What’s your risk-tolerance? PLUS: Why I want to buy more Amazon every chance I get

Here’s a 46-minute podcast version of this entire Trading With Cody Live Q&A Conference Call. You can also listen to my podcast on iTunes too.

Here’s the part 2 of 3 of this week’s Trading With Cody Live Q&A Conference Call transcript.

Q: Taking a page from your contrarian playbook, what do you think of retail stocks during this market cycle? Many names have gotten beat up and I can’t imagine no one will shop in person any longer. I am looking at Macy’s, they are profitable (as of last earnings), have a book of real estate that they can monetize, have a growing online business. I know Amazon is out there but can they really wipe everyone out? Also with other Department Store closings competition is getting a bit easier for stores that will last. Thoughts?

A: Somebody is going to shop in person. Or not, I guess even Grandma doesn’t even shop in person any more because who wants to take Grandma to the mall?! Haha. 100% agree with you on this question. I mentioned maybe a month ago that I thought the panic over the retail and mall sector was getting extreme and that it was probably time to look at buying malls and/or retail whose name is not Amazon.

Obviously as you know I am huge Amazon long. I am a huge Amazon bull. I am not about to sell my Amazon. With Amazon Alexa being a new operating system that is changing how billions of people interface with their heaters, refrigerators, kitchens, desktops, smartphones, watches, projector screens, etc. — well, you have to buy Amazon anytime you can. If it goes down by much, you buy when you get the chance. I’ll tell you I don’t think I am ever selling another share of Amazon for the next five years. Amazon should be probably be made my largest position. If it would come down 15%-20%, I would load up. I think it is maybe my fourth largest position right now and I would make it my largest.

I also think retail itself might be a good trade for a year or two here. Maybe even longer term?

Let me look at Macy’s balance sheet here because the problem with Macy’s as I recall is I think they have too much debt for my liking. They’ve got $1.3 billion in cash and cash equivalents, $5-$10 billion in real estate, inventory $5 billion, but what I am trying to get down to is their long term debt is $6 billion dollars. Oh my! I mean I know they have a lot of real estate to back that debt but no thanks. That is the problem with most mall related companies that took a bunch of debt on when they thought they could and wall street banks allow them to borrow billions. Imagine Macy’s going right now to try to borrow $6 billion dollars. That would be expensive. So stay away from Macy’s.

I would rather just buy Amazon find than some cheap retail. I think over the next 5 years, if you win the lottery with finding some incredibly cheap retail play that goes up ten fold, I think you just want to own Amazon. I think it’s going up three to five fold in the next five to ten years.

Q: I was really interested to hear you say if there is some sort of a pull back in Amazon that you would consider making Amazon your biggest position, because I’m sure your Apple has probably grown to the point where it is outside just because of growth. I’ve seen you trim a few percent here and there, but would that mean that you would be pruning one to grow the other?

A: Not necessarily. And you have to remember, even with like Facebook I ended up buying call options back when it was at $22 or something, long dated call options in addition to the common stock. Then as Facebook ran, some of those call options that I didn’t sell ended up just turning into stock too. I think Facebook was actually biggest position for a few months last year until I reasonably trimmed it down again.

Google, Facebook, Apple and getting to be Amazon, those positions are all pretty big for me and they have all grown a bunch over the years, but I’ve also added call options here and there on some of the names even after they have been big positions for me. Then sometimes they get even bigger and I will trim them down. So, Apple is not a terribly overweight position for me.

I’ve explained that to some of you guys who have had huge gains in Apple over the years, but you don’t want it to end up being 15%-20% of your portfolio or something like that, which is what it would be if I had not continually trimmed it over the last 15 years. Remember also, that while I was at Fox Business I basically sold almost every stock I had and I didn’t have a bunch of shares with Apple or anything like that. So, even if I had kept every share I had in 2002, I probably would have trimmed enough that it wouldn’t be terribly outsized the Apple position.

I’ve raised a lot of cash in the last year, as you know, and I’ve got cash I would like to put to work in Amazon. I just wish it would come down a little bit. I probably just need to buy a little more right now even. I trimmed Amazon a few weeks ago when it first got near $1000, at these levels and that was dumb in retrospect. I just think you can’t stop the Alexa juggernaut.

[Alexa, how many units did you sell yesterday?]

[Alexa says, “I don’t know that.”]

She is smart, but not that smart. Didn’t answer my question, did she? Well, did I answer your question?

Q: You did! Actually it was a really good answer because you gave some insight as to some of the balancing on the big positions that you have. Which is always really important for me for sure.

A: Well, let me just push back on that and why I don’t think that should be too important to you.

It’s because all of our risk tolerance is different. Our income levels are different. Our upward trajectory is different. If you have $100,000 in stock market right now and you’re about to get a raise in your job from $150,000 to $350,000, you can be a little more aggressive than the guy that is going to make $150,000 again next year. If you’ve got $10 million in the stock market and you just work for fun — same thing, it is a different risk tolerance and you’d need to have some real estate assets — so it doesn’t matter what my personal allocation nuances are.

You want to know the best companies that we should be investing in and balance your portfolio according to your risk profile. You guys should probably have some oil stocks or mutual funds or savings or other ETFs, etc. You guys don’t own real estate, acres and acres of beautiful land in the outskirts of Ruidoso. Well, frankly, maybe some of you do, but most of you people listening have an entirely different portfolio than I do. You have an entirely different family structure.

Here’s another example, you’ve seen in real-time over the last 2 years as Amaris was born. For my first 15 years out of college in New York City and my first couple of years here in New Mexico, I was single, no children. I was working my butt off 80 to 100 hours per week most of the time. I was having a blast, buying great suits and going to great dinners, because I truly felt like no matter what I spent money on doing stuff like that in New York, it was networking and an investment in my future.

I rented, I spent up to four or five grand per month on rent on an artist loft for a year when I first got my TV show. I wasn’t trying to invest in real estate or responsible for the plumbing and the rats (even in an apartment like that by the way, you see rats and mice. New York City can’t get away from them.)

Over time though, you’ve seen that I ended up getting married and now I have to balance my wife’s risk tolerance with my own. I am not out there buying expensive suits to go to meetings and flying to Italy to meet for business meetings or the that kind of stuff I was doing in 2006.

Then I end up having my first daughter three and half years ago and now I’m thinking, “I own land here in NM and I need to build a really nice house. I make good money and my wife loves her job and we’re set ourselves up nicely for this and we’re all set. I just need to take care of the family.”

Then I have another daughter and she is medically-fragile and our bills go through the roof no matter how much coverage we have. We bought a nice big RV and made it medically-equipped for my daughter. We had to add on to my house medically equipped rooms and my risk tolerance certainly has changed.

Of course, I still am very aggressive in technology and investing for Revolutions, as you know. I am not buying GE or looking for what a lot of people conceive to be safe, high dividend stocks or something.

So, it’s not like you’ve seen me change my risk tolerance or my approach entirely, but certainly both have changed somewhat over the last fifteen years and over the last five years. What was an outsized position for me even just five years ago in a stock is not necessarily relevant to me today. And I am the same guy.

My point being, you want to get my stock picks, you might want to base some of your ratings on “Hey, Cody is really being aggressive in this stock right now” or “These are his five largest positions and he is not selling. I am going to make some of these smaller cap stocks but not with big position sizes because they are a more volatile and bigger risk than some of our bigger ones have been.”

As for biggest positions and weightings for me personally, recall that when Facebook was at $25 I was willing to make my biggest position because I had bought both FB common stock and FB call options. Of course, I didn’t have a medically-fragile daughter back then either.

So, you get my point that your risk tolerance changes and it should be different than mine anyway. Take the guidance I give you, but don’t try to replicate my portfolio or my approach to my investments entirely, because it is not the right approach for you. It is not the right approach for anyone, but me.

I try to give you great ideas and pathways. I try to navigate these markets and we have done a great job on all of that. But you should be different than what my portfolio is. If you are 25 years old and you want to buy 15%-20% of your stock in my three smallest cap, highest Beta, biggest potential returns — go for it! That might be okay for you. But it’s probably not for me. Especially right now with a medically-fragile daughter.

Q: You make that really clear about our personal tolerances and where we are in life and so on and so forth and it is very helpful! I have been talking little bit on the board about how I need to maybe reduce one and increase the other. So it will be very interesting to watch where we are as far as Amazon and trying to get a little more exposure to that stock.

A: There by your question was great! Even if I did repeat myself on some of that stuff. But I do think you did get some insights that I didn’t provide before by explaining that. I hope you did anyway! I appreciate the question.

Q: I don’t think that is something you can repeat too much. It is very important!

A: Well that is great! Here is something else you can never repeat too much. Don’t overtrade! Don’t overtrade, everybody! Next question?

We’ll send out part 3 of the Trading With Cody Live Q&A Conference Call transcript in a bit.