This Ain’t 2007, There’s No “Right” Percentage Of Cash To Hold, Balance Your Portfolio And More
Here’s the transcript from this week’s Live Q&A Chat.
Q. You’ve mentioned in the past how you became an outright bear in 2007. Are you feeling the same way now, here in 2021?
A. No, it’s not the same. In 2021, I think valuations are clearly out of whack with reality for many small cap stocks in particular. In 2007, I was worried not just about valuations, which were stretched but not Bubbled Up like they are in 2021, but I was more concerned that the economic underpinnings of the economy itself were about to come crashing down in the looming real estate and banking crisis that most people didn’t see as being a big deal. In 2021, the economy is certainly fragile and the rising interest rates and inflation trends we’re seeing are worrisome but the banks aren’t about to go bust and real estate nationwide isn’t probably about to collapse like it did back in 2007. In 2007, I literally sold all but a handful of my stocks, closed my hedge fund and took a job as a TV news anchor to get out of the way of what I thought might be a looming stock market crash. In 2021, I’m defensive and cautious with quite a few small shorts and hedges but not quite outright bearish.
Q. With regards to your strategies for this blow-off top market, are you recommending us to trim x% of all / some positions within your portfolio to raise more cash? or just be cautious / not greedy / keep our revolutionary longs?
A. In general, yes, I’d suggest trimming and/or otherwise raising some cash right now, but there is no magical X% number to trim. Maybe 5-10% of each of your positions if you haven’t done much trimming yet.
Q. Good morning. I’m looking to become a little more defensive, lock in some gains and build my cash position. Of our holdings, which stocks are at the top of your list to trim?
A. Most of them. Depends on how much you own of each though. Balance is key.
Q. Hi Cody, your past few comments have been increasingly bearish, so much so I have been getting fearful and have sold more than half my portfolio. Am I over bearish?
A. Well, I didn’t suggest selling 1/2 your portfolio, but it all depends upon your own risk tolerance, your goals, and protecting your family as you build long-term wealth. And I’d certainly rather err on the side of having a little bit too much cash than being, say, on margin and aggressively long at this moment. Steady as she goes and incrementalism is often a good thing. Don’t regret trimming now though no matter what the market does near-term.
Q. Top % of my portfolio – 32% TSLA, 14% AAPL, 10%-cash, 7% MSFT, with all other stocks around 3-5% (GOOG,AMZN,OKTA,NFLX,CRM,SQ,UBER etc). When I want to trim, I find all these stocks too good to sell at any point. I would like to have at least 15-20% cash when the market dips. Last time I trimmed was when I sold TSLA at 720$ and immediately regretted How should I trim ?
A. Well, you can’t look back and regret being disciplined in balancing your portfolio. It is what it is. You can let all your longs ride forever and take the ups and downs and bubbles and crashes along the way or you can trim and steady your portfolio. I suggest trimming more of your TSLA, maybe 10% or so, and same with the AAPL and MSFT, Heck I’d suggest trimming a little bit of each of your smaller longs too perhaps, if only because I think the risk of downside vs more potential upside isn’t as good as I’d like it be overall for most stocks. You’re still going to have plenty of long exposure (and volatility and downside risk) in your portfolio even at 15-20% cash.
Q. Cody, $ARKK own many stocks you recommended here. Their AUM went from $32 mil in 2016 to $55.7 bil this year. I’m concerned that ARK is single-handedly creating this bubble that is bigger than the 2000 dotcom bubble.
A. It ain’t just ARK that’s creating the bubble though. And by the way, you ever noticed how often ARKK ends up getting into the same themes and/or stocks that I do, but usually a year or two later?
Q. Have been debating if 529 is the right choice for kid’s college funds. Do you have any alternative suggestions ? If not any recommended 529 plans (we are in CA).
A. I am afraid that’s just not my bag. I don’t know and I don’t want to guide you wrong. Sorry.
Q. Cody. F2F, which EV would survive and prosper 4-5 years down the road. GM, F, TSLA, VW, Toyota, Rivian, LucidMotor, WKHS, QS? Also, would you foresee a bottleneck creating shortage of battery cells, lithium, or rare earth material down the road?
A. Well, clearly TSLA’s the EV maker most likely to be around prospering in 5 years. Rivian is the next best one. Then probably GM and Toyota would be my next two most probable-thrivers in the EV business in five years.
Q. What do you think about Apple entering (if it really does) the EV market? Are they serious? Also, what do they have to drive earnings this year which is not baked into the price of the stock?
A. I don’t think Apple is about to get big time into the EV car business with a branded Apple car and I’ve been saying that since the first crop of these rumors sprang up years ago. Apple will get into the car business somehow in coming years, but I’m not sure what that means, really. They need to sell lots and lots of iPhones if they want to drive earnings above estimates.
Q. Hey Cody. 2 questions here. Does the Tesla BTC acquisition, along with more mainstream adoption of BTC from companies like MasterCard, change your feeling that BTC is overvalued here? Could it stay at these levels or do you still anticipate a correction? Second, I was pleasantly surprised when looking at my Stellar account for the first time in awhile. Do you think your original thesis there is happening or are they simply riding the crypto wave like all the others? Thanks.
A. Hmm, first point I want to make is that I’ve never likened bitcoin’s price to a “valuation” because it’s just a currency, not a stock and it can’t really be “valued” “correctly”. So I just thought that bitcoin was too high and too overloved and likely to get hit near-term back a few weeks ago and, well, sure enough it did. It dropped like 30% after I’d written about getting cautious on bitcoin again. So anyway, I do think that Tesla buying bitcoin, Mastercard and even maybe JP Morgan getting into bitcoin makes it even more viable and even more likely to become the eventual replacement for the US dollar as the world’s reserve currency. I don’t know about Stellar any more. I’d stick with Bitcoin and Ethereum and forget most of the rest of the cryptos, probably.
Q. Any thoughts on achieving exposure to BTC within an IRA via RIOT or HVBTF?
A. I don’t like that idea. These are companies that might or might not be a bit shady, these stocks were penny stocks for years and I imagine insiders are unloading shares hand over fist (and awarding themselves even more shares hand over fist) as these stocks have gone absolutely vertical over the last year. I think that the BLOK ETF which has RIOT and other questionable crypto (former) penny stock (former) microcap companies in it might be a great short hedge against our long-held bitcoin longs at this point.
Q. Hi Cody, I bought SPCE back at $16 and I’m about to trim it. Do you recommend the standard 10% or more due to its current price?
A. I don’t have a “standard” of 10% but, trimming that much or a little more here, probably makes sense.
Q. Do you think SPCE will raise more capital by selling more shares?
A. Yes, I’d mentioned this a couple weeks ago in the live zoom chat and I hope they do it NOW! My gosh, a $12 billion market cap? Come on, Virgin Galacitc, sell some stock and put another 1/2 billion in cash in the checking account for crying out loud.
Q. Would appreciate any update on your thinking re-DVAX. May be another catalyst coming in form of European approval of Heplisav-B. IIRC Heplisav-B was part of your original thesis. Bought nicely in $7s. Are you adding in $9s?
A. Those are other potential catalysts in addition to the vaccine platform play we get with DVAX. I built up a decent but small position in DVAX and in the hedge fund I nibbled a second tranche or two on weakness. But no rush and I’m not making this a huge bet.
Q. I’m watching the TLT puts, nice call there so far pal. TLT having an off morning for sure.
A. We’ll see. As always, don’t be afraid to trim some along the way.
Q. I can’ not buy US registered ETFs from Europe, so can’t trade DBA nor TLT. Any other way you may suggest to play these trades.
A. Hmm, let me think about it and if I come across other ways that you could get into the higher inflation/higher interest rate themes I’ll write it up in an upcoming article.
Q. Hello Cody, I really enjoy your “Latest Positions” updates and have used them to successfully balance my portfolio and new buys. I was hoping we could see more frequent updates (monthly?), as the ratings and stories change so quickly. It helps keep us current with your positions and opinions. Soooo…..while I have you, FB is so hated and inexpensive, relative to the market. Is it an “8” or a “9” here?
A. I’d call FB an 8 out 10 here.
Q. Cody, do you like CrowdStrike? Or any other cybersecurity plays right now?
A. I like CRWD and most cybersecurity stocks. But I’m not in much of a buying mode for stocks like CRWD that are at all-time highs and that have already gone up almost 1000% since March.
Q. Happy Friday Cody and all, Thank you for great buys on JMIA and DVIX recently and many others through the years. With a market cap to Sales ratio of nearly 400x, would you consider shorting BLNK? Market Cap of over USD 2.1 billion, and sales of USD 5.5 million.
A. Well, I’d shorted some BLNK last year and mostly found it painful. The company did a secondary to put a bunch of money in the bank and I’m not sure you can fight most of these stocks that are way overvalued just because they are way overvalued — they can get more way overvalued. But I sure wouldn’t want to be a BLNK long at $50-60 in 2021.
Q. Does it make sense to hedge using some sort of oil etf right now?
A. You mean shorting an oil ETF? I can think of worse ideas, but I haven’t done it. Oil could go up as a result of inflation so I probably won’t touch oil stocks either way here.
Q.What are your thoughts on Appian?
A. This stock, APPN, is trading at 50x next year’s sales estimates even though its topline is only growing 15% per year? It’s not profitable either and isn’t likely to be profitable any time soon. Oh my, this looks like it could be an interesting short idea.
Q. Hi Cody, is SPLK a buy at current levels if you do not own any? I think this may be at your buy under price. Thank you.
A. I sold all my SPLK back in July as noted here: http://tradingwithcody.com/2020/07/22/latest-positions-part-5-the-remaining-longs-shorts-crypto-plus-tsla-earnings/
Q. Could you look ay NTNX and tell me what you think? I saw an SA article saying this is a SPLK competitor further along and with better multiples than SPLK. Thanks Cody.
A. Looks like NTNX has no revenue growth this year and analysts are only expecting high single digit revenue growth next year. Meanwhile, the stock has been on a tear and now trades at an increasingly growth-like multiple of 5x next year’s sales. I don’t know this company well, but at a glance, I’d probably rather short than buy NTNX.
Q. What do you think of HTOO? https://investorplace.com/2021/01/surf-the-green-wave-with-this-disruptive-green-hydrogen-pioneer/
A. Looks very fishy. I’d run for the hills.
Okay folks, that’s a wrap. Thank you!
