I expect to get up to about 15-20 total …
I expect to get up to about 15-20 total positions in this portfolio with about 2/3 of the picks longs and 1/3 shorts by the time I’m done building in this set up. That 2/3 longs vs 1/3 short set up is in large part a function of my overall bullishness about the stock markets and the corporate economy they represent as I look out over the next couple years. I’ve done a good bit of buying at and around these levels and while there are still a handful of stocks that I expect to scale into, I don’t have to do it all right now in a rush at these levels. Time is my friend, and I can sit on the cash and it doesn’t hurt me at all. Here’s some recent analysis I wrote about how we should be psychologically prepared for what’s next in these markets:
When I was about five years old, my brother, older than me by three years, and a bunch of his friends were hitting this (what seemed at the time) huge dirt ramp, launching their BMX bikes into the air as they’d come down the hill on this dirt motorcycle track in the woods by our house.
Thrilled at what they were up to, I jumped on my own BMX and hit the track pedaling as hard as I could down hill. The speed and ease at which I was hurtling forward was exhilarating and I hit the dirt ramp to the cheers of the older neighborhood kids who were shocked at this little pre-schooler’s fortitude, daring and guts. I had total control of the bike as I hit the dirt ramp and took off like a rocket ship into the air.
When I was about 30% through my arch, I realized that I had no idea whether I needed to back pedal and break or whether I should keep pedaling as the wheels were spinning in mid-air or what I was supposed to do when I hit the ground at this speed. At about my 6’ apex, my instincts kicked in and told me to try to slow the bike down, so I stomped hard on the pedals to try to brake. Yes, in mid air.
So by the time the tires hit the ground, instead of them rolling forward, the back tire was braked and the bike turned underneath me. My knees flew forward, hitting the handlebars as I went over them, turning me upside. I flipped into the air, hitting the pine needle and rock covered ground hard on my back. That day I learned to take smaller leaps, to test things out before going full blast into something, and to make sure I stay in control — even when I take a huge daring leap today.
The reason I tell that story is because it sure rings true to these markets, the revolutions we’ve been betting on and how each of us should be positioning our portfolios right now.
A couple years ago, we saw the big kids like Apple and Google flying around in the app industry and decided we wanted to go for that ride too. So, as you dear subscribers all know, we jumped on our Riverbed/Ciena/Cypress/etc. bike and hit the path as hard and as fast and as aggressively as we could go. And the speed and ease at which we were hurtling forward was exhilarating and the people at work or at the club or at the gym who know you were betting on these revolutions are now shocked at how well they worked out and are cheering us all on, emboldening us even further.
With doubles and triples in some of these revolution stocks we’ve been picking for themodel portfolio, we’re probably somewhere about 30% into the eventual arch of these stocks. And now we don’t want to look around and wonder whether we’re supposed to slam on the breaks or keep pedaling. No, because we’ve already been taking an approach to this boom that’s been under control despite being so aggressive and because we’ve been here before, we know that the right thing to do as we’re flying like this is to know that we keep our feet steady on the pedals.
That is, it’s important that we don’t get over confident or overly aggressive in any of our bets or positions even as the stock prices continue to seemingly confirm our strategies and analysis. And if, in the near-term, the markets get back in the panicky pull-back mode they were in last week and the week before then it’ll be important to know that you are prepared for that and will either ignore that noise and fear or that you’re even prepared to scale into it. But no matter what happens, we won’t be panicking or out of control and we’ll keep our feet easy on the pedals.
The markets have now put a bit of a rally from there opening lows after the tragic earthquakes and tsunamis in Japan. Now we’re about back to where we were at yesterday’s close. Let’s keep our feet easy on the pedals just like we said we would.