Thread by @puppyeh1

Back by popular demand 😁, here is the Raper Capital Origin Story, pt 3. The year - 2016.

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For earlier editions see 👇👇

https://twitter.com/puppyeh1/status/1412369430726643718

Entering 2016 I was pretty confident. Now in Singapore, I had put up v high, and uncorrelated, returns thru 2014/2015, and built my capital base substantially. But it was still subscale and one goal I had in 2016 was to 'bootstrap' my own fund launch...

Unfort it all went a bit pear-shaped in 2016. Here's how I did: +1.3% vs SPX +10%, so first year of underperformance. Sharpe collapsed to objectionable levels (0.2). I got hurt badly on shorts this year (3 out of 5 top losers were shorts):

Actually it was a bit more nuanced than this. I basically had one horrible qtr - Q2, where everything went wrong (and I traded it badly). I spent the rest of the year digging myself out...

I made a number of fundamental mistakes, mostly around sizing. Recall 2015 was a yr where chunky shorts almost all worked out - I was rewarded bigly for betting big, even on the short side.

This came back to bite me in 2016. Toshiba was still a core short...

...as they had an unsolvable balance sheet problem and I (was 100% sure) they were stuffing unrealized nuclear construction losses into assets on the B/S.

This was actually my VIC acceptance idea. You can read about this thesis, in retrospect, here:

valueinvestorsclub.com/idea/Toshiba_C…

The problem was memory prices were rallying and the market didnt care - because Tosh had yet to 'fess up and come clean. So the stock was going up, and up, and up, every day, for basically all of 2Q (and 3Q) and I effectively got squeezed out of the position...

Of course the stock eventually did this and Tosh ultimately almost went bankrupt...but far too late to help me. As I said, the position size was just too big.

Elsewhere I somehow lost another 5pts on $MWW, where I ignored an old maxim ('losers average losers') and compounded a big mistake from 2015. And then I got squeezed in a cpl other shorts as well like $UPLMQ where I ran into a commodity rally at the wrong time 🤮🤮

Basically 2016 taught me 1) a bad quarter can ruin a year (or more). I was pretty happy w finding some bargains on the long side (Bracell, 1768.HK, was great; $AER was a big winner too) but w/out some real home runs there was no outrunning a -23% qtr...

and 2) sizing is a perennial issue for me, especially on the shorts.

I also joined VIC, and put up a bunch of (what I thought) was good work, mostly on the short side - still my core skillset despite the mishaps.

But the biggest disappointment was not being able to raise $$$...

I like to think this endeavor didn't distract me from the mkts in 2Q/3Q, but it probably did. Either way, I wasn't able to raise meaningful $$ such that by the end of the yr I basically decided to go back to the buy-side for more experience, somewhat chastened...

...and disappointed in my 2016 performance, despite the still superior returns over 3yrs. As such I basically took off all my shorts and just ran longs from 2017 (due to PA restrictions at my new role)...which we will get to, next time, in part 4 👊👊