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Oil collapsing again today. Several Scutifiers like think that it is telling us recession is coming. Others say its irrelevant. Mainstream media tells us cheap gas means more consumer spend. Others say that’s nonsense. I ask what I always do — is this kind of analysis and trying to game such economic outcomes a sustainable means of growing your money and minimizing risk? As for stocks – Trim when stocks are at all-time highs. Buy panics. We ain’t in panic territory right now.
They call it risk/reward when you put your money to work because there’s inherent potential for loss when you “own” any asset, currency, loan, business or whatever. Oil and energy investors who were cocksure about fracking, drilling, exploring, refining and all things energy-related are now rattled and panicking as oil nears a full 30% pullback in price per barrel from June’s highs. Do any Tesla investors think their company is going to grow as fast with consumers paying $2.00 per gallon instead of $4.00 per gallon on average over the next five years?
Taking this line of thinking out further, are you ready for a 30% drop in the stock market? What about if we are approaching a new unforeseen Black Swan event that crashes a sector of the financial system that everybody thought was safe? And what about if that happens and THEN everybody gets scared about paying too much of a premium for “risk” assets like stocks and we get another quick 10-20% drop from there?
Look, I’m certainly not saying that’s about to happen over the next three months or even in the next year or two. But by definition, nobody’s going to see the next Black Swan event coming. We all know that “unforeseen” crises and crashes and it’s things like a crashing oil price revealing some sort of interconnected leverage in the financial system that catalyzes such events.
I’ve been pretty aggressively long for the entire time I quit my job as a TV anchor and started investing and trading again. I’ve been very leveraged to my predictions of “The Biggest Stock Market Bubble In History” as I’ve bet my money, my energy and my career on it. I’m going to reduce my net exposure to tech right now and continue to raise more cash while the markets are hitting new all-time highs once again as they did on Monday.
So, with that in mind, I’m letting go of the following stocks from my portfolio for now.
1. Amazon – Jeff Bezos is a genius and he’s probably going to turn on a huge profit faucet for shareholders someday in a few more years. But the continual focus on long-term markets like tablets, smartphones and streaming content, is looking like it’s going to cost more and take longer to succeed in than he expects. There’s little “cushion of safety” in the high topline growth with no margins and likely accelerating costs ahead. We bought this stock years ago lower and we’ve trimmed it higher, but that’s not the point. In the broader context of deleveraging our portfolio and reducing risk while times are “great”, it’s time to let Amazon go for now.
2. Invensense – I’m so disappointed in myself for the loss in Invensense that frankly, I’m not sure I can analyze it objectively for now. I feel like management there could have handled and communicated their inventory overbuild and lower margins much better than they did. Invensense has likely got huge growth ahead of it — if it can figure out how to build its wares to meet demand and continue to innovate along the way. I’m worried that management is in over their head despite being so well positioned in such a huge growth industry of motion sensing chips.
3. IXYS – Sort of like Invensense above, but more of a turnaround play than a pure growth play, I just don’t have enough faith in management here to keep my position in a time of trying to reduce my risk. Unlike with Invensense, we got lucky with IXYS’s recent strong earnings report, giving us a chance to remove this position with a profit.
4. GSVC – This a short position that’s a remainder of a very profitable put position trade that we put on as this stock was hyped up and bubbled up into $TWTR’s IPO because the company owns some TWTR. Time to move on and look for the next opportunity.
I’ve reduced the number of my long positions dramatically from when I was most aggressively betting on the coming (and now current) stock market bubble and I’ve obviously got more cash on the sidelines now than I did back then. This will give me the opportunity to be more flexible and opportunistic in buying and trading into and during next year.
Steady as she goes overall, just practicing exactly what I preach about selling when I can, not when I have to.