The weakness in the momentum highflying stocks like Tesla, Zillow, and DDD remains noteworthy. I’m growing increasingly bearish about the near-term, but not necessarily changing anything in the portfolio.
I am however going to trim down a bit of our biggest position, Facebook, just to lock in some more profits.
I’m also going to buy puts in some crazy bubblicious stocks like the currently ongoing and crazily spiking $PLUG and $BLDP, which are fuel cell related stocks that are up 1000%s in the last year and have gone parabolic in the last few weeks and days. By buying puts, I’m trying to capture some actual profits on this, but I also know that if the bubble keeps going crazy in the near-term, I’ll lose all of my capital on the puts.
I’m buying $PLUG puts that expire in April or later and have strike prices from $12-15. And I’m buying a tiny bit of some $BLDP puts that expire out in May with $7 strikes. These are VERY RISKY OPTION trades. Don’t even mess with this if you don’t feel absolutely confident about what you’re doing and unless you’re willing to lose 100% of the capital you put into this trade.
It was late 1999, and I had just finished modeling out an incredibly complex model of a Free Space Optical high-speed Internet access business for an incubator that itself would run out of money within another year. An incubator is a company that helps fund and develop other companies, usually in exchange for equity, and I was working for an incubator in NYC after having failed to get my first novel published.
The boss of the incubator had decided that Free Space Optics, which is basically fiber optic high speed technology that’s beamed over the air from building top to building top, was a huge opportunity, so I’d spent the last few months helping design and modeling out the financials for an FSO network in NYC.
I sat down at a big, long glass conference table in our penthouse office in the meatpacking district in downtown NYC, and after showing up thirty minutes late, in walked our Nortel sales representative along with his regional boss and a couple underlings.
“What do you need from us?” was how the sales representative started the discussion after we’d all made our introductions and sat down. I thought it was a bad way to open a sales pitch, but then I almost fell out of my chair when his boss then said, “Look, we’ve got more demand and orders and customers than we know what to do with right now, so this pitch of yours better be good.”
Our chairman described the FSO network for NYC that he envisioned building using the latest Nortel FSO equipment. I explained our detailed financial model that I’d built, and we talked about our first potential order from Nortel, which would be nearly $10 million in equipment to get the network in NYC partly built. The Nortel guys basically laughed in our face and soon left for another meeting with another customer of theirs that probably had a bigger order to place, as we never did get that equipment from Nortel ordered.
I walked out of that meeting with the head of finance for the incubator I was working at, and we went to his desk and before we could finish our conversation, he had pulled up his personal stock portfolio on the Internet and was showing me how much money he’d made on all his technology investments, including Nortel, over the last year. I asked him if he realized how much of Nortel’s revenues were coming from them extending “vendor financing” to customers like we’d just asked for. He brushed off the question and continued talking about all those profits he had in his portfolio and all the money he was going to make. Nortel was at $80 a share at the time, and its chart was straight up in a way that all the chartists love to see.
I’d recently started a website called Teleconomist and I wrote a scathingly bearish article on it that eventually got me a regular gig at TheStreet.com that was all about how bubbled up telecom and tech stocks in particular were.
Last week I wrote about how “Fundamentals don’t matter, because it’s already a bubble,” and I want to be clear that I’m not saying that you shouldn’t care about fundamentals since we are in a bubble, but simply that you need to be on your toes for when this bubble finally starts to pop.
Same can be said of many ridiculous sectors. Take a look at a one year chart of $PHOT $MJNA and any other crappy marijuana stock and tell me we’re not in a bubble. But again, it doesn’t mean it’ll pop tomorrow.
I hope you are selling the heck out of every single share of that hyped-up speculative stocks like the aforementioned fuel-cell and marijuana hyped-up bubble stocks and others like the $HYSR penny stock I’ve lately seen hyped up on Scutify.com while you can. Most all of these hyped-up penny stocks will likely be back below their all-time lows in less than a year. And for those of you who are complacent about your own big ol’ technology stocks like Google, Priceline, Facebook, Tesla and the rest of the mega-cap tech stocks, you should also be aware that Nortel from all the way from $80, when it had over a $100 billion market cap, to less than a dollar before eventually delisting.
Don’t panic yet. But be aware of the bubble all around you.