Here’s the transcript from Friday’s Live Q&A Chat.
Q. Hi Cody. It’s amazing how my portfolio is close to its highs from February. I’ve sold down a bunch of longs and am sitting on about 30% cash. Now, though, I feel like I’m missing out on the daily rallies. Do you recommend putting cash back to work? Which names specifically (TSM, DOCU, others?)? Or perhaps it’s just that time to sit on the cash and wait to see what happens? Truth be told, I have FOMO, which I suspect is a bearish sign, possibly.
A. I think you answered your own question there. You know what I’ve been saying — I’d rather raise cash from both longs and shorts than put it to work at this moment. Fear of missing out is perhaps the worst reason ever to buy stocks.
Q. PS Thank you for your insights along the way. It saved my portfolio.
A. Hey, rock on! Truth be told, I can’t imagine there are any other newsletters in existence that has delivered the way Trading With Cody has this year and last…and the last ten years since we launched for that matter. Tell your friends.
Q. If we are contrarian shouldn’t we have been buying, because everybody is saying we need to retest the lows???
A. I was warning of Coronavirus Crisis while aggressively trimming and selling plus buying puts and increasing short hedges in February when I was shocked at the lack of concern about Coronavirus Crisis. Then I started buying pretty aggressively and covering up our shorts and rolling down our hedges when stocks were crashed in mid to late March. Right now, we are somewhere in the middle of those two extremes and I just don’t like the risk/reward set up of trying to game a big move higher or a big move lower here. Things might grind for a long time. That might be the most contrarian expectation out there, because I know lots of people that are aggressively trading on the long side, and few who are outright short right now even when they are “bearish.”
Q. Cody, If, hypothetically, a COVID-19 vaccine isn’t developed for 18-24 months, would you then expect the economy to return to mostly normal, and how far in advance do you think the market would price that in? Can I ask what handful of stocks you think have the best risk/reward over the next five years?
A. If the vaccine is NOT developed over the next 18-24 months, and/or if a real treatment is NOT rolled out over the next 18-24 months, then no, I do not expect any kind of a return to a normal economy. Even if they are developed, I’m not sure the economy will return what we considered “normal” any time soon. As for the second part of your question, it’s too hard to answer, as that is what I spend my days doing and I am not comfortable picking out only five stocks.
Q. Cody, thank you for sending out the new set of current positions and rankings. Without going back through all three to be exact, I believe there are only two sevens… Don’t remember if DocuSign was an 8 but everything else was less than 7. What should we read into that?
A. Yes, perhaps. It’s a reflection of my being uncomfortable with some of the valuations. And more specifically, me adjusting the risk/reward profile of each stock based on the increased risks of economic/financial/system crash vs what I thought the risks were of those things for the last ten years.
Q. I’m curious where Cody thinks ROKU goes from here.
A. What a rally, eh? From $56 to $135 in less than a month. And you know me, I think this thing is extended here and probably could grind around $100-$140 for a few weeks or months.
Q. Cody, and do you have an opinion on the Gilead vaccine progress for COVID-19? No placebo control group (which is not ideal, but is understandable), so we don’t know how much better it is than the baseline. But the preliminary results sound promising. Do you have a guess on when there might be an effective vaccine? I keep hearing 18 months as an estimate.
A. The leak about Gilead’s drug from last night, being that it’s a video of someone who says in the video that they don’t have enough data to draw any conclusions, seems like a terrible way to decide whether to buy or sell stocks today. Read this tweet for more on what’s fishy about that release: https://twitter.com/realtianzeng/status/1250979087079878656?s=12
Q. Cody- We’re seeing increasing evidence that China was, at the very least slow to alert the world of the virus and at the worst, responsible for the release of the virus from the Wuhan lab to inflict biological warfare on the US and world. We know through the trade conflict that tensions were already testy and I wonder how bad things could get if we have definitive evidence this was done deliberately or allowed to spread knowingly. Have you considered this scenario?
A. Look, I think China’s on the defensive in the world political stage and will be for years after the way it has handled this Coronavirus Crisis. I’d mentioned a couple weeks ago that the worst case scenario might be that the Chinese Communist Government starts a war (not necessarily with the US) to try to hold onto power. There are a lot more domestic and geopolitical risks out there right now than I think there has been perhaps in my lifetime.
Q. Hi Cody, with this being uncomfortable with valuation, don’t you have any stock that we could short to balance the longs? anything that strikes you as a short candidate?
A. I like to short crappy companies that are spiked up and with many stocks spiked up again, I’m actively looking for some new shorts.
Q. Cody, thoughts on PINS since it wasn’t in the Latest Positions write up?
A. Pinterest announced earlier this week that user growth is surging but that they were withdrawing their 2020 guidance. All companies that are dependent upon advertising are going to see their average selling prices down big this year and that includes PINS, GOOG, FB, SNAP, etc. User and time on network growth are going to help offset that for some of these companies. We bought PINS near its lows and are up nicely already in this position and I’m going to sit tight on this small-ish size for now.
Q. Since we might have a sideways market, any thoughts on covered calls on some of our longs?
A. Maybe on a small part of your positions, but don’t sell calls against all of your long position because then if the stock rallies short-term, you’ll lose your position.
Q. Hi Cody, sorry but don’t see AMD and CSCO in part 2 (The cloud revolution stocks)
A. Ah, crap, you’re right. Well, here’s a shocker: AMD and CSCO are each up big off their recent lows and we’ve got some nice gains in our AMD position that we just started building a few weeks ago. I’ve trimmed a little of each and am sitting tight.
Q. I realize you like all your names, but can you at least tell us some names to consider puts or shorts?
A. The premium on the puts are just too expensive for me to do much with them right now. If the puts were cheaper, I’d probably hedge some AMZN, NFLX and UBER among others. Instead I trimmed them.
Q. TSLA seems poised to really become the “Apple” of the next 10 years. And seems like Musk has big battery news coming. Thoughts? Too expensive here?
A. I pounded the table for weeks and months when TSLA was at $200ish. I reiterated my extreme TSLA bullishness throughout March when the stock crashed back from $900 to $360. It’s back to nearly $800 now and I sent out a Trade Alert recently that I was trimming some again. As always, I tell people when they ask about one of my favorite stocks that I own, if you don’t own enough or own it at all right now, then getting started with a first tranche is probably the best approach. BTW, I tend to think that the Tesla Battery Day might be a sell-the-news kind of event as there’s already a lot of hype around it.
Q. Is either DDOG or DT getting interesting around here?
A. Not really, both are good companies trading at 10x or more next year’s sales estimates. I’d be interested in them at about half that. There is risk that next year’s sales estimates are probably too high given the Coronavirus Crisis.
Ok folks, that’s a wrap.