Here’s the transcript to this week’s Live Q&A chat. Join me next Wednesday at 2pm EST at https://tradingwithcody.com/chat or send me an email with your question at support@tradingwithcody.com.
First things first: Did you guys know that at the end of each calendar month, the Top Trader at http://ThatMattered.com wins a free one month subscription to TradingWithCody.com, a $99 value? So if you haven’t played yet, you should give it a shot and see how you do.
Q. You’ve called the top in many companies. How do you know when a company is at a top or about to top out?
A. Thanks for the kind words, but I don’t know how many tops I’ve called right over the years vs. how many times I’ve thought it might be a top and then wasn’t. You have to look at fundamentals and sentiment around the stock to find a top. A few weeks ago, I thought IBM might be topping near $200 a share, but I haven’t pulled the trigger on it because the momentum upward and sentiment was too strong my blood. That said, now that it’s cracked today, it might very well be topping and since it’s been a huge go-to/favorite for tech fund managers for the last few years, it’s likely a “crowded” long and I think there’s a chance $210 will be a top for IBM’s stock for a long-time to come.
Q. Cody, any advice on Traditional IRA’s vs Roth IRA’s?
A. I don’t have any specific advice in regards to which government-welfare program has better nuances for people’s so-called “retirement” money. How much would the tax revenues in this country rise if we simply charged businesses and people the tax rate we actually say we tax them? I digress though. My main advice is to make sure you trust whoever is handling any part of your portfolio and if you trust the Roth guy more than the Traditional IRA guy, I’d move to that. And be as patient and long-term with that money in the IRA no matter what kind it is.
Q. Hi Cody, thanks on DDD. It is volatile, but I kept on buying tranches in weakness from $38 down to $32 and now I’m well in the black. Despite today’s drop, why do you think the stock is so volatile? Is it simply down to the fact that it is such a revolutionary technology that many investors (and others) do not yet fully understand?
A. DDD and FIO are alike in their volatility and the reasons for it. They both are very expensive on any kind of an earnings or a sales multiple and so the price can contract 20-30% and they still are “expensive”. You’re paying a big premium for the valuations for these stocks because they have so much growth potential over the next 3-5 years, and the market won’t always be willing to pay as much of a premium in downturns and/or for whatever reason at various times.
Q. Thanks for your comments on DDD & FIO. Going into earnings how do you feel about your positions that have corrected DDD, FIO, AAPL, AMZN, FFIV, and BIDU? Is the bar set low for them or still high?
A. I don’t have much insight into what the market’s are truly expecting from these stocks this earnings season just yet, as we need more reports to gauge. My short answers to each stock you listed: DDD – 60% chance the report is better than expected *FIO 80% chance the report is better than expected *AAPL 70% chance the report is better than expected *AMZN 60% chance the report is better than expected *FFIV 60% chance the report is better than expected *BIDU 70% chance the report is better than expected.
Q. Cody: what should be our current strategy for FIO? Violin Memory has a IPO lined up to file. Insiders are selling again.
A. I trimmed down some FIO calls after its huge pop last quarter and I’ve got some nice gains across the board with the positions of FIO common and calls that I have left and I still think that the company’s scrambling to meet the demand of its customers like Facebook and Apple as they build out data centers using FIO technology. Violin’s IPO might very well cause a pop of hype in FIO as much as it might cause a drop of panic.
Q. Were you able to get the new iphone? Thoughts? iMaps used yet? Interested in any LNN today?
A. I ordered the iPhone 5 in white yesterday from Verizon. Will be here first week of November. I think the media cares more about the maps issue than Apple’s customers. I am up pretty big on LNN and it’s a fair-sized position, so I’m sitting tight on LNN for now, but if you wanted to build it up, I’d sure look at doing a tranche buy today while it’s down.
Q. What impact do you think the mini iPad will have on Apple stock?
A. Unless the new iPad mini or whatever Apple showcases next absolutely blows people’s mind the way the original iPhone did that the stock might sell off that day and perhaps a for a few days after too. Feet to fire, I’d expect a run up in the stock into the event and then a sell-the-news afterward.
Q. Hi Cody, AONE is going up I got in at 0.051, is your strategy to wait a certain number of days or to sell tranches at certain price levels?
A. Nice timing on the entry to the AONE bankruptcy trade. I’ll be flexible about trimming it and/or exiting it entirely. If it drops dramatically, I might just walk away from it with a loss. If it continues to rally, I’d probably look to trim some near 10 cents. Either way, I will sell all of it within the next couple weeks.
Q: Hi Cody, Isn’t this AONE bankruptcy type of trade usually executed once the company has its main listing delisted and is trading on the pink sheets? Best regards.
A: There’s no clear process to the way a stock trades or where when a company files bankruptcy, though most are similar and end up on the pink sheets soon after the declaration. My system is to try to buy the stock the first day it declares bankruptcy and maybe scale into more the next couple days regardless of the exchange its trading on.
Q. I actually started accumulating AMZN and did buy LNN today in the 60’s.
A. I am kicking myself for not having pulled the trigger on some AMZN calls while it was down, but patience is a virtue. Nice job on LNN (I think).
I think it is. 🙂
Q. At what point would you buy AMZN Calls and how far out? Buying Jan 14 APPL calls has worked well for me. Thinking same for AMZN.
A. The problem with Amazon and a expiration date only 90 days out is that you’re probably going to need a broader market and an Amazon-specific rally by that time. And that’s only 65 trading days by the way. I do think Amazon’s platform strategy is going to work out well for shareholders over the next three to five years and that Amazon could even be a multi-hundred-billion-dollar company when all is said and done. I don’t know if the market will rally this stock over the next 90 days though. So I’m sticking with AMZN common for now.
Q. Good Afternoon Cody! I know your not a fan of Sprint and I only have a couple of minutes to jump on write a question and head out of the house before the wife locates me…hahahah…..At this time I am currently a stockholder with sprint. I bought them 2.20 and 3.33 last year in September at a extremely risky time at that point. Myself and the boys (the guys I work at started to lose our nerve and sold at $5.00. The plan was to hold onto them until 7 or more but with the election and other unstable situations going on we pulled the panic button 2 weeks ago. Just recently softbank has a deal with bank to buy approx 70percent of Sprint. This deal can take up to 6 months and there is fine print behind all these deals. I been keeping up with the chatter and the chatter I’m hearing is that sprint stock has a cap on the deal until its made. Can you enlighten me and explain how a deal like this comes together? Also can you also throw some light on the issue if I should buy back in at the current rate? I sold at $5 and is approx 5.73 ? Thanks for your time I appreciate any information that you can give on this type of situation. Thanks again.
A. Congrats on catching a double in S on the way up. Okay, several answers for you. A deal like this comes around as Dan Hesse, the CEO and the board of Sprint have been hustling to raise capital to try to compete better with AT&T and Verizon who have access to 10x more capital than Sprint did. Softbank has made some good money buying struggling wireless companies and turning them around with investment in technology and they think Spring affords them that opportunity here. While the deal is being finalized over the next six months, the stock will like likely bounce near these $5.70 levels. The biggest problem for minority shareholders going forward is the big convertible issuance that Sprint is going as part of this deal with Softbank. Softbank can technically short the hell out of this stock at these levels to hedge their equity bet but still keep huge upside if the stock can actually run more from the levels Softbank is buying in at. That can weigh on the stock for years to come — see Alcatel’s and JDSU’s convertibles from years past for more on that. I have no interest in risking my capital on Sprint here with that overhang but that has nothing to do with where you sold it at and the fact it’s up since then. As I always tell you guys, it doesn’t matter where the stock came from, it depends on where you think it’s heading.
Q. Hi Cody, wondering what you think about RIMM as a small position. I feel like they may have a nice little niche in third place. The company has been receiving really bad press but they seem to have been able to grow their user base despite the two 800 lbs gorillas in the room.
A. I just can’t see how RIMM survives over the next three years. I said it was doomed when it was over $100 and I guess I still feel that way. It might not make for a bad trade down here right now, but I wouldn’t consider it a viable long-term investment. Microsoft will likely be a distant third in the smartphone business and RIMM will end up being bought for change by HP or Dell or somebody who then ends up taking a write-off for the purchase three years later. Best guess anyway.
Thanks for the advice…I’ve been learning lots on your site. You have made me a much more aware investor. Thank you.
Q. Cody, any insights on gold? Thanks.
A. I think there’s much more risk to the downside in Gold than there is reward potential to the upside. I want to short it when it finally cracks, but the fundamentals and sentiment aren’t quite right for me there quite yet, per my earlier discussion about trying to catch a top.
Q. MS reports tomorrow morning. Do you think that the kicking the can down the road scenario will continue to hide the underlying issues and hence an ER that will be ok (like JPM’s recent ER was ok instead of horse manure)?
A. Yes, I think it’ll take a miracle to make these banks like MS and JPM finally crack. Maybe my disgust with these shorts is a contrarian indicator though.
Q. What do you think about shorting Treasuries such as with TBT? Thanks again.
A. Same with shorting Treasuries as I was saying with IBM and gold earlier. I want to see them crack first.
Q. Cody, do you like fire here?
A. Down 15% on the day because its two “competitors” blew up their quarterly reports sure piques my interest in FIRE today. If I were being more aggressive, I’d consider doing a first tranche buy on either it or some calls dated at least six months out. But that chart is ugly now and the weakness can feed for a while.
Okay folks, that’s a wrap. Go play http://ThatMattered.com and see if you can win a free month of TradingWithCody. You’ll learn a LOT about how to trade and invest successfully by playing the game too.
