The Problem With Ponzis…
December 27, 2021
The Great Rotation…
January 3, 2022

2021 Position Review

A surprising number of investors seem to have blogs these days. Once a year, we circle back and see who got it right. Besides, what’s the point of doing this publicly if we’re not keeping score? (Prior position reviews 2020, 2019, 2018)

Let me start by saying that 2021 was a monster year for me, coming on the back of an equally massive 2020. Much of this performance comes down to three big calls on my part, two of them in early 2020 and one in 2021. In March of 2020, JPOW looked into the abyss, waited until he saw the whites of their eyes and then unleashed hell. There was no way to know precisely where the market would bottom, but it was clear that it would bottom and then overshoot to the upside. I took some heat for a few days, then my P&L just kept on going—it hasn’t stopped. In finance, it’s rare that they make it this easy, but they did—as long as you trusted JPOW to fall asleep with his finger on the money printer.

Secondly, I expected the fiscal side would also join in the drunken orgy of economic insanity, calling it “Project Zimbabwe.” I was not disappointed, as both political parties ignored all restraint and ensured that their constituents got plenty of those newly printed Dollars. Fiscal and monetary stimulus both work with a lag, it always catches up. Using a drinking analogy, by late 2020, they probably should have down-shifted from Jägerbombs to a light beer—Team USA instead went for an all-nighter.

I have always had an odd fascination with formerly important places that have been forgotten by history. Angra do Heroismo on Terceira Island, Azores, was once one of the wealthiest places on earth. Look at it on a map. All of Portugal’s overseas wealth (Brazil, Africa, Asia) flowed through Angra on the way to Portugal. Then it was forgotten as sailing ships became more efficient and the colonies became less important…

Moving into 2021, my big epiphany was that the trends in motion would only accelerate, but with an added ESG component. You see, a little ESG is probably good for society as it eliminates notoriously bad actors—ESG overkill will lead to a global energy and food crisis. Much like fiscal and monetary stimulus, ESG works with a lag. A bit of ESG doesn’t matter to energy prices, a bit more ESG and Europe cannot afford electricity as ESG = Energy Stops Growing. 2021 was the warning to humanity as European power prices went parabolic. I suspect that over the next few years, the Biden & Fink energy crisis will destroy society’s standard of living. While I’m powerless to make the world a better place, I sure do intend to profit from this crisis. I’ve stacked up some massive positions that are highly leveraged to ESG creating the next Lehman Moment. The gains from ESG’s stupidity are only starting—this is my favorite trade of the coming years (including the inevitable shift to nuclear). I intend to capitalize on ESG’s failings in a major way.

On a final note, I’m extremely proud to have avoided any sizable unforced errors. I run a highly concentrated book. It’s easy to identify multi-baggers. The problem is that a few large losses can wreck a year. I’ve always been fixated on the downside and am proud that I have once again dodged the big landmines of 2021, by not shorting “Project Zimbabwe” and avoiding all exposure to the Ponzi Sector.

Ilheus das Cabras, Terceira

With that preamble out of the way, let’s go through all positions I’ve publicly mentioned during 2021, including those that carried over from 2020. Unfortunately, I’m writing less about individual names lately, as compliance takes the fun out of things, but themes are far more interesting anyway. Just harder to keep score when getting it right.

Positions mentioned in 2021 in alphabetical order and % change is from the closing price on 12/31/2020 or the day before mentioned.


Cornerstone Brands (CNR – USA) +85% in 2021 and 140% since original post

In last year’s update, I noted, “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.”

The stock was up 85% during 2021 and I wouldn’t change a word of last year’s summary. The company has bought and sold a few assets, which has postponed a clean TTM and they’ve had some supply chain issues, along with a good deal of inflation that has been slow to pass through. That said, they keep killing it given the margin headwinds. The shares trade for a low single digit cash flow to equity multiple on where I think normalized numbers end up, which seems wrong to me. This is a business that should do north of 30% ROA in a normalized state. Put a few turns of debt on CNR and it should do better than a double on equity each year. Meanwhile, there are massive macro-tailwinds that are likely going to accelerate. Am I crazy to think that an earnings multiple in-line with a broader market multiple is correct here? Especially as this business is superior in quality to most names in the market. If that’s the case, there’s better than a multi-bagger left from here.

Dorian LPG (LPG – USA) Roughly unchanged

Dorian was the last of my tanker positions. I threw it overboard this fall as VLGC rates stayed soft and newbuilding orders picked up. In the $12’s, the shares trade at less than half of NAV, the balance sheet is clean, management has executed a massive buyback along with special dividend of $1/shr this year. They’ve done everything right, along with reducing debt. I may return to LPG, but worry that the orderbook will cap rates for years into the future and I want to invest with the inflection. I also worry that US propane exports will be somewhat anemic given the reduction in upstream spending. There’s plenty of cheap stocks out there, far fewer with shareholder aligned management, but cheap doesn’t matter in finance. The trend is what matters, and the trend doesn’t seem strong enough here, which is unfortunate because the current valuation is silly.


GameStop (GME – USA) selling volatility

I sold all sorts of GME volatility. Mostly puts, but some calls too. I even laid some straddles out there. In almost all cases, the Crayon Eaters simply transferred their capital into my account. I’ll sell damn near anything at 1000 implied volatility. I’m actually still amazed at the sorts of IRRs I earned on monthly and sometimes weekly paper that almost always went out worthless.

In retrospect, the GameStop squeeze was peak meme. For many months afterwards, I kept pocketing premium in all sorts of other memes as the frenzy slowly faded. I suspect that selling puts will remain a top performing strategy for many years into the future as pockets of retail investors will crowd into various names and set off many more meme frenzies.


Grayscale Bitcoin Trust (GBTC – USA) +58% in 2021 and roughly 5x since original post

I had a well-timed exit from GBTC. While the premium swung to a discount and took a bit of the upside away, I’m proud of my exit at roughly a $58,000 reference price. Six months later, and Bitcoin is off nearly 20% from where I sold. I’m structurally bullish on crypto, but think Bitcion is going to still go through a painful and frustrating consolidation with a lot of wild moves. It just seems so much easier to play inflation and money printing through oil and JOE. I’m sure I’ll return to crypto, but first need a good setup.


Lee Enterprises (LEE – USA) +28%

I very recently spoke with Andrew Walker about LEE. With no new datapoints, I have nothing to add.


Oil Futures, Futures Options and Futures Call Spreads

I have a whole inventory of these for Dec ‘23 and ‘25. Some are prosaic like straight futures, others are a bit more complex like the Dec ’23 $90/100 call spread that I banged on about in KEDM.COM over and over. It was 63 cents at the time. Now it’s quoted in the mid-$1s. I think it goes out at $10 or a 15-bagger. Others, like the $100 strikes of ’25 could be 100-baggers from where I started laying into them with a $2 handle. I want right-tail inflation exposure and remain convinced that the convergence of ESG along with Central Bankers and various governments continuing to stimulate, will continue until oil breaks the machine. I also think they’ll then panic and subsidize oil, which will turn what’s left of the machine into dust. These derivatives may end up going nowhere, but given how far out they are, I have a lot of time before real decay sets in, giving me a multi-year, almost free look at what happens. Given the binary nature of these derivatives, this is a surprisingly massive position for me. I just don’t see how oil doesn’t become the new bond vigilante. Essentially, they’ll stimulate ’til oil stops them.


Sandridge Energy (SD – USA) +230% in 2021

Sandridge is a funny security. At one point, it traded for less than half of pro-forma net cash despite being profitable. Everyone hated it and I loved it. Anyway, my basis started bad, but I just kept averaging down, eventually buying almost a filing position in the $1’s and lower. Today, it’s up 10-times from there. It’s still cheap. I’ve scaled out of a bunch and I’ve been working a calls position against some of what’s left, but it’s still cheap, just no longer screaming cheap—unless natural gas goes screaming again (which is certainly possible). I always remind people, your only real edge in value investing, is your willingness to average down, sometimes relentlessly when they give you money for free. SD with a $1 handle was free money.

Sometimes, cows get in the way, but you’ll always get where you’re going if you’ve thought it through…

St. Joe (JOE – USA) +21% in 2021

One of the few disappointments all year was JOE. Despite explosive growth in all categories that matter, the shares were only up slightly. I think this is a grave oversight on behalf of all value investors and all the compounder bros. I cannot think of a better way to play a multi-decade trend, than to buy some land at a huge discount to NAV, land that’s rapidly being redeveloped, where results are going parabolic, where management keeps doing the right things. JOE has been a top position all year and I added size in the low $40s this summer. I think JOE ought to trade at a premium valuation, given how strong all the trends that intersect it are.


Sprott Physical Uranium Trust (U-U – Canada) +15% from first post

I put on a massive position in uranium, right as Sprott started buying up huge quantities of physical. This one seems to be playing out much better than expected as all the incremental news-flow is much better than I could have ever hoped for. With trading volume way down, uranium appears to have rinsed the retail traders. Meanwhile, the global inventory is continuing to slowly draw down. I suspect that 2022 is the year when the big inflection happens.

I’m now on Faial Island in the Azores. Once again, stunning…

In summary, 2021 was a surprisingly strong year for the home team, made many times better by all the Event-Driven trades that have allowed me to continue producing income, reallocated to purchasing more of my favorite names. With this position review completed, I’m off to enjoy my last few days in the Azores. I want to wish everyone a happy and healthy New Year. 2022 will be a wild one. Let’s hope that it is as lucrative as 2021.



Disclosure- Funds that I control are long CNR, LEE, oil futures and futures options, SD, JOE, U-U CN

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