17 Mile Investment Letter April 2016

17 Mile

Investment Letter

April 1, 2016


YTD 1Q 2016

17 Mile Performance 1Q 2016

  • 17 Mile YTD Gross: -55.1%
  • 17 Mile YTD Net: -57.1%
  • DWCFT YTD: .9%
  • 17 Mile YTD Net Alpha: -58%

Since Inception

  • Gross: -39.3%
  • Net: -45.6%
  • DWCFT: 8.2%


It’s been a lovely five months.

Early November 2015 Thru Year-End

At the peak of the market in very early November 2015 I was up almost 50% YTD, and stated in my Trading notes that I was getting antsy about locking in good performance for the year. But because I had long ago vowed to never worry about the calendar with regard to investment decisions, I largely decided to stick with my bullish Energy bets (WMB, BWP, CRC).

As the Energy patch – in all its forms – was taken to the woodshed into year-end 2015, I began to consolidate the portfolio around what I believed to be a fantastic set-up in WMB and BWP heading into the new year: tax-loss selling + credit-related shorting + CEF deleveraging…and with WMB, the overhang of the ETE deal.

With regard to market exposure – the long-term concerns I noted on 10/2/15 when I went back to full exposure were coming to fruition into year-end; but I believed sentiment was such that at worst we would muddle thru, but more likely rally, into a potentially vicious ‘sell in May’ season.

So, I came into 2016 at maximum exposure and big concentrated positions in BWP and WMB.

January-February 2016

Clearly I was wrong on every front.

From 2016 Day 1 it was clear the nature of the market had changed; and within the first week I decided to reduce exposure and wait for more extreme sentiment readings to get in front of what I believed to be a likely rally into the ‘sell in May’ season. Unfortunately I did not reduce WMB, as I was lulled into the relatively strong performance in the face of a bad market the first couple of trading days.

As WMB and ETE declined in conjunction with the market, oil, and every boneheaded utterance from ETE’s now-former CFO Jamie Welch, I began to trade around the position(s) in order to limit the damage/position myself for maximum capitulation. I believed the bottom was in on the rally into 1/26 – as it came on massive volume with material amounts of call buying – but the stock soon began a slow bleed into the 2/5 weekend.

Early in the week ending 2/5 I cut the bulk of the ETE position and positioned for what I believed to be a final market and ETE bottom on ‘Jobs Friday’. I got the Friday jobs-related decline I was looking for, and re-initiated BWP and added back half the ETE position on weakness, as I believed ETE was ‘acting’ weak enough to where I could add more on further weakness.

After the market close on 2/5, ETE released an 8K announcing the ouster of CFO Jamie Welch. Given the vagueness of the 8K – and the fact that it was released after hours on a Friday – I knew the following Monday would be bad. It was just a matter of degree. But when the market opened Monday to the rumor of an impending CHK bankruptcy, both ETE and WMB plummeted more than 40% in the opening 30 minutes with the deal spread blowing out to more than 40% gross.

As painful as it was, I was ecstatic. I sold out of DISH and BWP, and made my final purchases of WMB and ETE, believing this was THE final capitulation moment I was looking for. But I boxed myself in, not leaving myself enough room (from a margin standpoint) to withstand a further decline in ETE. My purchases the morning of 2/8 were around $4.75, and ETE went on to close the day at $4, leaving me on the brink of a margin call. Due to trading restrictions at my day job, I was unable to sell non-ETE holdings for another 5-10 days or so; and admittedly mentally shaken by the continued liquidation of the stock into the 2/8 bell, I ‘forced’ myself to capitulate on ETE.

Given my apparent failure to navigate the exact situation I was looking for, the ‘locking in’ of horrific performance, and in all reality what would have been a ‘liquidation’ of an actual fund, I decided to shut things down. But the ‘shut down’ was merely on the surface, as I continued to operate behind the scenes.

I went into the 2/8 trading day with the mindset that I was at a ‘do or die’ time for my strategy. As I have explained ad nauseum, I run an aggressive strategy that is meant for 5% of a portfolio…not 100% of granny’s net worth. So, I knew that I needed to prove myself thru a time like this, and that if I could not, then it is not a viable strategy. In hindsight – while potentially overly aggressive, even for my strategy – my thought process and positioning was actually quite good…had I not committed the ultimate investment sin: turning temporary downside volatility into permanent impairment. But because I went into the situation doubting myself, I blocked the mindset I typically have: this is a massive buying opportunity; figure out how to survive.

I continued to operate behind the scenes, but due to the somewhat traumatic mental experience from 2/8, I began to over-trade in an attempt to make up performance.

February-March 2016

After unsuccessfully trading around ETE and WMB into late February, I decided to do two things: 1) exit the ETE situation all together, but monitor closely from the sidelines; and 2) focus on positioning for a likely weak market for the duration of 2016.

ETE. Big July 2016 $15 put open interest continues to build in ETE; and with the stock behaving like death in the equity/crude oil run-up, I believe yet another big capitulation moment will arrive. Perhaps in the form of a deal close + dividend cut. Worst case scenario, the deal breaks, ETE rises, and WMB presents a big capitulation opportunity. But I believe it is rather apparent that ETE is locked into this deal, and more than likely it will need to cut in order to assuage the debt markets.

Market. As I outlined in yesterday’s post, I believe the weight of the evidence points firmly to a big cycle market top in the works. And even if I am stopped out of my bearish bet, activity on the long side will be limited to opportunistic trading (ETE/WMB, etc) and merger arb.


The great Ed Borgato said on Twitter today: “Being a good investor means getting through periods without any evidence that you are.”

After five down months in a row, and sitting on a massive decline, there is not one public shred of evidence that I have any business managing money. Not one.

But from a personal introspection standpoint, looking at my decision making around the 2/8 debacle and the subsequent performance of ETE sans my participation gives me great confidence. At the time I told myself to ‘give it one month, give it one month’. Had I been able to mentally give it one month, this would be a completely different post.

As I will outline in an investment letter, the lessons learned since mid-2015 have been numerous. If I can ‘get thru’ this period as Mr. Borgato says, I will be in good shape.



One thought on “17 Mile Investment Letter April 2016

  1. Some good feedback on Twitter to this post.

    “Still don’t think you actually understand what mistakes you made, but a blowup is a good start and possibly only chance to learn.”

    In response to the above tweet:

    “Truth. Scary amount of “I had a feeling” in here. Mix in levered turdco’s and voila, supernova…”


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