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PhilStockWorld February Portfolio Review – Part 2

Image for postDoes trading have to be exciting?  

While the market remains at all-time highs, I remain skeptical and a lot of that is because I allowed myself to become complacent in 2007, after having missed the rally of 1999 because that, too, was ridiculous.  In retrospect I was right – but not until March of 2000 and I could have had some fun betting on anything with a pulse in 1999 so, when 2007 came along – I finally went with the flow and, while we had pretty good timing in 2008 getting out on top – a lot of people didn't.  So I guess, this time around, I just want to make sure nobody gets burned when this thing collapses.  

We are all shaped by our past and we all run our own gauntlets to become the people we are today.  I know I trade like an old man because I learned from my Grandfather, Max Davis, who was born in 1903 and, in 1973, 10 year-old me laid on the floor on Sundays with the stock section of the paper laid out on the floor (you only got stock reports on Sundays back then), circling companies that made new highs or new lows so we could later investigate why it was happening and then Grandpa would do his Fundamental Analysis of the companies (often including actually visiting the company) to decide if there were any hidden values there.  

Having lived (in England) through World War 1, the Pandemic that followed, the Great Depression and World War II, Grandpa Max had seen a lot of shit – and he was very good at conveying his experiences to me from both a Social and Economic perspective.  Though he never went to college, Grandpa Max was a voracious reader and a very sharp businessman.  Learning from him always gave me a long-term and patient perspective on stocks and, since we only got stock news on Sundays anyway – you learn to be patient by default.  

So of course, growing up, I gravitated to books by Jeremy Grantham (also British) and Warren Buffett and that's my "style" – value investing but my twist on it (as I'm 30 years younger) is to use options for hedging and leverage – rather than just trying to be a market-timer with on and off bets.  Of course, the "Be the House – NOT the Gambler" strategy we've developed at PSW is even more boring than traditional value investing because, rather than getting in and out of stocks – we tend to stick with them and turn them into income-producers – just like a casino does with its games…  

Image result for wall street casinoThere's nothing exciting about running a casino – it's all statistics.  I used to consult for casinos in Atlantic City and they have spreadsheets for every single table and machine in the place and they can predict how much they will collect and how much they will pay out almost to the penny – over the long haul.  In the short run – it could go either way.  Since the stock market is not totally random, we are able to add an extra layer of advantage to our system by paying attention to the news – to fine-tune our timing.

The rigging, the manipulation, the "Fake News" – it's all part of the game and we don't care IF the game is rigged, as long as we can understand HOW the game is rigged and participate in the game and stock options allow us to get on the other side of the table and Be the House.

But the house is not a thrill ride – it's a grind.  This is not a system for adrenaline junkies – this is a system for long-term investors who find their thrills from increasing their balance sheet over the long run.  We know how much money we expect to make when we open our positions and then, over the course of usually 2 years, we determine whether the positions are on-track or off track and make usually minor adjustments along the way.

We don't even like to play stocks that go up or down more than 20% – it doesn't make us more money.  We like stocks (and markets) that stay in a range – that's why bubble markets can be annoying to us.  Jeremy Grantham is also annoyed and is warning people about the current situation:

 “We will have a few weeks of extra money and a few weeks of putting your last, desperate chips into the game, and then an even more spectacular bust,” he said. “When you have reached this level of obvious super-enthusiasm, the bubble has always, without exception, broken in the next few months, not a few years.”

Image result for jeremy grantham returnsHow bad will the next bust be? Very bad, Grantham indicated. On the order of the 1929 crash at worst or the dot-com bust at best.  Grantham doesn’t subscribe to the bullish take that technology is transforming the financial world so much that old equity valuation models can be disregarded. And he pooh-poohs the Federal Reserve’s current reputation as the all-powerful healer for any mishap—because the Fed can’t lower interest rates further if another calamity strikes.

At the lowest rates in history,” he said of the Fed, “you don’t have a lot in the bank to throw on the table, do you?”  His hardline bearish take has taken a toll on GMO in recent times. Its main fund, GMO Benchmark-Free Allocation, lost 2.5% in 2020, a year that the S&P 500 romped with an 18.4% return. The fund has stayed clear of growth stocks, the place to be of late. His investors pulled some $2 billion out last year.

And that's the economics of running a hedge fund or a market newsletter – do you try to make your members happy or safe?  What is our real responsibility here?  As I said, we are shaped by our experiences and I saw too many people stay too long in the 2008 market and take very difficult losses and I asked myself, at the time, if I could have done a better job of warning people. 

Don't get me wrong, I did warn people but I sounded like Chicken Little and I got a lot of negative feedback and people still wanted stock picks so I went with the flow – despite my misgivings.  Although we went short on the market ahead of the crash at PSW – there were plenty of people who didn't follow us out or didn't hedge so THIS TIME, 13 years later, I'm a little more cautious – that's all.

Not that we aren't able to make money, of course.  The S&P 500 was at 3,100 in October of 2019, when we began most of our new(ish) Member Portfolios and now it's at 3,931, which is up a very impressive 26.8% and ALL of our portfolios are outperforming that by a country mile.  Where we suffer is not having the 1,000% GameStop (GME) returns – we simply don't bet on those kinds of stocks.  We don't go for the quick money and, even more annoyingly, we hedge – which means that, by design, about 1/3 of our position legs are losing at any given time.  

It's boring but it works and it works consistently in up or down market – and that is what long-term INVESTING is really about. 

Money Talk Portfolio Review:   I haven't been on the show since December 9th, so no changes have been made to the portfolio, which was up 51% at the time and is now up 62.2% so right on track for a portfolio that's designed to make 30-40% annual returns.  Again, it's all about consistency over the long-haul and this is a portfolio we can't adjust other than once per quarter on the show.  

Also notice that $124,275 (76.6%) out of $162,205 is CASH!!!  Cash is a great hedge and, the way we invest, we do not need to deploy a lot of cash to make a lot of money – especially in a bullish market – so why should we?  Tying up our cash reduces our flexibility and increases our risk.  We are able to use leverage instead to make very nice (but not spectacular) returns while keeping enough dry powder on the sidelines to take advantage of any correction – rather than taking cover and then trying to re-cover in the aftermath.  THAT is how you win big in the long-run – by not losing in the short-run.

As with our LTP, these are the survivors, the positions we consider bullet-proof for the 20% correction we're expecting ahead.

  • IBM – We rolled down to the $110 calls on a dip and we're still waiting for a nice rally.  It's a $24,000 spread at a net $40 credit and it's $8,000 in the money on the call side.  The short puts are aggressive but, if you don't mind owning 400 shares of IBM at $135 ($54,000), that's your risk and your potential reward is making $24,040 if IBM is over $135 in January.  That's the leverage we use.  If you bought the stock at $120.73 ($48,292), a 12% gain would be $135.22 ($5,796 gained on 400 shares) and, at $100, for example, your loss would be $20.73 ($8,292).  With the option trade, at $135 you make $24,040 and, at $100, you lose $13,960 so the risk is really just $5,668 more but you are not tying up $48,292 (there is margin, of course) to make it.  That's the logic of our whole system in a nutshell and we're up $8,020 already with another $24,040 left to go!  
  • INTC – Our new trade from the last show.  Already deep in the money it's a $25,000 spread at net $10,425 but we bought it for net $2,075 so we're already up $8,350 (402%) against our cash outlay and there's another $14,575 left to gain but that's "only" a 139.8% from the current net so – yawn…  
  • M – Way over goal on this $15,000 spread but only net $10,675 so $4,325 left to collect by January.  
  • PFE – That one is from our previous appearance in October and surprisingly flat so you can still buy this $7,000 spread for net $0.  You are obligated to buy 500 shares of PFE at $35, so that's the downside.  The upside is $7,000 left to gain.

  • SKT – FINALLY took off.  Unfortunately, we covered at $10 so we don't care how high it goes, we get $10,000 at $10 or more and the current net is $7,735 so only $2,265 left to gain.  If we needed cash, we would kill this one as the return is boring for 2 years and they are not paying the dividend at the moment.
  • SPWR -   Took a big hit this week so now only 260% higher than we need it to be.  It's a $10,000 spread at net $9,135 so no real point to keeping it with only $865 left to gain but, again, it's perfectly safe and we don't need the margin it's using.  

So there's $53,070 of anticipated gains and we only have $37,930 in positions – that's a pretty good rate of return.  Even as a brand new portfolio, this will outperform pretty much anything the market is likely to do over the next couple of years but, oh boy, is it BORING, right?  We don't even make adjustments to this one unless we're on the show – about once per quarter.  Sorry to be so dull…







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  1. any saudi news releases this morning

  2. Good Morning.

  3. Good morning!  

    Oil back at $60 after testing $58.50 again (on /CLH21, which is no longer the front-month) - so much fun….  Stopped out 2 again at $59 so back to 2 short and DD again (but the new contracts now) at about $61.50 – not that I think that will happen.

    *Pfizer Submits Data Showing Covid Vacccine's Stability At Standard Freeze Temperature
    ( 02/19 09:26:16)

    There's another good reason to buy that PFE trade!

    Six Flags says preparing to open all theme parks and waterparks for 2021 season – Six Flags Entertainment announced ea
    ( 02/19 09:35:36)

    If they were lower, I'd jump on that.  $40 is $3.4Bn and they make over $200M normally so, LONG-TERM, it's still a good price but I don't think 2021 will be better than even and they lost $400M last year so that's the math – $40 is a fair price but not a bargain.  Sentiment should shift for them though as a quick trade.  

  4. This is interesting:

    In June 2010, Reliance had invested in the US shale gas business, where it bought a 45 per cent stake in the Eagle Ford shale gas fields, owned by Pioneer, for USD 1.3 billion. As part of the deal, it received a 49.9 per cent stake in the midstream venture. Pioneer Natural Resources held a 46.4 per cent stake in that venture.

    Billionaire Mukesh Ambani’s Reliance Industries Ltd has sold its stake in the shale gas asset in the US to Northern Oil and Gas Inc for USD 250 million, the firm said on Thursday.

    That can lead to a whole lot of write-downs in the energy sector so be careful with those holdings.

  5. GOLD $23 Call in LTP can be rolled to $18 for $1.7. Phil you said it's always good to roll $5 for less then $2.5. Is it true this case as well?


  6. Phil – anyone…


    Any thoughts on XL?  Maybe a future is now…  Or will their technology be phased out eventually by actual electric vehicles.

  7. GOLD/Kgab – For sure that's a roll you want to make.

    XL/Jeff – Future auto parts?  Interesting but too new for me – I have no way to judge whether they are really worth $2.5Bn at the moment.  It's some knid of SPAC and here is their plan:

    I need to see a few quarters before buying into it.

  8. Great Call Phil ! 


    You can sell the TLT March $170 calls for $2 and use that money to help pay for a $165 ($9)/160 ($6) bear put spread at $3 and that would be net $1 on the $5 spreads that are 100% in the money to start.  Essentially we're betting that Janet Yellen and the Fed won't flip rates negative during her first two months on the job – seems reasonable to me!  The upside potential below $160 is a 400% gain on your net investment.  That's a great way to fight inflation!

    TLT is under $144 today

  9. TLT/Randers – I love those kind of bets, when people overestimate how far a trend will go and you can bet against them.

  10. 400% is a great inflation fighter, Plus it puts a stimulus payment into your account! Forget the Mcmuffins, It looks like it will be a Cannelloni night from a nice Cafe.

  11. GOLD – rolled @1.65, thank you Kgab/Phil

  12. Butterfly Portfolio Review:  No changes necessary and I'll add more over the weekend.  We cashed our old AAPL position and the new one is up $150,000 in a month so nothing to complain about here, is there?  We were very lucky to get a good price for the short April calls that we HAD to roll to but, then again, that's our strategy – we only have to be "lucky" once in a rolling sequence while the people we sell calls to have to be lucky every single time.  

  13. Dividend Portfolio Review:  Also untouched for the month but managed to make $13,000 (6%) more just drifting along.  Maybe more than that, as I haven't checked if any dividends came in (I usually do that at EOQ).  We made 2 changes last month and there are none to make now as that flurry of activity was only caused by the year ending.   This is a very nice, boring portfolio – other than the time it was down about 50% on March and we added another $100,000 to it to capitalize on the chaos.  Worked out well as we're up $128,089 now at $328,089.

    Earnings Portfolio:  The "problem" with this portfolio is we started it in October and the first earnings were Jan and we only did a couple and then the market crashed and we doubled down because we didn't think it would last this long and then the next Q (April) there were tons of things that got super-cheap, so we aggressively bought things and spent all our money so, since then, there hasn't been much to do but collect the winnings.  

    Last month and the month before we did sell stuff off to raise CASH!!! and now there's $157,871 of it so we certainly have room to shop again.

    Future is Now Portfolio Review:  We didn't change a thing and the balance hasn't changed either.  Lots of cash so we should add some stuff.

  14. Greetings from a 4th world country, Texas.  I was without power for two days.  No TV or internet for four days, no food in the grocery stores and EVERY house on my block with major flooding problems from very minor to total destruction.  Now in Fort Worth, the 15th largest city in the US, we have to boil our drinking water.  Phil, YOU WERE RIGHT- its all about the WATER FILTERS. Please repost the guns vs water filters cartoon you've shown many times and PSW members take this seriously.  This can happen to you!  Luckily, I purchased plenty of bottled water just a couple of days ago because my wife got a “fake text” that turned out to be true.  This destruction is along the scale of any hurricane or other major disaster.  Good luck getting a plumber to your house or a contractor to fix the damage.  As usual, all the politicians pointing fingers at everyone else.

  15. Even pure stupidity seems to trading up 100%. Be careful.

  16. Water filters/Stock – Glad you survived.  People think they need the wrong things in an apocalypse, that's for sure.  

    Have a great weekend folks!

    - Phil


    Special Envoy for Climate John Kerry warned Friday that there are just nine years left for the U.S. to evade the worst possible climate change consequences. 

    During remarks at the Munich Security Conference, Kerry noted that a "group of scientists told us three years ago that we had 12 years."

    "Around 2030 is the date at which we have to get the world now on the right path in order to cap the level of warming at that level of 1.5 [degrees]."

    He made similar remarks during a recent interview with CBS News

    “The scientists told us three years ago we had 12 years to avert the worst consequences of climate crisis. We are now three years gone, so we have nine years left," Kerry said. 

    The former secretary of State appeared to be referring to a 2018 United Nations report, which warned that global emissions needed to decrease 45 percent by 2030 in order to avert 1.5 degrees of global warming. 

    The Biden administration is expected to release an updated set of emissions reduction goals before Earth Day this year. 

    "We all need to develop not just a number but a road map for how we will actually make the dramatic progress we need to make over the next 10 years and what we will specifically do to get to net-zero by no later than 2050," Kerry stated. 

    Kerry also stressed that fighting climate change is important to prevent extreme winter weather like what the country is experiencing in the South from becoming “the new normal.”

    “It is directly related to the warming, even though your instinct is to say, wait a minute, this is the new Ice Age. But it's not," he said. "It is coming from the global warming and it threatens all the normal weather patterns."

    The warning from Kerry comes as the U.S. officially rejoined the Paris climate agreement Friday, but the Biden administration official stressed that just rejoining isn’t enough. 

    "We know that just doing Paris is not enough,” Kerry said during the launch event for a new climate action group called America is All In. “If every country delivered, we’d still see a warming planet Earth.”

    That's right, our 4-year vacation of ignoring the end of the World is over!

  18. At first, the snow was exciting, ethereal, dreamy, said college students who bundled up Sunday night to play like children in the unusual Texas snowstorm.

    Then, the power went out. Pipes burst. Toilets stopped working. Food and water became scarce. The winter wonderland had transformed into a frozen hellscape.

    Four days after nearly a week of freezing temperatures, snow and ice left millions without power and even more struggling to access drinkable water, and college students living on campuses across the state said they’re struggling to get basic necessities. While some campuses have slowly regained power over the past 24 hours, many dorms still lack access to consistent water and food.

    “I feel like I’m in hell, like I’m in prison,” said Texas State University freshman Nicholas Ware, who spent three days without heat and power until Wednesday evening. He’s been living off two meals provided each day by the university and some chips he purchased from a gas station. He hasn’t taken a shower since Sunday due to a lack of hot water and electricity in the shared bathrooms.

    “When you're in here all the lights are off, there's no air, you can hear every movement in the building being made,” he said. “You can’t talk to too many people cause you don’t want your phone to die…Sleeping is like the one thing you can do.”

    Universities have tried to provide students with food and shelter, opening warming centers in campus buildings and providing to-go meals from dining halls. But many are battling dwindling food supplies, staffing shortages as employees struggle to get to work, lack of water and power outages. The situation is particularly challenging for students in large residence halls unable to see their families or access supplies like extra clothing, food or a car.

    Unstable cell service and the internet made it difficult for universities to update students with the latest information,

  19. and then Ted went to Cancun.

  20. Big Short' investor Michael Burry says 'prepare for inflation' – and warns bitcoin and gold might be at risk

    "In an inflationary crisis, governments will move to squash competitors in the currency arena. $BTC #gold."

    This is what Phil said last week (and all along) about bitcoin. 



  21. Miami Envy vs. New York Reality

    They’re partying like it’s 1999. NYC restaurants are opening local outposts daily. Nightclubs are rocking. Traffic is mayhem.

    Are they all killing each other with COVID or do they know something we don’t?

    Right now it feels quite lonely in New York. Yes, there has been a mass exodus (read abandonment) of the monied class from our great city to Miami and Palm Beach. I, and many others, do look forward to completely ostracizing them upon their return—especially those who impulsively gloat over social media on an hourly basis. (There are only so many times a day I can see sparklers from your friend’s birthday dinner or your dim and unappealing shot of that yellowtail with jalapeño sashimi platter.)

    So is Miami the parallel universe? Is New York just a city of ultra-left wing wimps?

    Should we just open up and let the good times roll?

    Miami apartments are now selling at $6,000/ft. with bidding wars, people are begging for reservations at hot Collins Avenue restaurants. There are packed hotel pools and beaches—and record local employment.

    Back at home, many New Yorkers are out of work. And those who aren’t are eating inside plywood curbside restaurant huts for a fun night out. During the day, many parents have to remain home since schools are closed to protect teachers (average age 41) despite only 2 confirmed cases of students transmitting the virus to teachers nationwide.

    But forget the anecdotes. What about the facts?

    Dade County has a population of 2.7 million and 400,000 COVID cases to date. That’s a 14.8% case rate.

    New York City has a population of 8.7 million and 690,000 COVID cases to date. An 8.2% case rate.