Resolute Forest Products Inc. (RFP)

My average cost per share is $4.33. I decided to take the gamble on the stock in spite of many of the past lessons that I should have learned that could possibly burn me:

- A deteriorating business (technology will render some former titans of industries valueless such as screens and the necessity of printing on paper)

- A turnaround seldom turns around

-Tailing money managers that you respect and whose philosophy you agree with might not be enough in investing (Francis Chou and Prem Watsa)

-Sometimes an inexpensive stock (such as a low EBITDA/EV) is justified and anchoring is expensive

The five most expensive words in the English dictionary are "this time it is different." I will now try to fade that as I believe that RFP is a good bet. I like that its valuation is compelling in a normal point of a cyclical industry. Its segments of paper pulp, forest products, tissue paper, newsprint, special papers are well managed and one of the biggest in size. (Economy of scale and the industry isn't fragmented leading to pricing power) I hope the death of the newspapers and necessity to print out things on paper is greatly exaggerated. I think the housing market will always be growing with the need for new households each year and wood prices should hold up. I also believe even in a down economy, people will still have to use tissue paper and RFP is about finish with integrating a purchase and a conversion of a mill to produce tissue. At some point, the products that it produces still hold a lot of value and if its valuation remains this low, splitting up the sum of all its parts might be worth more as they're clearly investing a lot in the Calhoun plant and the purchases it has made quickly add up to a vast majority of its market price today.

Only time will tell will I again be burned by mistakes I should have learned from in the past or is it true that "no man truly steps in the same river twice as it's never the same man nor the same river."

Sears Hometown and Outlet Stores (SHOS)

My average cost is 18.09. The entire Sears story is a fiasco and has been a value trap. I'm not sure what Berkowitz and Lampert still possibly see in the story as I should have realized earlier that the short-term is full of the death spirals of retailers. Besides all of us being dead in the long-run, the real estate value is difficult to discern. My original thesis in SHOS was that I felt like it was a cheaper play on the recovery of the Sears brand if it did recover, the cash flow from the earnings would continue to improve in this turn-around, and a spin-off would unlock it from the parent company Sears and improve value as investors realize it operated as a separate entity if Sears failed.

The thesis is failing in all three fronts as Sears is quickly going down in flames, the earnings in SHOS has not improved, and its fate as a separate entity has not segregated it from the sorrows of the parent.

Lessons to take from this for the future:

1) Book value means a lot less if you can't understand where it comes from (a retailer's inventory) or if the fundamentals of the earnings are deteriorating (should have realized that the competition was making headwinds against SHOS and AMZN, BBY, HD,)

2) Turnarounds are very difficult to turn around; blind hope is not a viable strategy

3) What is the exit strategy if things don't turn out the way I think it will and the time-frame for execution

Is it time go get out? It's hard to swallow that pill and take a realized loss of 74.8% on the investment.