Keeping track of one’s analysis, reasons for making trades and other records are key to long-term outperformance. It’s incredibly helpful to go back and look at your thoughts. If you haven’t been doing this, maybe start now. Whenever you make a trade, jot down a few notes to remind yourself why. Now that I think about it, one of the smartest things I ever did in my life was figure out how to get paid for keeping the track record of my analysis and trading ideas, haha.
What a year. Here are some highlights as written while they happened here on Trading With Cody, along with a little bit of updated commentary about each post:
“New York City was hopping last week. Ruidoso NM is hopping this week. The economy keeps chugging along, stocks keep going higher, what can possibly go wrong?
Well, my friend, one thing I know is that the best time to think about and plan for what can go wrong is when it feels like nothing can go wrong. Perhaps it’s because everybody who wants to buy has already bought. Whatever the reason, when things do go wrong, it happens fast. Stocks go up like an escalator (a really steep escalator in the case of TSLA, AAPL, SPCE and some of our other names) and go down like an elevator.
…So what’s the upshot then? We don’t have to be gun slingers chasing every up and down in the markets. I fully expect we have some stocks in our portfolios right now that will go up 10-fold or 100-fold, including some of the ones that have already gone up so much. Meaning that we probably should continue to stay the course while raising a little cash. Our portfolios are already off to the races this year and I don’t think the current trajectory is sustainable. And I do expect the markets to pull back 5-15% at least one or two times this year. But trying to game those short-term moves is a bad idea when the indicators are mostly neutral like they are right now.”
Cody real-time, December 29, 2020: I feel like this could be written today and apply once again — most of our stocks are up huge and I think we own some that could go up 10-fold or 100-fold from here. But I also think the current trajectory of most stocks are not sustainable. And I’d add that right now there are still so many crappy former penny stocks that are up huge that I think are ready to crash again. That was not the case back when I wrote the above paragraphs eleven months ago.
Why aren’t economists/traders worried about COVID-19?, Bitcoin’s a real thing, Gold’s next move and much more
“I had two main takeaways from the panel I hosted at the CFA Austin annual dinner where the topic was The US and China: When Two Global Economies Collide:
- Nobody on the panel seemed to be very concerned about COVID-19 and the potential longer-term market/economic ramifications that might come from it. Which makes me more concerned about those potential ramifications, of course — since it’s pretty clear that most of the market is not pricing in much concern yet. I’m not saying I think the coronavirus epidemic is going to unravel the Chinese economy and markets long-term, but it is certainly a bigger risk today than it was two months ago even as most asset prices and stocks have rallied in the meantime.
- Four out of four of the panelists laughed when I said that I trust bitcoin more than any currency from a Chinese Communist Government. They still think bitcoin is a joke and I’m pretty sure most of them haven’t done much work on it yet. I’m not saying bitcoin is the end-all be all, but as I explain below there are at least two extremely good reasons to stick with bitcoin [1) Everybody who lives in a country that’s not the US is always subjected to devaluation of their country’s fiat currency at some point and these people continue to use bitcoin as a means of avoiding their nation’s currency issues. Billions of people in Iraq, Venezuela, Mexico and even in China and so on all trust bitcoin more than their own country’s currency. I do too. 2). There’s been hundreds of billions of dollars invested to make bitcoin easier, safer, distributed, exchanged, traded, etc. That’s still going on and there’s no other crypto that has anywhere that kind of critical mass.] The last time people laughed at my analysis, it was when I presented TSLA as a long idea at a hedge fund conference in Vail and subsequently, Tesla went up 300% in six months. I’m not saying Bitcoin’s about to make that kind of a move anytime soon. But I’d suggest any serious economist and/or geopolitical analyst not totally dismiss bitcoin and crypto and blockchain…”
Cody real-time, December 29, 2020: Well, nobody knew just how bad The Coronavirus Crisis, or the stock markets, were about to get, starting the very next day after I wrote the above post in February as the markets over the next three weeks crashed faster and farther than ever before. Also, it turns out that Bitcoin did go up 300% but it took eleven months.
“…I know it’s hard to see past Coronavirus right now. Just like it was hard to see how stocks could ever pullback 20% when they were at their all-time highs, like just three weeks ago. Here’s what we should think about anytime we make a buy or sell decision, but especially right now. If everybody is scared about the real-life ramifications that they’ll be experiencing in coming weeks, and if everybody recognizes that earnings will be hit this year from Coronavirus, and if everybody thinks that the stock market the market is just about sure to go down (at least) another 10-15% and that the stocks can’t go up until after the Coronavirus has peaked and that won’t be for at least another quarter or two…
Then isn’t all of that exactly what the market is pricing in already? Look, I’m certainly not going to declare a bottom and cover all of my shorts (at least not yet). But I do think the risk/reward of scaling into more long exposure when you and everybody can’t imagine that stocks can go up in the next few weeks or months is probably pretty ideal, risk/reward-wise.
Again, I’d been predicting and preparing our portfolios some very bad Coronavirus scenarios since late January when the markets were at all-time highs and it was hard to picture that Coronavirus could impact things at all, much less the extreme manner in which has turned out to impact things (I did not expect the impact of Coronavirus to be this extreme). And it’s possible that the markets could outright crash another 30-50% or more if NYC and Seattle and LA and Chicago and the whole country goes on lock down for the next two months. So let’s not pretend otherwise and let’s make sure we’ve got some room to handle such a worst case scenario.
On the other hand, just as I’ve always done, I’ll remind you that we should prepare for the worst of times when things are great — and prepare for better times when things are horrible. The headlines, the markets, the economy — they are all in the horrible category right now. That doesn’t mean they can’t get more horrible-er, but I think that’s what most traders and investors right now, with the markets already down 20-2% from their recent highs, are preparing for.
…So here’s what I’m doing today. I’m covering about 20-30% of my larger index shorts, including SPY, DIA, QQQ. I’m nibbling on some of my favorite longs, including CSCO ($37.05), GOOG ($1,215.41), ROKU ($90.63), SNE ($57.79). And I’m putting in limit orders 3-5% below the market to buy a little bit across the board in most all of our longs.
The sun shall rise again as it did this morning in quite a glorious manner at my house:
Cody real-time, December 29, 2020: The markets got even worse over the next couple weeks as the fastest crash in history continued, so it was a good thing, as always, to leave ourselves some room and use tranches.
“It’s a strange new world we find ourselves in. Prayers for everybody affected by the Coronavirus, which at this point, is all of us. This is a human tragedy first. But my job…
Look, the US and the whole world are already in a major recession. Revenues at companies like Apple for the next 90 days could be down 20% or more versus what the analysts thought they might be. All those small businesses and large companies too that have too much debt and not enough cash but are seeing cash flow go negative as revenues disappear are in trouble. The government might help them. It’ll be tough for the Federal government programs to not get hijacked by the giant corporations as always, so small businesses are going to be adversely affected. That’s why the Russell 2000 is down another 10% today.
On the other hand, let’s flip the script and think about who’s going to benefit and how in the strange new world we find ourselves living in.
…So I am starting a position Zoom ZM ($161.04). As usual, I’ll start with about 1/3 of a full position and look to add more in coming days and weeks. Slack will also be a big beneficiary from this remote work environment. I’m adding to that position here too.
…The companies that enable remote work will also benefit from this remote work trend. That means Amazon Web Services, Google Cloud and Microsoft Azure. Not to mention that one of the biggest costs for running these cloud networks is energy, which is going to be much less expensive for the next couple quarters at least and those savings will be pure earnings. I’m nibbling on AMZN ($1,676.61) and GOOG ($1,114.91) and opening a new position in MSFT ($139.06).
…Here’s another thought — With all the closures at stadiums and other public places that won’t have people in them to advertise to, those advertising dollars are going to be spent online too. People are going to change their behavior and how they go about existing in public physical spaces, but they will not stop spending time on social networks. In fact, I would expect people to spend even more time than ever on social networks out of boredom if nothing else. I’m nibbling on FB ($154.47), TWTR ($26.78) and opening a new position in PINS ($13.31).
People staying at home and not going to concerts and sporting events is going to drive people to play more video games. The video game platform industry is a global duopoly — Sony Playstation and Microsoft XBox. I’m adding to SNE ($52.57) and as mentioned above, I’m buying MSFT too.
I also nibbled on some more AMD (39.01) (server chips will be in big demand to make these remote workers work). And of course, people will be spending more time at home streaming TV and movies instead of going to the movie theaters. I’m nibbling on more ROKU ($78.81) and NFLX ($315.25).
I’m not saying that these themes will magically keep these stocks from tanking with the broader market if the broader markets continue to crash here. So give yourself some room to add more, as usual. But these are some Revolutionary companies that I’d like to own anyway and that are actually likely to benefit from some of the Coronavirus Crisis and their stocks are being sold 30% or more off from their recent levels.
Be careful out there. Don’t draw a line in the sand. But just about the only way that many of these stocks that we’re buying here were ever going to be taken down to these levels was going to be from a Black Swan event. That’s what’s happening, isn’t it?”
Cody real-time, December 29, 2020: Do you remember the markets crashing and locking down 7% per day, for days on end? It was terrifying. It was so hard to buy more that day. But as is most often the case, that’s when we are rewarded the most. Every stock mentioned above is up huge from that day.
“We’re living through a crash. We might have just lived through a crash. But we might still be in the process of living through a crash. The markets hate confusion. The markets can’t discount future cash flows if nobody has any idea what future cash flows will look like post-Coronavirus Crisis time. We don’t even know at this point if there will be a post-Coronavirus Crisis time. The changes in our society from this Coronavirus Crisis seem huge right now. And it’s looking like it could be a long time before things return to normal, if they ever do.
…Is the market pricing in a full US economic shut down for two weeks? Or is it pricing in for a full shut down for two months? It’s certainly not pricing in a full shut down for the next two years (yet?). I’d guess we’re somewhere near pricing in a full shut down for the next two months after today’s rout.
…Here’s my strategy for today and the rest of this week.
I’m covering a little bit of shorts. Rolling down some puts, meaning that I’ll sell some, say, SPY puts for $40 or so that I bought for $3 or so a few weeks ago. Then I’ll take some of those proceeds and buy a few SPY puts dated out to the end of this week or next week at or just in-the-money for say $6 or so. Likewise, I continue to bid on some of my favorite names when the markets get slammed like they are again today, putting bids in below where I last bought them. I’m doing that across the board in most of our long positions, today including some TSLA, SQ, FB, QCOM, TWTR, etc. If/when the markets rally 5-10% like they have been off and on lately too I will re-short the indexes and I might trim one of our longs or two when they rally 10-20% off and on like they have been lately too. Be careful out there. Don’t try to nail the bottom and don’t get greedy trying to game the ups and downs here.”
Cody real-time, December 29, 2020: Again, the markets were in free fall and it was hard to believe that stocks could ever go up, much less go up HUGE in coming weeks or months. The flipside is true right now, as it’s hard to believe that stocks could ever go down, much less go down HUGE in coming weeks or months.
“It seems to me that the smart approach to the risk/reward for President Trump with regards to mask wearing, testing, and opening back up the economy would have been to do as quickly but as safely as possible. Wouldn’t it have been best to say, ‘Yes, open back up your state, city, business as quickly as possible, but please wear a mask, socially distance yourselves and let’s let industries/companies set their own safety standards but let’s set some nationwide safety standards.’
And to be clear, I’m not just worried about the risks of Covid-19 because I have a daughter who is already intubated and breathes with the assistance of oxygen, but because I’m a hedge fund manager and investment analyst, I’m also concerned about the ramifications of a national lapse of taking the risks of Covid-19 seriously to our economy and our investments.
…We’re already seeing an increase in cases in Texas and Florida and across the country and the coronavirus doesn’t care if we’re just eating at a restaurant, going to a protest, going to a political rally, going to a party, going to an airplane ride or whatever, it’s a risk and it’s real and because people aren’t wearing masks, whatever their reasons, we’re likely to have a resurgence of cases in this country. Maybe we’ll get through it and maybe, hopefully, I’m wrong about flagging the risks here of Covid-19 and the Coronavirus Crisis like I did back in February, the last time I wrote about how I thought people weren’t taking it seriously enough.
…But even if some of the bullish analysis about how profit margins might increase in coming years because of changes that have been driven by the Coronavirus Crisis is correct longer-term, I sure would be more excited about stocks, valuations and the potential for more big upside near-term/mid-term if I wasn’t so concerned about the Coronavirus Crisis getting flared up because so many people aren’t taking it seriously anymore. We can either take the risks of Covid-19 seriously now and all wear masks and be socially-distant now, or we’ll all be taking the risks of Covid-19 seriously and be wearing and socially-distancing ourselves a few weeks from now. I hope I’m wrong about that.
As for stocks, I’m not changing much here of course. I’m hard at work trying to find some good investments and new Revolutionary theme for us to get in front of, but frankly, it’s hard to find a good undiscovered stock that’s not through the roof already right now. There will be more pitches and I’ll be ready for them. Let’s continue to ride our longs for now. We’ve also had some of the stocks that we bought puts on get slammed lately and I continue to find more stocks that I’d rather short than I want to buy right now.
The non-Tesla electric vehicle stocks like NKLA, WKHS, PLUG and so many other stocks in other sectors too look like to me like they’re going to crash at some point, probably sooner rather than later. Be careful out there.”
Cody real-time, December 29, 2020: This is still so true and I don’t know why I seem to be the only one saying that we could have done and still could do this: “Open back up your state, city, business as quickly as possible, but please wear a mask, socially distance yourselves and let’s let industries/companies set their own safety standards but let’s set some nationwide safety standards.” As for stocks, I did end up finding some more “undiscovered stocks that were not through the roof already” as over the next few months we added quite a few stocks that we own now that have gone up huge, including JMIA, MP, SRAC, etc.
“…Many stocks have come down 20-30% off their recent highs and I am likely to start nibbling on (not to be confused with pecking away at) some of our stocks that we’ve owned forever, including SPOT and FB, in coming days and weeks. I’ve got my eyes on about three potential new names for the portfolio that I’m patiently finishing up work on. In the meantime, here’s a collection of bullish vs bearish arguments for the broader markets:
Possible bullish factors:
Maybe Covid trends will really improve and flu season won’t be bad either.
Maybe a real, actual proven vaccine hits sooner (say by year-end) than later (say by next summer).
Maybe the election is a landslide for one side or the other and the risk of a contested election goes away.
Maybe the Republicans and Democrats in power get a fiscal agreement gets done so more stimulus comes sooner rather than later (I actually expect this part won’t happen unless the stock markets drops another 10% before the end of October).
Fed pumps and creates even newer sillier free money monetary programs (what’s to stop the Fed from buying stock ETFs some day?).
Good outcome to the US-China trade and political tensions (Is there such a possibility?)
Possible bearish factors:
The markets decide that there could somehow be a meaningful corporate tax hike.
Election uncertainties, including the possibility that the Democrats and/or the Republicans will not concede.
Small business depression as millions of small businesses remain closed and/or are closed forever because of The Coronavirus Crisis.
Covid second wave hits badly into and throughout this winter.
Fiscal free money spigot from the Republicans and Democrat Regime might have run out (though I don’t think the Fed’s monetary is anywhere near running out, as noted in the possible bullish factors above).
Ugly bar charts and dislocating stocks can portend a meaningful top.
Seasonality isn’t favorable for the next few weeks.
Bad outcome to the US-China trade and political tensions (What would define an anything other than a bad outcome? If trade with China booms, is that actually good?)”
Cody real-time, December 29, 2020: Well, Covid trends certainly did not improve since September and instead a Covid second wave has hit badly into and throughout this winter. Thank goodness that we had a real, actual proven vaccine hit sooner, as in by year-end. The election wasn’t a landslide and Trump is still saying he won and we still don’t know if he’ll leave, I suppose. The Repubs and Dems finally got some stimulus, but it wasn’t sure wasn’t on the “sooner” side of the coin. Meanwhile, the Fed’s still pumping and and creating new programs to benefit giant corporations and the stock markets and real estate. China-US trade tensions still seem sorta high, but not really and Biden ain’t going to be rocking any boats.
“Well, as you might have noted late last week as the market’s declines got deeper and the Nasdaq fell well into correction territory of more than 10% decline from its highs just [double checks calendar] three weeks ago, I no longer outright hate the stock market and most of the stock prices in it. Many of the names we’d trimmed and have been so cautious about have come down 15% or more and are looking more attractive on a risk/reward basis now. Some of the names I’d mentioned on Friday (“SPLK, AMZN, GOOG, ROKU, maybe NVDA”) as starting to look attractive are up pretty big now from their lows. AMZN and ROKU especially and I wouldn’t chase those two right now, but I am finally starting to see valuations that don’t make me sick to my stomach with vertigo.
…If you felt like you didn’t own enough of some of our stocks when they were blasting to new highs a few weeks ago, now’s a good time to start nibbling on some small tranches. If the markets have another day that’s down 2-3% this week, you might want to consider nibbling some call options on some of the names too. Slowly though and no rush. The markets are not out of the woods although I have obviously gotten a little less cautious about stocks now and I don’t outright hate the market as I did a few weeks ago at the highs.
I’m also covering some more of the short index hedges and other small hedges that I’ve got on the sheets, again in no rush…”
Cody real-time, December 29, 2020: I’d forgotten how recently the markets had some serious pullbacks.
“First off, I pray and hope the President and anybody else with the Coronavirus recovers fully with no suffering. How does this affect our positioning though? It doesn’t. I’ve long explained that I don’t think who the president is matters as much to the country’s fundamentals or the stock market or the economy as most people do.
The markets are down big today, but that only brings them back to where they were, like, two days ago. The markets are still up from the lows they put in early last week where I suggested buying stocks and most of our stocks are still up bigger than the markets from those levels. Which means I don’t think these pitches today are quite as compelling as they were at those recent lows.
I’d rather buy than sell this dip, but mostly let’s continue letting the sitting do our work for us. I’m covering a partial bit of some index shorts again, but not doing much and haven’t done any outright buying here.”
Cody real-time, December 29, 2020: Trump recovered quickly, the markets did too. Shoulda, coulda, woulda covered the shorts more aggressively that day.
“The Fed kept Boeing and the airlines and the cruise lines and dozens of other major industries afloat during the worst of the crisis by buying every dollar of debt these corporations wanted to sell. Hedge funds and giant banks front run this constantly too and have made small but guaranteed returns off this cycle. And they’ll do it again and create other programs to keep the game and the markets going whenever they have to. And because the US economy and system of government have always been the cleanest shirt in a dirty global laundry basket, the Fed and the US government can basically do whatever they want whenever they want. Nobody is against bailouts now. Even most libertarians would agree that when a government forces people to stay home and for businesses to shut down in the name of trying to control a pandemic that the government should take care these people that it’s temporarily forcing out of the economic system. But these programs never go away do they? And now a form of PPP, the vaunted Paycheck Protection Program, will always be here, right? After all, all programs from the Great Depression and from the 2008 Financial Crisis are still here.
So buy bitcoin? Yea, stick with bitcoin, but not just because the US financial system is dependent on free money, but also because the whole world is even worse about it. Bitcoin is probably the best positioned currency to some day replace the US dollar as the currency accepted around the world.
The US government is all in on keeping asset prices afloat and earnings juiced. Can it ever step off the pedal? Each politician, each lobbyist, each corporation is using the system to their own means thereby constantly making the system becomes bigger and bigger too. Since 2008, does anybody even pretend not to want bailouts or to be for fiscal conservatism or balanced budgets or the such? Nah.
…Back to the negatives, it possible that China’s now the cleanest shirt? Probably not, but its strong economic bounce out of the Coronavirus Crisis has not hurt its global economic standing as a destination for capital. Despite the recent Ant Financial IPO that got pulled by the Chinese Communist Government when Jack Ma apparently tried to publicly push for more power for the company’s business model.
And meanwhile, I keep telling you all that I don’t know why the world and the markets have gotten complacent about the transfer of Presidential power that’s supposed to happen in January. Trump isn’t indicating at all that he isn’t leaving. That’s not bullish in my mind and as the days go by and no indication of Trump planning to leave continues to be the theme, the markets are likely to start thinking about it again.
What do we know about the Coronavirus Crisis now? Things will get worse before they get better. The light can be seen at the end of the tunnel as the vaccine gets closer to distribution.
Look, no easy answers as ever. I pretty much plan to pretty much continue to pretty much focus on great companies at good valuations and managing the markets’ ebb and flow along the way as we always have.”
Cody real-time, December 29, 2020: Bitcoin’s been on fire and its become a near-term proxy for the amount of borrowing/printing that the government is doing. Balanced budgets? Hahaha. Not even in the best of times anymore. Not when borrowing money at generationally low rates can juice the markets and profits for giant corporations and giant banks. And why, oh why didn’t I short Alibaba BABA when I knew the government was starting to crack down on Jack Ma?
“…I figure a lot of stocks could pull back 20-30% and still be a bit overvalued. I figure if those stocks do pullback 20-30% at some point, the market will overshoot to the downside and take a lot of stocks down 40-60%.
Perhaps for a case in point, have you looked at SNOW? It’s down 25% from its high a couple weeks ago. ZM is down more than that from its highs. Lots of other stocks will trade similarly at some point in the coming days and weeks.
…A few do’s for you in a Bubbled Up Stock Market:
Do be cautious.
Do be careful.
Do lots of analysis and homework.
Do read books about how other Bubbled Up Stock Markets crashed.
Do continue to find the next Trillion Dollar Market places, like, say, The Space Revolution.
There will be a sunset on this Bubble-Blowing Bull Market some day and it probably won’t be quite as pretty as this one from outside my house this weekend:
Cody real-time, December 29, 2020: So many penny stocks and/or crappy, low margin business stocks and/or outright fraudulent company stocks are still up huge, though it looks to me from scrolling through the charts that many of them might have started to crack finally. Few of them should ever go up 10-20x in a month. A lot of good Revolutionary stocks are going to get hit for 30% or more this year, some for no good reason except they too went up too far too fast. Speaking of predictions, I’ll save those for tomorrow’s post.
Looking back at these articles, it’s clear that this was a wildly stressful year, even as the markets have masked so much of that stress. The amount of money that the Fed and all the other central banks around the world pumped through the system is astonishing. It seems clear in retrospect that during the Coronavirus Crisis that the central banks and governments around the world, especially those in the US, have juiced the economy/markets with trillions of dollars that it might be more than enough to create these Bubbled-Up asset prices that we see all around us.
It’s late, I’m going to lightly edit this and head home. Predictions for 2021 coming tomorrow.