Trade Alert – Cutting another long and updates on two hedges
Turn around and face ’em,
Pump pump and fade ’em now.
Bone come break ’em down
Taking no shorts, no losses, man – Bone Thugs n Harmony
When I first got to Wall Street, I read everything I could get my hands on about how the markets work, how to invest and trade, how to hedge and so on. Come to think of it, here it is nearly twenty years later and I still read everything I can get my hands on about how the markets work, how to invest and trade, how to hedge and so on. I’ve learned and experienced a tremendous amount of real-life and theoretical lessons, truths and rules over the years.
One of the very most important rules is to simply “Cut your losses, when the story or your analysis has changed.” A correlation to that rule is that you always need to be willing to change your mind when reality dictates doing so.
All of which leads me to XONE, one of two remaining stocks in our 3-D Printing Basket. XOne just recently came public, less than two years ago, and while the stock has remained at lofty valuations throughout its wildly volatile lifetime, the company’s fundamentals and outlook have continually deteriorated, culminating in last week’s disappointing quarterly report. The company’s not selling as many 3-D Printing units as we have long modeled and expected it to, and margins are slipping to the point that I’m not sure I can see how this company makes much money in their current trajectory.
The stock has been a disaster for me since I first bought it, and while I’ve tried to minimize some of that pain by using my slow-to-build tranche approach of buying a small amount of any stock to get started and then using weakness over time to build it up. Likewise, this is not a big position per se, as its simply part of that 3-D Printing Basket, which originally comprised this stock along with SSYS and DDD.
I am going to hold SSYS in the portfolio as it appears to be making itself a best-of-breed and the company’s execution has been better than at either DDD or XONE. We made nice profits in our DDD position, buying it two different times, but I’m going to eat about a 20-30% loss on the XONE here.
So to repeat, I am letting go of our XONE entirely, cutting my losses because the story and my analysis have changed. I am holding onto my SSYS which is still up big from my initial buys and still executing.
I also want to touch on the a couple of the other rare positions that are showing losses right now. I’ve been leery about the near-term prospects for the broader markets to continue this endlessly steady climb higher and added the XRT put options position to the portfolio to try to help hedge for that. The XRT has been amongst the strongest of the broader markets and that’s got me a tiny loss on that position in the portfolio. I am comfortable having this on for now though, as I continue to feel uncomfortable being overly net long for the near-term.
And then there’s my long-held and ugly short in JPM. I remain fully confident that we will someday look back and wonder “Why didn’t I see that coming?” when looking at the insanely out-of-proportion bank industry earnings that are fully subsidized and dependent upon the taxpayer in the system that’s existed at least since 2008’s crash. I read a stat that I haven’t verified, but sure sounds true to me, that the bonuses and salaries at the ten largest Wall Street banks like JPM, GS, BAC, C, etc, in 2013 added up to more than the entire income of minimum wage earners in the country. All that said, I’ve let this loss get to be rather too large and if the stock gets above $65 or so, I’m going to go ahead and cut my losses here too.
If I had to pick five names to buy right now, I’d probably go in this order:
- Apple
- Our drone basket: JDSU/INVN
- Lindsay
- Intel
Apple, Lindsay and Intel all pay a dividend that rivals or beats Treasuries. Don’t lose sight of the mission — we’re here to maximize our gains and minimize our losses over the next 3000-10,000 days, not for the next thirty days or even the next 300 hundred days.
