Yes I can see that and no doubt he has done very well out of his investment.
I was making a reply based on part of his comment where he says:
Obviously if he had brought his portfolio position down to the 25% level at the $41 level then from that point onwards he would have lost whatever was his position at the time a loss of over 71%.
It seems to me that he has managed his risk and taking profits accordingly on the way up but not so on the way down.......This seems to be a common theme that I see on ASF...IMHO...eg AKP,SGH to name just two....
Triathlete
I put up some numbers that help understand my SRX outcome without specifying the exact dollar amount.
To make more sense of the numbers you need to assume a quantity of shares – let’s take 100,000.
Average purchase cost: $370,600
Theoretical Sell: $11.77 = $1,177,000
Un-realised capital gain: = $806,400
Dividend Income (44%) = $163,064
Previous Realised Profit from portfolio limit rules (177%) = $655,962
Profit on $370,600 investment: $1,625,426 - 438% over a decade.
That result is O.K but not great considering how long the money was invested for and what it could have been if the trials were an unmitigated success – it works out to something in the range of 15% CAGR.
I’m not going to deny to myself or anybody else the bit you highlight, a 71% drawdown hurts. Its very easy to think of what other meaningful things you could have done with the money that has evaporated.
SRX reached $41.33 at that price the mark to market valuation of 100,000 shares is $4,133,000 and I was hitting portfolio limits so my exposure was 25% of the portfolio.
Mark to Market drawdown = $ 2,956,000 which is nearly twice my actual outcome. If the remainder of my portfolio stands still it is a 18% (71% *25%) drawdown in the portfolio.
But here’s the thing – Yes it hurts but I’m not going to change what I do because it hurts. That immediate profit obsession and avoiding volatility at all costs is the game that everybody else plays because it’s emotionally easy – but it’s not a game that I think makes you rich over the long run.
SRX’s blue sky of uniform first line treatment didn’t work out. Sometimes investments don’t work out – that is risk – that is what we do, we bear the risk. But it could have worked out and I had a plan that allowed me to be exposed at full clip to the high-risk events. That’s what I wanted – I didn’t want to avoid them.
It’s easy to say they should have been avoided in hindsight – But I have yet to meet a rich hindsight warrior. And I don’t know of any other more pro-active risk management method (especially at size) that would have not cut you to pieces on the SRX gaps.
If I want to avoid 71% (or higher) drawdowns for emotional reasons, I will avoid making these types of investments altogether but I wouldn’t change how I execute the plan If I do take one again.
I think there will be room for other similar speculative positions in the portfolio and in my emotion bank again in the future - despite the potential drawdowns.