Trade Alert: Portfolio maintenance and a complete run-down of Cody’s Latest Positions

I’ll run through all the positions in my entire portfolio with new ratings for each one. But first a few trades that I’ll be doing this week in the name of portfolio maintenance. I’m closing my positions in: DLTR, IEF, CREE and FEYE.

I’ve had many mentors over the years, some famous, some random, and from all walks of life. On Wall Street, all the best investors and traders I’ve met with and gotten to know, from Jim Cramer to Jim Rogers to other successful money managers who have chosen to stay low-profile, have talked to me about the importance of pruning your portfolio. I’ve got a couple of longs and shorts that I want to address today and clear out of the portfolio.

Let’s start in order of the longest-held position to the one I’ve held for just a few weeks here.

Dollar Tree – Here’s my analysis from when we put the Dollar Tree short into the portfolio:

“Fundamentally we are getting short because the low-hanging fruit for dollar stores has been taken out, and now they’re in a death race to fill up vacant strip malls in less and less desirable areas. Ruidoso and its surrounding towns have a population of about 21,000 and five dollar stores with more on the way. And it’s not like we are in a retail desert, there’s a Wal-Mart in Ruidoso Downs plus a couple grocery stores. What the dollar stores are facing in Ruidoso is the kind of saturation that’s playing out all over the U.S.”

I’m still confident that in the long-term we’ll look back and see that the dollar store concept was indeed topping out here in the last few years, but with activist investors and consolidation amongst these big dollar store companies (see: ) I think there’s a floor being put in here around the $50s for Dollar Tree. And it’s possible Dollar Tree does get taken private or gets bought in the new few months as part of this consolidation. We have a small gain in this short position that we’ve had on the sheets for two years now. That was for the last two years in which the markets were nearly straight up, so I’ll call this a win and move on.

IEF – Here’s my analysis from when we put this IEF short, which was a bet that US Treasury interest rates would rise, into the portfolio

“The biggest determinant on when higher rates will finally hit, is whether or not the U.S. dollar remains a relative “safe” holder of value against the other major currencies (including gold).”

Interest rates did indeed head higher for a few months after we put that short position on, but they’ve since come back down with a vengeance. Longer-term, I stand by my analysis that these generational low interest rate levels will never be seen again once the pendulum to higher interest rates swings, but the swing apparently is still not here. I want to free up this position in the portfolio.

Cree LED – Here’s my analysis from when we put CREE, which is a leader in the world of LED lights, into the portfolio:

“So, we’re looking at a company that’s growing its topline 20%-plus annually and its earnings even faster as margins expand overtime as costs drop faster than selling prices.”

The topline growth has been phenomenal as I’d expected. But unlike my analysis had indicated, margins for CREE have been contracting as costs have not fallen as fast as selling prices. Wall Street does not pay up for a contracting margin business when the Chinese competitors are aggressively catching up with your technology and there’s little patent protection to pad your advantage. This is my small long position but I’m down about 20% on this position and I’m taking my lumps and moving on. Pull the weeds.

FireEye – Here’s my analysis from when we put FireEye, which was part of a “high-growth basket” into the portfolio:

“We’ll call it a high-growth basket and I want to step in and start with these three names today:

— Yelp which is down nearly 50% from its earlier highs this year and which is growing revenue at 50% per year.

— RocketFuel which is down even more than that from its earlier highs this year and is growing revenue at 60%-70% per year.

— FireEye is down 75% from its recent highs and grew revenue at 150% last year, could grow it 100% again this year — though with no earnings in sight.

In my own personal portfolio, I’ll look to build Yelp into a full-sized normal position, as its my favorite long-term pick of the three. And I’ll likely only put less than a third of that much money into the combined basket position of the other two for now, as I start to build those positions”

I removed RocketFuel almost immediately because I didn’t like the company’s management after getting to know them a bit more after having bought the stock. And now I feel a bit the same with FireEye here. This is a small position for me and I don’t want to let this turn ugly as the stock is floundering in a bull market. I’ve got other names I like better than this one that I am planning to add to the portfolio in coming weeks.

Here’s a list of my latest positions (I’m removing the aforementioned four positions that I’m closing out this week, even though I’ll be taking a few days over the next rest of this week to close them). I’ve broken the list into Longs and Shorts. And from there, I’ve broken down each list into refined categories in order from the largest positions within each category to the smallest.

Finally, I give each stock a current rating from 1 to 10, 1 being “Get out of this position now!” and 10 being “Sell the farm, I’ve found a perfect investment” (there will never be a 10 rating, because there is no such thing as a perfect investment, of course).

Remember: I wouldn’t rush into a full position all at once in any of these stocks or any other position you’ll ever buy. Patience and allowing the market and time to work to your advantage by buying in tranches is key. Maybe 1/3 or 1/5 of whatever you  might consider to be a “full position” in any particular stock. And I wouldn’t ever have more than 5-15% of your portfolio in any one stock position at any given time. The younger you are and/or the higher the trajectory of your career income, the more concentrated and risk-taking you can be with weighting in your portfolio. But spread your purchases and your risk out over time and over a several positions no matter your age or risk-averse level.

So here’s the list:

Longs –

• Forever assets and other permanent holdings –
  • Media and other private investment/business holdings (9+ because betting on yourself and running a biz is always a best bet)
  • Real estate, including land and the ranch I live on in NM (8)
  • Physical gold bullion & coins (9)
  • BitCoin (6) *Not a meaningful amount

• Primary stock exposure portfolio
  • Apple (7)
  • Facebook (8)
  • Google (7)
  • Intel (8)
  • First Solar (8)
  • Yelp (8)
  • Sandisk (8)
  • Amazon (7)
  • Calgone (8)
  • InvenSense (8)
  • Ambarella (8)
  • Lindsay (8)
  • Stratasys (7)
  • IXYS (8)
  • JDS Uniphase (7)
  • Ciena (8)
  • Himax (8)
• Short-term options trades
  • Yandex (6)

Shorts –

• Primary short portfolio
  • IBM (8)
  • GSV Capital (7)
  • Apollo (8)
  • Barnes & Noble (8)
• Samsung/South Korea basket
  • EWY (8)

** NOTE FOR NEW SUBSCRIBERS:

If you’re new to TradingWithCody or if you’ve been a subscriber for a while but haven’t acted on much of my strategies yet and/or if you haven’t been in the markets, but you’re sick of getting 0% on your CDs, Treasuries, savings, checking, etc while the markets have been continually hitting all-time highs this year, what should you do now?

First, step back and catch your breath before moving any money anywhere and make sure you’re not about to make any emotional moves with your money.

If you haven’t yet read “Everything You Need to Know About Investing” then spend a couple hours doing so, please. It’s a quick read but chock-full of important ideas, concepts and strategies that amateurs and pros alike should understand.

Then, take a look below at my own personal portfolio’s Latest Positions and slowly start to scale into some of the ones you like best and/or the ones I have rated highest right now. I’d look to start scaling into a few of the many stocks in the Latest Positions that are at all-time highs along with a couple that we’ve recently featured in our Weekly Trades that I’ve personally been scaling into.

You can find an archive of Trade Alerts here – http://tradingwithcody.com/category/trade-alert/.