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$2M Tuesday – Our Long-Term Portfolio Hits a Milestone

$2,003,426! 

That is JUST the net of our Long-Term Portfolio, up about $44,000 since our July 15th review and I'd love to take all the credit for it but July 15th just happened to be a dip in the S&P (and we're generally playing blue-chips in the LTP) and we have since recovered about 200 points (5%) – back to new all-time highs on the S&P 500 – again.

Still, it's a big milestone and the last time we hit $2M in the LTP was September of 2019 and we decided that was ridiculous and we cashed out and then we started the new LTP in October of that year, with a fresh $500,000 commitment.  This was all very fortunate for us because, when the crash came in March of 2020, we still had very few positions (we were waiting for Q1 earnings reports) and we were able to jump in and pick up a lot of great stocks on sale.  

Now I have very much the same feeling as I had in late 2019 – that the rally has been too much, too fast and we're long over-due for a correction.  It may be the Delta varient or it may be something else that sets it off but we are simply paying far too much money for the average stock and there's bound to be a reckoning at some point.  

What caused the Internet Bubble of 1999? | Global Entrepreneurship InstituteFOMO is, of course, the Fear of Missing Out and of course we'd hate to miss out on a 1999-like spike up but, on the other hand, it would be a real shame to get caught in another 2000-like spike down – or 2008 or 2020 – what is the plan for that BEFORE you decide to let it all ride.  

I will say again what I said last time we cashed out:  If the rally continues, we will turn $500,000 into $2M again and it's not like we don't make any money on the $1.5M we move to the sidelines, we just put them into very well-hedged, long-term positions or blue-chip dividend stocks or invest in a businss or rental properties – something besides the open market.  So we'll make a return there too

Having $1.5M on the side allowed us to be very aggressive when our positions dropped 20-40% back in March of 2020 but had we remained fully invested with $2M and it dropped to $1.2M – we would have simply sat on our hands praying to get back to $2M, rather than making a fresh $1.5M, right?  

That's something people don't take into account when deciding whether to cash in their positions – the flexibility it gives you to take advantage of the next opportunity.  That's why Warren Buffet is always looking to raise more cash – you never know when it's going to come in handy!  

Cash on the SidelinesWe do have plenty of cash on the sidelines in the LTP – $1,182,481 is 59% of the portfolio's value and we're only using about 1/4 of our margin buying power but we have a lot of short put positions that can turn ugly on us in a sharp downturn.  We do, of course, have very strong hedges in our Short-Term Portfolio (see that review on July 13th), which have about $585,000 worth of downside protection against a 20% drop in the indexes.  Even that would still leave us with multiples in the mid-20s – but it's a start.  

But it's not just about that.  You have to think ahead psychologically as well as strategically and there's a big difference between the market dropping 20% and us staying about even or losing 20% (hedges don't 100% protect you) in our portfolios vs. the market dropping 20% when we are sitting in cash and ready to buy.  It was only last year that we went through this very thing and we had a great time buying stock – BECAUSE we were mainly in cash and did not have legacy positions to worry about.  

So you have to game (theory) this out and think about where we'll be better off.  Many of our LTP positions are near their caps, so we won't double up, perhaps we'll make $1M more in a strong market (+20%) but we had only $1,102,871 in our LTP/STP combo last April and that's doubled in 16 months so if we go back to $500,000/$100,000 in our LTP/STP and that doubles, that's $600,000 more anyway so we're "risking" making $400,000 less in a best-case scenario.  

In the worst-case, if we move $1.5M (the STPs money too) to the sidelines – even if we lose the entire $600,000, we are far better off.  If the market is flat – I'd rather be more flexible and aggressive with cash than a lot of mature positions.  So there's my thinking – I'm strongly leaning towards cashing out next week – let me know if you have a different opnion.

 


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  1. Good morning!

    Perfect timing as the S&P blasts higher this morning.  

    • The summer trading action continues, with the stock market little changed. Investors may be exercising caution ahead of tomorrow's retail inflation data.
    • Indications of persistant inflation would be a further push for the Fed to get the ball rolling on tapering asset purchases.
    • "As we look out over the remainder of the year, our favorable view on the equity market remains intact," Guggenheim's Michael Schwager writes. "While second half gains are unlikely to be as robust as what we saw during the first six months of the year, we feel the supportive macro environment should continue to provide a sturdy backbone for additional upside."
    • "As we enter the seasonal difficult period for the markets, a near-term period of consolidation cannot be ruled out," Schwager says. "If a pullback were to occur in the months ahead, we would view it as a healthy correction and not the start of a broader move lower. Hence, periods of weakness would be viewed as buying opportunities."
    • The Nasdaq (COMP.IND) +0.2% is performing a little better than the Dow (DJI), flat, and the S&P (SP500) +0.1%.
    • The S&P has gone 191 days without a 5% correction.
    • Sector leadership is mixed for the S&P among cyclicals, growth and defensives. Energy (NYSEARCA:XLE) is at the top, rebounding as crude regains some of yesterday's losses.
    • The 10-year Treasury yield is up 1 basis point to 1.33%. Another up day would make it five in a row, the longest rising streak since late January and early February.
    • Vaccine news is still in focus with the spread of the Delta variant. The CDC will discuss booster shots this Friday.
    • And climate change is also getting attention. The U.N.'s code red warning could help green stocks break out of their malaise.
    • See the individual stocks making the biggest moves this morning.

     

     

    • Q2 Productivity and Costs+2.3% vs. +3.5% expected, +5.4% prior.
    • Y/Y, nonfarm business sector labor productivity increased 1.9%.
    • Q2 marks the fourth straight quarter with increases in both output and hours worked after historic declines in both measures in Q2 2020. Over those four quarters, nonfarm business output increased 15.8%, putting the index 1.2% above Q4 2019's level.
    • Unit labor costs: +1.0% vs. +1.2% expected and +1.7% prior.
    • The costs increase was a combined effect of a 3.3% increase in hourly compensation and a 2.3% rise in productivity.
    • Unit labor costs rose 0.1% over the last four quarters as hourly compensation increased 2.0% and productivity rose 1.9%.
    • Manufacturing sector labor productivity increased 6.9% in Q2, with output up 3.8% and hours worked down 2.9%. Unit labor costs in the total manufacturing sector fell 1.9% during the quarter, reflecting a 4.9% decline in hourly compensation combined with the 6.9% productivity increase.
    • On Monday, June job openings increased to 10.07M, for a job openings rate of 6.5%, vs. 9.48M prior.

    The roughly $1 trillion infrastructure package—one of the most substantial federal investments in roads, bridges and rail in decades—advances a central piece of President Biden’s economic agenda. 6 min read

    That's why we've been holding on to our longs – this free money train just never stops.  

    Restaurants that survived waves of closures last year had headed into the summer optimistically as many occupancy limits were lifted. But individual operators and industry data now point to a more mixed picture.116 5 min read

    SoftBank said a decline in the value of many holdings in its investment portfolio sent its profit lower during the latest quarter, showing that headwinds are rising for the world’s biggest tech investor. 3 min read

    hand takes pizza ?????? ????????/iStock via Getty Images

    • Pizza Hut and Beyond Meat (BYND +2.1%) announces partnership to test new plant-based Beyond Pepperoni Pizza topping.
    • Beginning today, the Beyond Pepperoni Pizza will be available as a test in nearly 70 Pizza Hut's locations across five U.S. markets for a limited time. 
    • Beyond Pepperoni was co-developed by Beyond Meat and Pizza Hut that involves plant-based ingredients like peas and rice, with no GMOs, soy, gluten, hormones, antibiotics or cholesterol.
    • "We know there is strong consumer demand for pepperoni, and we're thrilled to unveil a game-changing plant-based pepperoni topping as the next chapter in our innovation-focused partnership with Pizza Hut," says Dariush Ajami, Chief Innovation Officer of Beyond Meat.
    • Beyond Meat issued what it calls cautious guidance due to the potential for demand to be disrupted by the recent uptick in COVID-19 cases.

     

     

    • Famed short-seller Jim Chanos, founder of Kynikos Associates, said Tuesday that the retail investors trading in AMC Entertainment (NYSE:AMC) are doing so for "misguided reasons."
    • Chanos told CNBC that the fundamentals for AMC have actually deteriorated since the beginning of the year, based on analyst expectations for its EBITDA and revenue, even as the stock price has increased in value by 18 times.
    • Chanos' remarks followed the release of quarterly results from AMC, which showed a narrower-than-expected loss and revenue of $437.6M. AMC jumped more than 10% in pre-market action, bolstered by the earnings report.
    • The Kynikos Associates founder questioned whether the so-called "AMC Apes" were "cognizant of all the risks they are taking" by holding shares of the struggling movie theater chain.
    • "If you keep doing dumb things, if you keep saying, 'I'm a nihilist, I eat crayons, I don't care about this, I don't care about that,' well if you end up losing money, you only have yourself to blame," he said.
    • Chanos, who says he has a small put position in AMC, doubted whether the theater chain could ever return to its pre-pandemic levels of revenue given the changes in the entertainment industry over the past two years.
    • Specifically, he pointed to the fact that more media companies have chosen to release high-profile movies directly to their streaming services.
    • "Something has changed, and that change is streaming," he said of the challenges to AMC's business compared to where it was in 2019.
    • For people wanting to bet on a recovery in the movie theater business, Chanos highlighted Cinemark Holdings (NYSE:CNK) as a better investment. He noted that the company had a much cheaper valuation than AMC.
    • For a similarly bearish take on AMC, check out a report from ASB Capital, who said before the release of the company's results that there were "warning lights ahead."







  2. Covid could be even easier to eradicate than Polio


  3. The only thing against a sellout is market sentiment and a shortage of other opportunities. Real estate is a bubble too. But I'm taking a hard look at risk reward on each of my positions with a bias toward cash with the thinking that it's ok to give up the last few percent to set by some dry powder and find better trades. There's no shortage of trades, even now with the market insanely overvalued. PSW has had a ton lately and we only look at large caps on this site. And I often get 20 or 30% quickly in a new trade vs letting an old trade ride out for another 6-18 months to make the last 10%? Nah. I'm cashing out the old and putting half in new positions and half in cash. 


  4. Phil/PFE

    20 '23 $30c ($7)

    -20 '23 $40 ($3.3)

    -10 '23 $33p ($5.1)

    Would you sugg try to roll the short $40s to $45s for under $2.5?

    Thx!


  5. Opportunities/Dawg – We had 9 Top Trade Alerts in July.  If we added 9 positions a month we'd have 100 trades in the LTP so I'm not worried about a shortage of opportunities.  Something always goes on sale and having cash gets us to focus on what's great now – and we can play more aggressively and be more nimble with our adjustments 

    Recently, as Top Trades, we liked LPL, TROX, HPQ, HBI, VTRS, WHR….  That's the last two weeks so I never have an issue starting from scratch.  

    This is the real problem – up another $21,000 today.  You do hate to miss days like this:

    REYN took a big pullback.  In the LTP we just DD'd on them but there's another one that would be a new play already:

    Also still cheap and in the LTP:

    So there's a few ideas for starting a new LTP (or we just won't get rid of those). 


  6. Phil / WTRH

    The co took a hit post-earnings, are any position adjustments in order? TIA


  7. GOLD – I bought a GOLD and a WPM position at about the same time and WPM is doing nicely while Barrick is bleeding out. Reminds me daily that I'm not batting 1.000  

    DD – what do you think of the new iteration of DuPont? Seems like it's got the high growth part of the old Dow/DuPont product portfolio. And the PE is really low. 


  8. on WTRH, I rolled my calls down from the $2 strike to the $0.50 strike and the trade executed just before earnings so I certainly took it on the chin today.  I haven't bothered rolling the puts but I probably will over the next few days once things have stabilized.  I haven't checked to see why they fell so hard other than a revenue miss.


  9. NY Post article, shari redstone shopping for suitors besides Comcast

     

    VIAC


  10. PFE/Wing – I don't often do that as you are taking a bird in the hand and paying to throw it into the bush – that seems silly.   As it stands, it's a net $20,000 spread at full value and you propose spending $5,000 to make it a $30,000 spread – still in the money.  

    Instead, I'd buy 20 June 2023 $45 ($7.50)/$55 ($3.80) bull call spreads for $7,800 and those will either pay back $20K (bonus +$12,200) if PFE keeps flying higher or, if it doesn't, you can sell 10 (1/2) of the 2023 $30 calls (now $18.60 = $18,600) and then you'd have net $10,800 off the table and the weird spread but you could stop out 1/2 (10) of the 2023 $40 calls (now $10) at $12 or over $50 on PFE for $12,000 and then it would have cost you net $1,200 more to have 10 of the 2023 $30/40 spreads and the in the money $20,000 spread for the same potential $30,000.

    WTRH/Hwt, JPH – Ouch, $1.29!  

    WTRH Long Call 2023 20-JAN 2.00 CALL [WTRH @ $1.30 $-0.29] 50 4/22/2021 (528) $7,500 $1.50 $-1.00 $1.50     $0.50 $-0.10 $-5,000 -66.7% $2,500
    WTRH Short Call 2023 20-JAN 4.00 CALL [WTRH @ $1.30 $-0.29] -50 4/22/2021 (528) $-5,000 $1.00 $-0.78     $0.23 - $3,875 77.5% $-1,125
    WTRH Short Put 2023 20-JAN 3.50 PUT [WTRH @ $1.30 $-0.29] -20 4/22/2021 (528) $-4,000 $2.00 $0.73     $2.73 - $-1,450 -36.3% $-5,450

    We're down about $4K on this but I'm not sure they are worth saving.  Seems to me they are miles off plan.  They lost $4.7M after making $1.4M in Q1 so a big, unexpected step backwards.  They do have $60M left but can't afford more Qs like this one – this isn't biotech – they are supposed to be able to make a profit at this stage!   Have to look at them more carefully.

    GOLD/Dawg – Disappointing but I love them long-term.

    DD/Dawg – Such a mish-mash it's hard to say but $77.50 is $40Bn in market cap and I think their potential is well over $2Bn in profits and, of course, we should expect nice growth ahead.  Worth watching in the very least.


  11. VIAC/Stock – For $26Bn, a lot of people might be interested.  

    Say goodnight, Gracie:

    Burns And Allen George Burns GIF - BurnsAndAllen GeorgeBurns GracieAllen -  Discover & Share GIFs