots of people seem to have finance blogs these days. Everyone has opinions on the markets. Once a year, we add up the score and see who got it right.

2019 was something of a whiff for me—I made money, but it was a soft year. Thankfully, I broke out of my slump and knocked the cover off the ball during 2020. While I got a whole lot right this year, I’m much more satisfied that I got so little wrong. It’s the mistakes that rapidly detract from performance and with the exception of Altisource (ASPS- USA) I did not have any serious mistakes that cost me substantial capital. Even analytical mistakes like Stage Stores produced small gains for me. While it was frustrating to give back large unrealized gains in tankers, I still exited them with small gains when compared with my 2019 entry (my thesis there has unfortunately been postponed by COVID’s impact on petroleum demand).

Finally, when looking at the winners, I had multiple multi-baggers (including two position limits that more than doubled). Adding ballast to the portfolio, Event-Driven opportunities produced unusually strong cash to re-deploy into my favorite value names. I believe this is a function of a massive influx of retail traders along with the increased dominance of passive over active, leading to what may be an extended era of Event-Driven outperformance. Internally, we have spent considerable effort to improve our ability to track various situations—though due to liquidity concerns, this blog hasn’t been able to detail many of them. That said, I have published on some of the more liquid ones as I find them analytically interesting.

Before moving to the position review, I’d be derelict if I glossed over my one big call this year. It wasn’t the call to take some off before the COVID cascade. Sure, I’m proud of that one, but I’m even prouder that I caught the bottom 4 weeks later. Go back and re-read that piece—it turned out to be unusually prescient as a road-map for the rest of the year. At the time, most people thought the market would continue lower, some people agreed that we’d have a bounce, but I made it clear that we were going to rip to new highs as I had my “Project Zimbabwe” framework. Unlike a lot of my friends, I didn’t give any back on the short side either. I even wrote to stop trying to short “Project Zimbabwe,” as I felt bad that so many friends were on the wrong side here. Instead, I stayed maximum long and cycled between sectors, adding on each small shake-out. When you get the big decisions right in a volatile market, it almost doesn’t matter what assets you own. While I had plenty of multi-baggers on the equity side, I feel I could have reached for more speculative names and done even better. Instead, I’m a value investor at heart and while I could accept “Project Zimbabwe” and how it would send worthless Ponzi Schemes parabolic, I stuck to my discipline and mostly owned equities that were demonstratively cheap—though I did take the leap on the most blue chip of worthless crypto-coins, Bitcoin, due to the Ponzi nature of all the CUSIPs accumulating it.

I was joking with a friend back in June that an equal weighted portfolio of Bitcoin (GBTC – USA) and St. Joe (JOE – USA) would likely out-perform almost every other portfolio, while remaining sufficiently diversified. As I sold out of my panic low purchases, I cycled most of my freed-up liquidity into those two positions. Turns out the joke was unusually accurate (thus far). Every few years, I simply have a huge year and 2020 was one of them.

Positions Mentioned Review (in alphabetical order and performance from closing price on day before mention to day before closed or if still open the December 30 closing price)

Altisource (ASPS – USA) -58% 

I went into 2020 expecting that the economic slow-down in 2019 would accelerate and lead to an increase in mortgage defaults. However, I never expected that COVID would take defaults parabolic. If history was a precedent, ASPS should have been a ten or thirty-bagger for me, given the current level of mortgage defaults. Instead, the government instituted moratoriums and waivers, effectively negating ASPS’s entire business. While you could say that the big returns have simply been postponed until the moratoriums are lifted, I’ve come to realize that it’s quite likely that elected officials continue to take care of those who elected them. Given the unpredictable nature of increased government interference in the mortgage market, ASPS is now in the “too hard” pile. As a result, I sold this for a pretty substantial loss, my only bad loss of the year.

Sometimes it rains and you don’t get where you want to go…

Cornerstone Building Brands (CNR – USA) +32%

Cornerstone makes components for residential and commercial construction, with a focus on residential (both single-family and multi-family). Demand for new housing has gone parabolic following COVID and aggressive lockdowns in blue states. I don’t see this changing any time soon as a massive demographic migration is underway as people flee blue states. CNR is a prime beneficiary and quite cheap as well. The shares are up since I wrote about them, but there’s plenty more upside here. Q3 results were solid and would have been better without some COVID disruptions. I expect that within a few quarters, there will be a clean TTM that allows investors to re-build their models, showing dramatically reduced leverage on a debt/FCF basis—allowing for a solid re-rating. CNR remains the cheapest of the high ROIC building components producers.

Not all trades are the big bling waterfall. Small and pretty adds up fast…

Dillard’s (DDS – USA) +19%

DDS was an example of an Event-Driven trade on the short squeeze side. As the company repurchased shares, it tightened the float, the borrow rate exploded and the shares ran hard. I was too conservative and booked my gain a bit too soon as a the trade had serious legs afterwards as the float remained tight. I really like these sorts of plays where the downside is quite limited due to a strong balance sheet backed by the book value of tangible assets and you can tell that the squeeze dynamics are about to matter.


Dorian LPG (LPG – USA) + approximately 50% from various purchase points mentioned

LPG is my sole remaining tanker position. Asian propane demand has increased dramatically at a time when OPEC is cutting exports, leading to an increased call on US propane (which is a rather long-haul). Additionally, the naphtha spread to propane has remained strong for many months now. This has led to record breaking VLGC rates and quite substantial earnings for LPG. I suspect rates remain elevated for at least the next year or two and LPG uses the cash flow to do accretive things, like repurchase shares. The shares are up quite a lot from where I bought them in the $7 to $9 range, but I think they have room to run.


Grayscale Bitcoin Trust (GBTC – USA) +171%

My Bitcoin exposure is through GBTC, though I’ve owned a few of the smaller-cap crypto names with surprisingly strong results this year. As I have noted many times, GBTC facilitates a reflexive Ponzi Scheme. As long as this continues, it will tighten the float and force Bitcoin higher. While many treat Bitcoin as a religion, I have been as clear as possible that it’s a worthless joke of an asset. However, if the world is going to embark on a global Ponzi Scheme, I might as well be involved—especially as it’s liquid enough to let me exit at any time.

Natural Gas Basket +200-500% depending on the position

I bought a basket of natural gas producers to hedge off my super-contango tanker thesis. Tankers flopped but my gas names were between 200 and 500% gainers off the panic lows, which made up for tankers many times over. These were rather meaty position weightings as I had a LOT of tanker exposure to hedge out.


Nikola Warrants (NKLA.W – USA)  +50% (approximately)

Nikola was a small Event-Driven trade on the expectation that the warrant discount would close with the filing of a registration statement. The spread closed even before the filing and I booked the trade early for a nice fast score. As I didn’t play the common hedge leg, the return was only on the warrants.


PG&E (PCG – USA) -3%

PCG’s bankruptcy exit ended up leading to a rather sustained rally of nearly 40%, much as I had anticipated. Unfortunately, I booked it roughly break-even as I wanted the capital for other things and worried about the fires over the summer. I did have a much larger position in puts I had written which expired worthless over a few monthly cycles.


Sandridge (SD – USA) -71%

I’m still long my Sandridge. It’s still unfathomably cheap. When the shares dropped under a dollar in March, I increased my position many times over. I kept buying into the mid $1’s. I’ve dropped my cost basis dramatically and really sized up this position (now a top 5 position). Pro-forma the sale of the North Park assets, I figure they’ll end the year with almost $2/share in net cash. I also think they’ll earn between $1 and $2 a share during 2021 based on the current energy strip and basin differentials. I basically get today’s share price in cash by the end of 2021 and get to see what happens from there. What will they do with all the cash? This is energy; they’ll probably blow it on something stupid, but I like the new CEO and am hopeful he’ll add value. Given the current valuation, it’s the best speculation on an energy recovery that I know of (in terms of risk vs. upside). Using a $3.25 gas and $65 oil view, this is a double digit stock.


Scorpio Tankers (STNG – USA) +18% (From purchase until I took it to basket weight)

Scorpio was a real disappointment for me. It had more than doubled from my basis at $17 and started 2020 on the high tick. When Bugbee sold his call options, I cut my position back by roughly half (I watch insiders like a hawk). As COVID collapsed oil demand, the shares fell off dramatically—all the way into the teens. I re-loaded in early March and caught the bottom of the super-contango move, but after a few months, rates fell down again. I sold the majority of mine in the mid to high teens (roughly where I had bought them during Q1 of 2019 and the COVID crash of Q1 2020. I hate to give up pretty large gains, but that happens sometimes in inflection investing. I’m watching for a re-entry, but that’s likely a few quarters off. At least STNG gave two really attractive opportunities to double my money during a 6-quarter period. I harvested some nice gains along the way, but feel like I should have made more, given I caught the inflection in a decade-long bear market.


Shipping Basket  From -10 to +50% depending on the position

Much like with STNG, this basket of stocks was up in 2019 and started 2020 on the highs. The shipping companies collapsed as COVID hit oil demand, but recovered on super-contango. I added dramatically on the lows in early March of Q1, but didn’t sell enough on the super-contango spike, instead I sold some calls to lower my basis a good deal. Over the course of 2H, I cycled the position into two names, Teekay (TNK – USA) and Dorian (LPG – USA). I now only own LPG. I’m bullish on tankers, but until we see some scrapping, recent ordering trends will likely dent future earning potential. The important note is that while COVID seems to have postponed my IMO2020 thesis (which was really blooming in Q4 of 2019), I didn’t lose money on this trade—in fact I made some. That’s the key with inflection investing. Get there in size on the inflection and ensure your cost basis is low enough to get it wrong without getting hurt.


SHLL Arbitrage +64% of spread closing

I have been focused on Event-Driven opportunities this year and nothing has done better than SPAC warrant arbitrage. SHLL was yet another that worked as expected with the massive spread converging within a month.


Stage Stores (de-listed) + approximately 5%

Stage had what seemed like a dramatic recovery during 2019 as it pivoted into a new off-price retailer model. Unfortunately, that progress froze up in December of 2019 and the company reported a massive miss on holiday revenue. Like all turn-around trades, when it stops turning, I get the hell out. As I caught the inflection well to the upside, I was able to sell for a small gain—which is how it is supposed to work when you buy something well. Despite getting it wrong, I didn’t lose any. When COVID hit, it pushed SSI into bankruptcy, which makes me quite glad I sold when I did. Discipline over conviction I always say.


St. Joe (JOE – USA) +106%

JOE remains my favorite idea in the markets. It combines a half-dozen macro and micro-trends that I’m incredibly bullish on. Despite more than doubling since I wrote about it, JOE trades at a single digit FFO multiple looking out a few years and at less than half of NAV. I suspect that as these trends become more well-appreciated, JOE will trade up to a premium to NAV on account of its rapid growth rate. When catching inflections, I don’t always get it right, but given the torque, I only need one or two good ones each year, as long as I don’t lose much when wrong.


Trump Trades (ARLP – USA) and (CXW – USA) + 5% each (approximately)

I put on two contrarian Event-Driven trades on my expectation that Trump would win re-election—which was a non-consensus view. I correctly analyzed the election polling as he clearly won, but didn’t expect the magnitude of election fraud that occurred in certain counties. I tossed my positions as soon as it became obvious that even if Trump wins, it will not be a clear-cut path. I had small gains on both—which is what is supposed to happen when an event is more than priced in—as there is often a relief rally even if wrong.

Sunset on 2020…

In summary, 2020 was a surprisingly good year. It was volatile and I had a few big wins that reversed. But by being disciplined, they didn’t actually hurt much and some were satisfactory gainers from my basis. I return on January 3 and am focused on re-allocating capital into the markets once there is election certainty. With this position review out of the way, I’m off to enjoy my last few days in Costa Rica. I want to wish everyone a Happy Holidays and let’s hope that 2021 is as good as 2020 in terms of opportunities.




Funds that I control are long CNR, GBTC, LPG, SD, JOE

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