Recurring revenue is great. Recurring mistakes, not so great. Here were our biggest mistakes:
1) Too slow to act on a high conviction thesis 2) Overly constrictive trade management 3) Not sizing up (within limits) on higher conviction opportunities
2/ Error 1: Slow To Act on High Convictions
We come across a fantastic setup that has a Trifecta of tailwinds (sentiment, fundamental, technical) behind it.
We pitch it, write it up for the group.
And then don’t take the first entry and watch as our thesis plays out to the T
3/ Error 2: Overly-Constrictive Trade Management
- Risk-point in way too tight, at a price level that does not invalidate the trade
- Take profits before the technicals/fundamentals invalidate the thesis
- Don’t give the trade the time it needs to play out and exit prematurely
4/ Error 3: Not Sizing Up Higher Conviction Bets
The process error of not fully exploiting fat pitches.
It’s always going to be the case that you have too much size on in your losers and not enough on in your winners.
That’s just the reality of this (very tough) game.
5/ Two Examples of Our Errors In Action
The two biggest misses of the year centered around POSITION SIZING in relation to our convictions. The two names were:
- Ammo, Inc. $POWW
- Roku, Inc. $ROKU
Let's see how ...
6/ Mistake 1: Ammo, Inc. $POWW
POWW started as a ~3% notional position.
This was a CLEAR MISTAKE (not because of price appreciation, though).
We were buying around $2/share when we THOUGHT the stock was worth $10-$12/share.
That should've been an 8-10% position at cost!
7/ Mistake 2: Roku, Inc. $ROKU
ROKU was another high-conviction bet based on our research report released on 09/30 w/ killer chart.
Unfortunately, we made it a ~2% position at cost.
We added in Nov but that only gave us a 4% position in what should’ve been an 8-10% position.
8/ What We Did Right: Risk Management (RM)
RM comes in two flavors:
1) Intrinsic value: buy at massive discount to worth 2) Active mngmt: Stop-losses at critical technical price levels indicating momentum reversal
In this case, 1 + 1 = 3 (combined creates massive advantage)