A few housekeeping items and other notes to start.
I’m going to sell 1/3 of my QQQ call options that I’d bought into the teeth of the Brexit panic, locking in some profits but leaving 2/3 of the position on the sheets.
BenjaminGraham wrote: “Successful investing is about managing risk, not avoiding it.” That is simply of the best Tweet-sized nuggets of wisdom ever.
Crazy reversal in $LGF this morning after news of the $STRZA acquisition. LGF is a content-is-king kind of investment for us and they just added more leverage via more content via this acquisition. I’m not trying to game the near-term, and am just sitting tight.
I noticed Valeant has fallen into the teens again this morning. I’m still short some $VRX from this article “Trade Alert: Shorting Valeant VRX at $167/share”:
“I make a lot of mistakes and I’m not going to bet my ranch that biotech and Valeant in particular have topped. But I do think we’ve got a good opportunity to help hedge our broader long growth portfolio with some shorts and puts as the sector could very well be headed for trouble in coming months and years. I’ll continue to dig more on Valeant and its financials and prospects, but I want to go ahead and get started on a new short position in this name here around $167 per share and plan on adding to this short in coming days and weeks.”
Now onto today’s report.
You guys know I’m still mostly bullish, am net long and am not ready to declare an end to the Bubble Blowing Bull Market.
It’s always good to look back and see how our analysis from years past has played out and if our playbook remains in tact from that perspective. So I went back and pulled a few random links and quotes and reports that I’d written in 2010-2012.
In 2010, in a report I called “Three coming bubbles and how to play them,” we had to look past the noise to profit from the markets’ fear, using our playbook:
“So where are we in the cycle right now? Well, we’ve seen the economy stabilize after the most recent economic crisis and corresponding market crash for several quarters in a row now, right? Gross domestic product growth’s not exactly sizzling, but it isn’t exactly contracting badly either. Real estate’s not exactly great, but it’s also not exactly crashing like it was when the Fed and the government went bailout and started targeting trillions in new welfare programs for the homeowner class. The stock market’s been in rock-you-steady rally mode for many weeks and for many quarters since the Fed started its first round of huge quantitative easing (QE1) and the government went on its fourth major stimulus package of the last three years under both Administrations.
“And what is the Fed doing now and what impact will it have on the markets next year? Well, they’re juicing the money supply with another $600 billion in cash for the economy. We can debate whether it will have any impact on small business lending (it won’t) and whether it’s another form of bailouts for the same banks who have yet to be prosecuted for any crimes stemming from their role in the last round of bubbles and busts, but what’s been the consistent result of the Fed’s move to juice the money supply? Especially when the economy’s been fine and/or on the rise already? Assets bubbled. And that’s when the Fed was simply using artificially low interest rates to juice the money supply. We’re talking about as Brazil’s finance chief put it, ‘Throwing money from a helicopter.’ Helicopter Ben, indeed.
“So what should we do? Be prepared for another bubble, that’s what. Or several asset bubbles, to be exact.”
Stocks were much cheaper back then. I pointed this out as I was loading up on many different Revolution Investment stock picks in my portfolio, like here in 2010’s “Catching the next revolution”:
“I’ve been finding a lot of companies that are driving revolutions, and some that are along for the ride, that have potential for huge growth in coming years. What’s blown my mind during my work lately has been how inexpensive so many of these high-growth stocks are right now.”
Unfortunately, outside of Apple and a few other big-cap stocks, valuations are much higher across the board as prices have risen even faster than earnings have over the last five years. But that doesn’t mean we sell out. Here’s me keeping you focused on buying revolutionary companies when their prices are down, also from back in 2010 in “Real revolutions you can profit from”:
“While the world was focused on Greece and the 1,000-point, computer-driven market drops — and how to game those crises — the unstoppable revolutions being driven by innovation are still unfolding before your eyes.
“Think about these facts instead of letting the noise of unheard of market volatility and European government bailouts distract you from the mission of protecting and building your portfolio.
“The vast majority of corporate computers are running a version of Windows that’s at least two generations old. Tablet technologies and mobile apps are driving brand new markets for consumers — and the corporate world hasn’t even caught up to the app concept at all. Think of all the internal human resources, supply chain management, sales force automation, and other applications that corporations will be rolling out to their workers in coming years.”
Going back to the idea of having a playbook in place before getting started in the markets, our playbook continues to keep us steady and long the best revolutionary companies while sneaking in the occasional short positions — such as we’ve done with stocks like A123 and other alt-energy stocks when they were about to crash:
“Here’s another place I’m looking for a crash. Solar. Back in June I wrote up a detailed analysis of why I’m looking for solar to crash. The upshot is that the appetite for government subsidization of this industry is over and we’ve seen the top. I didn’t want to start shorting the names at that point because I was too bullish overall and the stocks in the sector were in rally mode.
Well it’s five months later and the solar stocks are up big now and starting to crack and I’m looking to start adding some shorts here. Two of the names I mentioned in that June 8 newsletter were Ener1 and A123 Systems . A123 reports after the close today and while that means it could go either way tomorrow, I’d be looking to start shorting this name either way. Perhaps some long-dated slightly in the money puts today, giving yourself at least a year out, say the January 2012 $10 or $12.50 puts.”
Don’t forget our repeated predictions of the App Revolution Bubble:
“Of all the revolutionary trends we can find to invest in, including the mind-blowing socioeconomic achievements we are witnessing for hundreds of millions of people who are becoming middle-class, there’s not a trend in the history of the world that has shown the growth and ultimate marketplace size as the whole App Revolution has.”
Currently, of course, I think we should be getting ready for a similar type of playbook for Artificial Intelligence, Virtual Reality, Wearables, Drones, Robotics and more.
Be vigilant, levelheaded and keep your emotions in check as we continue to navigate these strange new times and economies with our successful approach of Revolution Investing.
On a separate, but similar note, I found this article I wrote back in 2011 about the “EU Crisis” and it’s funny how much of it still applied just perfectly into Brexit. The article was called: Get Smart! about the EU Crisis and I wrote it back in 2011!
Good morning and welcome back to the hospital, where the ambulances rush around with their sirens at full blast whether there’s an emergency or not. Think about it. Talk about the little boy who cried crisis.
Let’s take a look at some of the headlines from the last couple weeks:
- Dow Sheds 200 Points Amid EU Plan Concerns
- Stocks Post Solid Gains as European Debt Fears Ease
- Dow Drops 199 as Germany Rejects New Rescue Plan
- Stocks Finish Mixed With Europe Holding Sway
And here are some sample headlines from the last few months:
- Futures Flatten as Investors Eye Europe (September 16, 2011)
- Futures Waver on Eurozone Fears (August 11, 2011)
Somebody explain to me how any of that is helpful to anybody? If you’d just ignored all that noise and bought the best tech stocks like Apple, Google and Sandisk when they get crushed by those headlines and the broad selling that ensues, then you’ve had a helluva a great year. And if you’d just ignored all that noise and stayed short the TBTF banks like Goldman, Wells Fargo and Bank of America or other companies that depend upon government largesse to make their business models work (for example, the LPS and A123 Systems shorts that I’ve harped on for more than a year now), then it didn’t matter whether the futures were up or down because of Greek debt bailout idea rumors in late June.
And that remains the playbook — buy the companies driving technological revolutions on weakness and short the worst welfare-dependent companies you can find on strength. And I’ll continue to constantly find more names to do both. In the meantime, don’t underestimate the upside potential in the aforementioned tech names and the downside risk in the aforementioned financials.
Okay, Cody back in real-time here.
Be vigilant, levelheaded and keep your emotions in check as we continue to navigate these strange new times and economies with our successful approach of Revolution Investing.
