Teflon Samsung, Hedging, Learning, Tesla mea culpa, more
Here’s part 2 of 3 from this week’s Live Q&A Conference Call. Part 3 will be out later today.
Q. The $EWY short is based on the thesis that as Samsung goes, so goes the $EWY, but the Koreans seem to be fairly nonjudgmental about all of the things that are happening to Samsung and you have mentioned that Samsung’s model is so not based on phones and it is so diverse. Are we continuing on this short? It has been pretty hard hit.
A. I know what you are getting at. I’m with you. We’ve done nothing but lose money on our $EWY, South Korean ETF short, that was partly, as you mentioned, a bet against Samsung. Mainly because South Korea is so dependent upon Samsung in its economy and its profit and even in its stock market. Samsung is like 20%-30% of the ETF is made up of Samsung. Samsung’s stock too has been “Teflon.” The one-year Samsung chart is one of beauty. Thank goodness we’ve been short on $EWY, which has actually under-performed Samsung. I’ll tell you that sometimes my Samsung/$EWY is keeping me up at night. I told you guys just last week, if you have a position that is keeping you up at night, it is probably too big or the wrong one. I think I was just talking about it being too big last week, but it might also be an indicator that it is not a good position.
Look, in the grand scheme of things, we are down maybe 10% on our $EWY short over the last 18 months or a year. Frankly, it has been a good hedge because the stock markets, the NASDAQ, have been up huge compared to that over the last year. Our own stock portfolio is up huge compared to the 10% with $EWY over the last year. I don’t know. I like having the hedge.
In some ways maybe this is a good time to be putting on that South Korean short in the same way that it might be a good time to be putting on some of those European ETF shorts that we talked about earlier.The $EWY has been like every other global stock market on the planet has been very strong since the election early November. We were up 10% at the bottom in early November and we are down now about 10%. I might have covered some, but I don’t remember. It’s a hedge and it serving its purpose. I hate losing money, even on my hedges. But, I quoted a mentor of mine from the hedge fund world, who years ago, used to always tell me in the mornings, “Confucius say: ‘may you lose money on all your hedges.’” Because theoretically that means since you put your hedges on because you are trying to protect the other parts of your portfolio. And that means your other portfolio should be working and frankly, we’ve had some of that result. I don’t know what to do with $EWY. I am keeping it for now. It is keeping me up at night a little bit. Maybe that means I should cover it. I’ll think about it.
Subscriber response: I don’t think $EWY started out as a hedge.
A. Oh, I think it did. If you will go back and read the original write up on it, it’ll mention that I was warm to the idea of trying to get a little less long exposure. Anytime I am putting on a short in my portfolio when I’m net long, as I am right now, it is partly a functioning of hedging that overall portfolio. But, yes, I did think I had a specific catalyst for Samsung. When I put $VRX on as a short (I love to talk about that one because it has dropped 90% so I feel like a genius on that one), that was also partly a hedge because I was net long. All of my shorts are partly hedges while I am bullish on the markets, which I have been for seven years now. Maybe that wasn’t your point? I am not trying to be defensive, please continue.
Subscriber response: I have no problem with the thesis on $EWY. Samsung had phones catching on fire and they are part of the $EWY market and action. It just seems to me that we have seen that one play out for some time and the Korean markets just gave it a shrug and don’t particularly care about Samsung’s CEO getting arrested and the phones exploding and so on and so forth. So, if the thesis is a little different and that it is just a hedge, I just want to make sure I understand. Do I hold this because it is a hedge against my long positions or holding this because the thesis was a good one and so far it hasn’t played out? Doesn’t mean it is not a good one to continue.
A. It is a great question and I am glad you continued with this discussion because it is important what we are getting at here. There is no science to it, right? Hedge, hedge, hedge. When you have a mostly long technology portfolio and you have a short in the Korean stock market, by definition it sort of going to be a hedge. That doesn’t mean that I just ever want to be short something though, just to be hedged. Investing and trading is tough! It’s always tough, right? That is why you guys subscribe. We are all looking for guidance. I subscribe to people. I have mentors. I am learning as you are asking these questions of me.
At some point, the problems with Samsung from blowing up phones to blowing up washers to the CEO getting arrested, you’d think it would at least impact the sentiment around the stock. Maybe there is, going back to that question earlier about the European stock markets, and maybe we ought to be putting a little bit of hedge and short and looking at those a little bit here.
I wonder if how much of the seemingly “Teflon” nature of Samsung in the South Korean Index is a function of what has been making every other stock around the globe go up? I’ll think about it. Even with Amaris last night at 3:30 in the morning, I was thinking about 4-5 emails I needed to send out that I didn’t get done because I was with her and Lyncoln all day and I was thinking about $EWY and Samsung and amazing how resilient that market has been. The $EWY ETF is up 20% since late March.
It’s funny sometimes actually when I answer these questions. And, you guys know I am just trying to call it like I see it as usual. Sometimes I am like I really did just did say “I don’t know.” I am still learning. And that is part of it and it is important. Cramer was a great mentor to me and I heard him learn things. Some my other mentors who were hedge fund managers who were much more involved in my life and frankly important in shaping how I learned to invest in things, they are learning. Some of them blew themselves up too, you know? Running a hedge fund is hard. If there were answers, we’d print them. We are all learning.
Q. $UA, what do you think? Positive article in Barrons.
A. Stock is up 4% this morning, I saw. I was just looking at it a couple of weeks ago with you guys and it is still trading at 45-55X earnings and still a lot of growth optimism built into it. I do like $UA as a stealth app company, but I don’t know. I think we might get a chance to buy it a little lower still. $LULU blew up the other day, too. $NKE’s margins haven’t been as great lately either. I am not going to do anything with $UA right now.
Q. Watching $TSLA soar to almost $300 today reminds me of a problem I have had for some time. Cody, in the past when you have been asked about $TSLA, your response is basically that you don’t want to invest in a company that is so dependent upon government handouts. And yet the TWC portfolio currently holds two solar stocks, which as you have written about many times before, are highly dependent upon government subsidies. In your conference call/podcasts, you have made known how the government manipulates everything with handouts and incentives, including the entire stock market (through IRA investing incentives), and home buying (through the mortgage interest deduction. And yet, you realistically conclude that hey, we have to deal with the market before us, even if it is manipulated. So my question is, it seems like there is a bit of a double standard where there is no serious look taken at a company like $TSLA, but we are buying solar stocks? Make no mistake, I have no complaint about the solar stocks, I trust that they will be fine over the long term, but I really don’t understand the difference between $FSLR and $TSLA from the standpoint of why you are willing to look at one, and not the other.
A. This question, posted in the Trading With Cody Chat Room earlier this week, has been keeping me up at night too. Thanks for asking this question. I think I’ve talked a little bit about this before and I think I am wrong. I feel like I probably just need to issue a mea culpa. I am sick at my stomach that I didn’t own $TSLA as it ran from $20 to $300. Subsidies or not. The company is getting free factories build for them. They are getting welfare checks written to their customers who are rich enough to be a Tesla. They get subsidies everywhere and on every level from supply to demand. Their business model is subsidized.
So what? There is a timing factor that I missed. Those subsidies didn’t go away. I am sorry. Mea culpa. I should have owned $TSLA. We should have had it.
Subscriber follow-up: Thanks for being so transparent on our conference call today. Please know that the point of my Qs re: $TSLA and $EWY is not to criticize, but to explore. Nobody expects you to hit all the winners. On $TSLA, my real Q was not about “why didn’t we buy $TSLA,” but about the stated philosophy about we didn’t look at it. You gave a great answer on that one today. On $EWY, the question was just about re-examining our thesis periodically, and examining the opportunity costs involved in owning a stock if the thesis has changed, or hasn’t played out. I think you do a great job.
Part 3 coming later today…
