February 9, 2016
Sadly, and embarrassingly, I must announce that I am shutting down 17 Mile. In my case it is a proverbial ‘liquidation’ of the portfolio and strategy that I have operated since June 15, 2014.
I am looking for zero sympathy. The only reason I am ‘announcing’ this is that I have run the 17 Mile blog publicly in order to exert as much performance pressure on myself as possible. So, with the ‘strategy’ having now collapsed, it is only fair that this collapse is made public.
From the outset I have described my ‘strategy’ as ‘Loeb-style events + Druckenmiller aggressiveness’. I was fortunate to start off with good performance from 6/15/14 thru early November 2015, but I knew all along that I would have to prove myself thru a period of significant difficulty. As my energy holdings began to decline from mid-November into early December, I believed that time was upon me. As such, I not only welcomed it, but relished it. I love challenges, and there is nothing more challenging and exhilarating than battling it out with the market.
NAV was $18.63 on an intra-day basis the first day of trading in November…but went on to decline to below $10 (the 6/15/14 starting level) in early December. While obviously disconcerting, I believed there to be so much value in the portfolio at those depressed levels that I sincerely thought I would be back at new highs in no time once the tax-driven forced selling abated in my ‘high quality’ energy midstream assets. The portfolio ended the year over $13 on a mid-December bounce back, but selling intensified as the New Year hit, driving the portfolio down to $10.53 at the end of January.
Despite further pain, I had managed to trade around the volatility in January in order to not only limit the performance damage but to put myself in good position for the ‘inevitable’ comeback in midstream. Selling continued into February however, but I believed it to be just another part of the ‘bottoming process’ and thus continued to average down.
After ETE’s after-hours 8K last Friday I knew there was a good chance yesterday would be a bad day, but thought it could likely mark the final bottom. So when ETE and WMB declined by more than 30% in the opening 30 minutes of trading on extremely high volume, I was ecstatic because it had all of the markings of a final capitulation bottom. I made my final purchases in the opening hour, but knew that it was do or die for the 17M strategy…ETE and WMB had to bottom right then and there. At first I thought I was dead on…WMB rallied from $10 to $13 in less than an hour, while ETE rallied from mid-$4’s to $5.30 over the same time frame. But then the worst possible outcome played out: both securities faded into the bell, with ETE hitting new lows for the day. This left me with no choice but to reduce exposure to the point where it would take a modern miracle to dig out of the performance hole.
But performance is not the sole reason for shutting down…
I need to say goodbye for a whole host of reasons – not simply bad performance. Chief among them is that I have let the 17 Mile project consume my life. I work in the business, so having 17 Mile on the side only served to compound the normal time/attention-intensive nature of the industry. And running a highly aggressive strategy only further compounds the issue…case in point recent events. It’s no way to live – and even if I were successful with the ‘strategy’ over time, I cannot spend the rest of my investment days living in fear of collapse.
Second – After 5.5 years of what I considered to be an investment ‘residency’ of sorts, I believed I had built a framework tailored to my own investment style. The good performance from June 2014 thru October 2015 validated my ‘style/strategy’ because it embodied the core elements of what I believed made me a ‘good’ investor. In other words, because the performance was not generated via a few lucky trades, but via a consistent methodology (what I believed to be at the time), I thought I was on the right track.
I do not believe my ‘style/strategy’ has been invalidated by the collapse in a couple of bad picks, but rather by the fact that I have been ABSOLUTELY DEAD WRONG on so many individual equity opinions since June 15, 2014. The portfolio I held at inception – if held thru today – would not be in much better shape than the current portfolio. And while of course it is relatively unfair to discount profits taken in the interim (i.e. VRX was $119 at inception and originally sold over $240 in July/August 2015), that ‘buy and hold’ fact is frightening.
In other words, I need to go back to the drawing board.
Third – While I would love to blame my inability to conduct really in-depth due diligence on my ‘lack’ of resources, frankly I am not entirely sure I am even cut out for it. Previous attempts have proved utterly futile, if not highly counterproductive. My ‘crutch’ to this is/was what I believe/believed to be my relatively good ‘feel’ for situations and ability to absorb opinions from those who are experts where I am not. But to be this far off in my personal judgement and judgement of ‘expert opinion’ (i.e. with recent holdings) is an enormous shock to the system.
The solution may be as simple as smaller position sizing and overall less aggressiveness. But A) I cannot just jump to that conclusion and start over after obliterating performance; and B) I need to readjust my investment life. It is not healthy to be this obsessed with something and do this poorly. Less time on Twitter and staring at screens, and more time getting to know businesses.
The blog/Twitter has been just a tremendous platform for getting to know other investors, and I plan to stay in regular touch with those I am in regular contact with. But the day-to-day – or heck, hour-to-hour – monitoring of something that is so enormously distracting as Twitter is just not healthy, at least for me. So that activity will be reduced in dramatic fashion…
Lastly, for the time being the blog will go dark (I’ll give it a couple of days). I need to figure out what I am doing, get into a better routine, etc; and I may use it for private documentation.
If we have not interacted before over email or Twitter, please feel free to get in touch at email@example.com and/or @hfm17mile.