Balancing Risks, Cash, Stocks And Analysis
Here’s the transcript from this week’s Trading With Cody Live Q&A chat.
Q. Cody, what is your argument against going 100% into cash when you see big downturns develop like 4Q 2018, Corona or this one? Is it just FOMO about missing the bottom and not finding a good entry point if the market puts in a huge reversal? In these times and now already for more than 3 months, even the best stocks (including your big positions) know just one direction: South (excluding short-lived rallies). So, why hold them once you see a 80/20 probability of a longer downturn?
A. First off, I’m not sure it’s 80/20 probability of a longer downturn. More to the point though, think about all the times I could have sold all of my AAPL, FB, GOOG, Bitcoin, NVDA, SEDG, and other names that went up 10-400x over the years and how hard it would have been to try to buy them back at the right time and to have paid all those taxes along the way by trying to game short-term moves with such big trades. Investing is hard. Trading is even harder. I try to have a little cake and eat it too by doing some trading and managing risks without being completely out of the market ever.
Q. Why not just go to cash or buy dividend stocks if we are gonna be hurting for 5 years?
A. I don’t know if the markets will hurt for the next five years. See my prior answer about trying to get in and out of stocks entirely and how hard that really would be and how expensive it would be taxwise.
You all notice these questions today wondering why I’m not selling all of my stocks entirely when I get worried about the markets and the outlook? Whereas all last year when I was trimming and being cautious and selling some of our positions like ZM and DOCU completely all the questions were about why would I ever sell or trim?
Q. Good morning Cody. What is your take on the oil & gas companies six to 12 months down the road?
A. Feet to fire, I’d think that oil and gas and most energy stocks will bounce around these levels and/or rally a little more from here over the next month to six months. Then, especially if the energy stocks have rallied a bunch, I’d think the top will start to be put in and it’ll be a long way down for a lot of small cap energy stocks and that the big cap energy stocks will probably struggle for a while after that too.
Q. Several months ago, you had mentioned small-cap growth would be a good sector to use as a hedge/short (for those inclined to do so). Does that still apply, or has the sector fallen so much already that a different sector might be better for hedging now?
A. Yes, I think small cap growth stocks are still a good place to hedge but you have to be careful about rip-your-face-off rallies if you do short some. Energy stocks are probably going to be the next good short, especially the small cap energy oil/gas stocks.
Q. What hedges do you use for individual stocks in the hedge fund? Once disaster has arrived, puts are very expensive and if you constantly buy them also in good times it eats a lot of performance.
A. I’ve mentioned before some of the hedges in the hedge fund, such as MAXR, TSAT, SATS, RIDE, VRM, etc. I wouldn’t recommend most people try to short very many individual stocks and I rarely do so in my personal account.
Q. Cody, Isn’t hedging with shorts very dangerous? It just adds risk instead of reducing.
A. Yes! That is why I keep warning people that most people and I myself hardly ever short any individual stocks. In the hedge fund, it is part of my job to “hedge” using shorts.
Q. Cody, did you trim any TSLA or any of your top 5 position? Thanks.
A. I’d said I trimmed pretty much across the board and indeed I did.
Q. You act surprised that China and CCP would not shame the invasion. Why?
A. I’m not surprised about it.
Q. Do you think it’s likely China will move on Taiwan before any resolution occurs in the Ukraine? No matter when it happens, it will cause major disruption in the markets. I think Xi would want to move while there is all this other chaos and he senses Western weakness. This could be devastating for semiconductor stocks in particular.
A. If China takes over Taiwan and TSM, it’ll be disastrous for much more than semiconductor stocks. Apple, Tesla, NVDA, AMD, QCOM, Microsoft, and the US defense forces are dependent upon chip supply from TSM.
Q. You mentioned the possible paradigm shift for the reversal of globalization. Which sectors or stocks do you think would benefit and which would suffer?
A. Way too early. Like, we’re still less than ten days into this new reality. Will probably be rough at first and then will be great for US and our companies and their profits and their stocks. Over years though.
Q. Have you seen the news about Ford splitting its EV production and ICE production into two different companies? Is it possible that Ford is trying to maneuver away from traditional dealerships toward a more Tesla like direct to buyer sales model for its new EV lines? Could this old company be a buy with this new move?
A. Ford promised some outrageous sales and profitability projections for 2026 — I think they will fail to get close to what they projected. If they do pull it off, the stock will be higher from here. I won’t be betting on them pulling it off though.
Q. Cody, if markets are headed further into risk off, perhaps for a prolonged period, especially at the speculative end, what is your outlook for Bitcoin and Ethereum?
A. I think a lot of greedy people are crowded into cryptos right now and if the global conflict wasn’t helping support cryptos here, they’d be falling too. Longer-term, both BTC and ETH should be fine and will probably be higher than here in five years. But along the way, it could get ugly.
Q. Good morning Cody Willard! Now that RKLB’s earnings are out, what did you think? Why didn’t it “pop” afterwards? I watched the successful launch going into earnings and what seemed to be a great backlog with substantial growth with a proven launcher. I’m Confused.
A. Stocks don’t go up because the company did some cool things like more successful launches. RKLB is not profitable and is valued at 15x next year’s sales estimates assuming the company’s revenues more than triple from this year’s sales estimates. Maybe it goes up from here, but maybe we get a chance to buy more lower over the next few months too, even if they continue to kick butt.
Q. Can you provide your take on the latest earnings releases of RKLB and BKSY and market outlook for the Space stocks? I thought that the market results this week seemed encouraging and that both companies look like they are on track to continue their growth plans. While they are not getting much love from the marketplace I am not seeing anything telling me to question my position. Should we be worried about the continued market meltdown? Also, what is the impact of Roscosmos pulling out of their rocket contracts with western countries and firms? Shouldn’t this event drive more customers and business into the RKLB orbit?
A. Yes, probably.
Q. Thoughts on the Russia space agency Roscosmos not supplying Russian made rocket engines to US? Is RKLB in position to fill the gap?
A. I wrote up a big update on space stocks last week. I do think Russian space crises are good for RKLB.
Q. Cody, can you elaborate a bit on the AAPL sale in the hedge fund? Yes, it’s trading at very high multiples. But, in this market environment, are there any stocks with better fortress balance sheets and therefore will they not be viewed as the ultimate safe haven?
A. In my personal account, I’ve owned AAPL since like 20 cents a share split-adjusted and I just will continue to hold on here. But I don’t think AAPL trading at 3x higher P/E multiples than ever before since I owned it while the rest of the market has been taken to the woodshed is “safe haven” at all. I think AAPL, like most tech stocks, could fall 10-30% in a bear market and AAPL has little upside potential over the next five years compared to many of my other investments.
Q. Has anything changed with UBER? Is the situation in Europe (high gas prices) affecting them and is the market is pricing it in?
A. I look out over five years from now and I think UBER is dominant in at least two businesses — taxis and food delivery. Short-term issues like Russia/Ukraine and higher gas prices do hurt the stock and the company for now. I’ll be more below $30 again.
Q. Looking to add to IONQ Should I nibble a little? That one looks like a good company.
A. If you don’t own much, maybe add some, but remember that this a company that barely has any revenue and those kind of stocks are hard to value and are very out of favor right now.
Q. Good Morning. Can you elaborate on your reason for getting out of SKLZ?
A. The company reported two terrible quarters and guided lower twice after we bought it. No bueno.
Q. Would it be possible to have a latest positions update every month? It would really help us and I think everyone here would agree.
A. I’ll try, I really will. Traveling for the next few weeks a lot though, but I’ll get at least one Latest Positions update out during March.
Q. When you get a chance could you please take a look at UPST, CRWD, SQ, NET, RBLX, AMAT, and SNOW?
A. I know them all and have owned some of them in the past. Most are good companies, but valuations are still too high for me right now.
Q. What price would you be interested in buying Snow?
A. Yes, it’s a great company. But it’s still too expensive for me. Maybe 30% lower from here.
Q. What do you think of PATH? It looks like the kind of stock you like with 80% margins, and 98% retention and most of the business is recurring
A. Lots of people wanting me to find us a new stock to buy. I’ll take a fresh look at PATH, but I’m probably not going to add many new positions just now.
Q. I would like to know, what are your thoughts about CFVI?
A. It’s going to merge with a second-tier social network. I’m avoiding it.
Rock on, that’s a wrap. Thank you all for being a part of Trading With Cody! I leave you with a picture of my old Great Pyrenees, Miel, from early morning a few days ago.
