Subscribers agree: It’s panicky action

Here’s the transcript to this week’s Live Q&A Chat. I’ll be around tomorrow if the markets get crushed again.

Q. Good morning Cody, how do you view the year end? There is a lot of negative headlines around and our tech stocks being beaten to death.

A. In August, I wrote “Feet-to-fire (F2F) guess (“feet on fire,” as you put it, is what I’d call it when the markets have crashed and I’m hustling to nibble call options and buy more stocks! LOL) for the markets for the next 1-2 months: Markets go up another 3% from here, fall 5-7% in a mini-crash, then trade sideways into year-end.” That prediction turned out pretty close so far, though with this morning’s whoosh down in the stock markets, the Nasdaq will be almost a full 10% from the highs it made in September. I probably would stick with the end of that prior year-end prediction and expect that stocks will trade in range near the levels they’re trading at this week into year-end.

Q. Stupid question. What is the difference between investing and gambling? When I am buying VZ stock, I have the feeling of an Investor, when buying cryptos, feel like a Gambler.

A. Big question and one that I will take some time and a bunch more words to answer than in this chat forum. I’ll do a column called, The Difference Between Investing and Gambling.

Q. Where will FB and AMZN be in six months?

A. There are times I’d be much more assertive and tell you “That stock is likely to go HERE” but at this moment in time, with the markets down 10% or more in a straight line and the futures down 2 or 3% this morning alone — along with all The Great Trade War of the 21st Century and tariff potential and interest rates continuing higher…well, it’s tough to give you a six month guess. But why not, here goes. In six months, my feet to fire guess for AMZN would be that it’s at $1700 and that FB would be at $130. Just guesses and six months time frame isn’t something I’m trying to game right now.

Q. I remember Cisco in 2001 and 2002 and it just sat there for years. Is the potential for that to happen to AMZN and FB and other names now? Is FAANG broken for ten years?

A. When Cisco hit $80 in the year 2000, it had a $500 billion market cap. It was going to need to double revenues every year for the next five years if it were going to grow into and justify that half a trillion dollar market cap. That kind of valuation is exactly what I laid out for TLRY yesterday. AMZN and FAANG don’t have those kind of wacky valuation metrics like CSCO did in 2000 and TLRY and CGC and other pot stocks do right now. I would think that there’s better odds that TLRY and CGC are dead for years than AMZN FAANG. Heck, FB is trading at 16x next year’s earnings estimates. So the answer is no, I don’t think FAANG will be dead for the next ten years.

Q. Cody – a year from now are we looking at this moment as a good time to have bought stocks like Apple and Amazon or as a signal that a recession was coming?

A. Nobody can answer that question for sure until this time next year, but it doesn’t have to be either/or. I do think that AAPL at $178 and AMZN at $1435 are very good entry points, even if there’s going to be a recession. Doesn’t mean that these levels are the bottom for those stocks, but from a long-term, three to ten or longer year time horizon, I would think these are good prices to buy not sell.

Q. When I look at our stocks during this year, most of them had huge moves (down or up) after the earnings. What about buying calls together with puts for the concrete stock before earnings date? It might be a smart trade and the hedge too.

A. I’ve seen a lot of so-called smart money traders waste so much performance on buying calls and puts and trying to game earnings reports volatility. The problem is that anybody else can see what you see about earnings reports volatility and the markets price that into the cost of the options. Certainly there are times that buying calls and puts on a stock reporting earnings does pay off (when the move is really huge after earnings) but trying to get an edge and a hedge out of buying calls and puts before earnings reports as a set strategy over many years is not possible, IMHO.

Q. You have mentioned hedges via puts in indices – do not recall if you have mentioned how much hedging you have chosen to buy – a small say 10% for a trade or something more meaningful?

A. When I buy calls and puts I do so with just a tiny bit of capital. I don’t have 10% of my portfolio in those put hedges right now. I don’t disclose exactly what % because everybody’s risk/reward scenario is different than mine.

Q. @cody There has been a lot of talk about NVDA management not giving a straight story for their predictions, i.e. it was not a case of the Turing chip not quite being ready and the crypto crash being stronger than expected. Do we give them a second chance?

A. “A second chance”? I mean, the company has grown revenues much faster than most analysts thought possible for the last three years and the stock has gone from $30 to $270 and even right now is still up $100 from where we bought it at $30. I don’t even know what you mean by should we give NVDA management a second chance.

Q. Should we wait to nibble on Amazon? Google?

A. I do think that GOOG at $1000 and AMZN at $1435 or whatever it is this moment are very good entry points, even if there’s going to be a recession. Doesn’t mean that these levels are the bottom for those stocks, but from a long-term, three to ten or longer year time horizon, I would think these are good prices to buy not sell.

Q. Just a moral thought. When we own the stock, we are de facto part of the company and agree with their management moves. I am starting to hate more and more FB and being part of it, when I look what it is doing with my kids, manipulating them, stealing their time and not talking even about their privacy…

A. That’s certainly a valid point. I personally don’t like to invest in companies that make weapons or that depend of government largesse for their business model. That said, sometimes it’s impossible to avoid owning companies that you don’t completely agree with. I’m not a big fan of Google’s approach to the world, but they have been a good investment. Only you can make your moral choices about where to invest.

Q. Cody in this panic selling is the money flowing to fixed assets?

A. Some of the money is going up in smoke in this panicky selling. Some of it is going to cash — most of it is going to cash.

Q. Cody are you buying anything in this panic?

A. Not yet this morning, but I did nibble some stocks yesterday and sold some puts. I’m not interested in bravely trying to pick the exact level or time at which these stocks put in their bottoms. But looking out over the next 3-5 years, I think there’s some good buying opportunities here. Not nearly as good as the opportunities were back in 2010-2012 and that’s reflected in my cautious approach here.

Q. Cody, anything wrong with AXGN? Thanks. I think we are generally seeing panic now!

A. The fact is, as I said at the time, AXGN was wildly overvalued when it was in the $50s, trading at like 30x revenues. I still think AXGN is executing very well and I am planning to just hold onto our remaining shares. I’ve trimmed quite a bit of AXGN over the years since we bought it as $5. I think the stock is probably being slammed mostly because the broader market is doing so harsh and all high-beta high-growth stocks like this are being hit hard.