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PhilStockWorld December Portfolio Review – Part 1

It's been a rough month for small caps.

The Russell 2000 is down about 10% since our November 16th review but the other indexes are essentially flat.  At the time, our Short-Term Portfolio (STP) was down 54.5%, at $91,022 at the top of the market and we made a few adjustments then and a few more adjustments on November 26th, getting more aggressively short as the new Covid strain came out and now our Short-Term Portfolio is down 40.3%, at $119,379 and up $28,357 for the month.  

It's a little disappointing as our Long-Term Portfolio (LTP) is down about $100,000 and the STP is there to protect the much larger (over $2M) LTP but the hedges don't really kick in on a small drop and the LTP holdings were way overbought at +336.6% last month – we knew that wasn't going to last..  Still, we have to make sure to check our math to make sure we are adequately protected for a larger drop.  

The goal of hedging is to MITIGATE (not erase) the damage of a drop so generally, we're happy to cover 50% of our losses on the way down and we're covering about 30% so we need to check to see if we are not adequately covered or if the missing $20,000 (out of $2.1M) is just a glitch that will work itself out.  Looking at the positions, it's our side bets that hurt us this month:

  • NFLX – These short calls will go worthless in January.
  • SQQQ – Leftover short calls from an old spread, will also go worthless in January.  
  • W – This really hurt us as W dropped like a rock and we went from +$12,975 on 11/26 to -$6,675 – so there's a missing $19,650.  It's not an excuse but we have to realize our primary hedges are working just fine and money is being drained elsewhere.  Now we're in a funny position as we don't like W but we already cashed out the bearish side of the bets and we left this to expire – and it's not working.  The best thing to do here is take advantage of the drop to sell more puts (while they are overpriced), so let's sell 10 2023 $150 puts for $23.40 ($23,400) and we will stop out of the current puts at $60 ($30,000) so it's a roll if we stop out but, if W does bounce back – we might get lucky and collect on both.  

  • AVGO – Another one we got massively burned on.  This was down $7,835 and now it's down $18,957 so there's another $12,000 lost on a side bet.  As with W, AVGO is way over the mark and we only sold 2 short calls so we can now sell 5 April $620 calls for $41 ($20,500) and put a stop on the 2 short Jan $500s at $30,000.  Hopefully it calms down a bit and, keep in mind, these are hedges against a market crash, so we don't mind being bearish as much as we mind being bullish on W.  

  • CMG – Another side bet but this one has been off-kilter for a while, so it didn't cost us anything this month.  You might think "stop making side bets" but these are just the ones that are left at the end of the year – the others worked out.  It's not likely we'll hit the Jan $1,500 puts but we could do better than this so we'll see if they hold that trend-line at $1,600 again.  If they do – we'll stop out.  If not, we should recover a bit.  Keep in mind that the overall play was a net $5,965 credit and, if the short calls expire worthless – that's what we'll end up with and whatever we recover from the puts is a bonus.  Hard to remember making $5,965 was our actual plan!  

So our side bets have cost us $32,000 and the portfolio gained $28,000 so that's $60,000 gained from our main hedges and THAT is  exactly what they are supposed to be doing.  Now we'll see what we can still expect from them:

  • SQQQ – The short calls look very likely to go worthless.  SQQQ is a 3x ETF so the Nasdaq would have to drop 30% for us to get to $12 by March.  If so, the longs would be $140,000 in the money and the current net of the spread is $11,850 so it's well over $128,150 of downside protection against a 30% drop and, of course, we will sell more short calls to knock down our costs over time.  Realistically, we like to calculate a 20% drop, which would be $6.30 x 1.6 = $10.08 and that would be net $100,000+ on the $5 calls so let's call this $90,000 of downside protection as it stands.  

  • TQQQ – This one is almost in the money already, just a twitch lower from the Nasdaq and this 3x Ultra-Long ETF comes crashing down.  So here we look at the $140,000 spread that is currently net $49,850 and count this as $90,000 worth of downside protection.

  • TZA – This is our big one, we thought small caps had the best chance of falling apart and this is a $400,000+ spread at $40 and we're at $30 now so only a 33% move higher puts us at goal.  A 66% move higher would put us in trouble, however, so we'll have to buy more longs if that happens (or spend money to widen the 2024 part of the spread).  Still, it's only net $250 at the moment so we have $399,750 of upside protection against an 11% drop in the Russell – you have to feel good about that!  

So our primary hedges are giving us $580,000 of downside protection against a 20% drop and we're focused on the Russell which are the companies most likely to be crushed if the virus resurges and also the ones least able to quickly pivot against inflationary pressures.  They also suffer more from labor and supply shortages as small caps can't just go out and buy their own trucks, planes or whatever to ease their issues.  

  • UNG – Just a little upside play we made last week and all we need is for Natural Gas (/NG) to stay above $3.50 and we'll colect the full $10,000.  Currently net $1,360 so it's a great little trade for the quarter to come.  

So we've determined that we have $580,000 worth of protection in this $119,000 portfolio and we've also determined that the main hedges are working as planned – so no need to adjust anything, we just need to do a better job on our side bets.  If anything, the adjustment I want to make is decreasing the volatility of the LTP – perhaps selling more short calls – we'll determine that when we get to that review.

Money Talk Portfolio Review:  $208,019 is up 108% in two years for our very low-touch portfolio as we only adjust this one quarterly, when we're on the Money Talk show.  I was just on on December 1st and there's not enough time on TV for anything so we do a companion post the morning of the show and we had a lot of adjustments to make that day as we added 4 new positions and VIAC was essentially new as well since we closed the original spread and set up a new one.  So, in essence, the whole portfolio is pretty much new now.

We shut down PFE as it had made too much money to bother keeping (it was from October 2020) and, overall, the $199,959 portfolio with $167,589 in CASH!!! now had $235,336 in upside potential over the next two years.  I'm NOT going to go into heavy details – as we did that two weeks ago – let's just take a quick look at them and, keep in mind, making $8,000 (1.5%) in two weeks is simply on-track for this portfolio, which should be making $10,000 (5%) per month – and we still have $159,604 in CASH!!! on the sidelines!   Aren't options fun?  

  • BYD – A bet on on-line gaming but also a solid casino play.  The Jan calls will expire worthless and we'll wait for an upswing to sell something else.  Omicron is, of course, bad for business.  

  • GOLD – Cheaper than our entry on this $30,000 spread.  If I could adjust, I would spend $5,000 to roll the 25 2023 $15 calls at $4 to the 2024 $13 calls at $6 since we're spending $2 to roll down $2 (increasing the upside delta) and buying a year to make gains for free.  If we didn't hit $27 by Jan, 2023, we could then get our $5,000 back selling more short calls so it wouldn't make any sense not to do this roll – BUT WE CAN'T – as the rules are we only make trades on the show.  

  • HPQ – They were so undervalied when we bought them but more realistic now.  Over our $35 target a year ahead of schedule.   Still only net $8,000 on the $20,000 spread so not bad for a new trade.  

  • IBM – Our Trade of the Year means it's the trade I feel is most likely to give us a 300% gain on cash over the following 12 months.  Already a very nice $5,650 (217%) gain for us in two weeks but it's still only a net $8,250 entry on the $30,000 spread that's 100% in the money right now.  If they are just going to give money away like this – why not take some?  

  • INTC – Last year's Trade of the Year, which was so good we cashed it in early and now we are back.   Some people see an ugly chart – I see millions of traders who have no idea how to value a company. 

  • MO – We're betting pot is legalized and they make a fortune but, if not, they'll just keep killing people the old-fashioned way.  Of course, if they do cure cancer – will more people start smoking again?  

  • SPWR – Just read an article that expectations for solar sales in 2022 are down 25% due to supply shortages.  Not just SPWR – the whole sector.  This is a real long-term investment for us so we'll just put in more money and keep rolling if we have to.  Hopefully $20 holds.

  • VIAC – The only stock more hated than VIAC is T – and we'll probably add that next quarter.  I think $40 is a very conservative target and I keep expecting them to get bought for more than that – this is just silly.  VIAC has 50M streaming subscribers already, NFLX has 200M but NFLX has a $267Bn valuation and VIAC is valued at $20Bn.  VIAC makes $2.4Bn a year and NFLX makes $5Bn – so I guess the 13x value makes sense – to someone…  It's too scary to short NFLX but I feel very good about being long VIAC – as their streaming service (Paramount +) is fairly new and growing fast and not even contributing to the bottom line yet.  

  • WBA – I've been banging the table on these guys for a long time and they still aren't going anywhere but our play is conservative and we have plenty of time.  

A great collection of spreads I have a lot of faith in and I need to – as we can't make adjustments between shows.  It's a good example of how you don't have to constantly tinker with your portfolio to make great returns – you just have to pick sensible stocks and set up spreads that reward you for sensible growth.  We don't swing for the fences here – but we still manage to make 50% annual returns.  

 


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  1. ‘Diet’ soda is disappearing from store shelves


  2. Good morning!  

    Should be at least some bounce this morning.  No reason to change our lines, we're still in the range:

    • Dow  36,000 to 34,200 has bounce lines of 34,560 (weak) and 34,920 (strong) 
    • S&P 4,700 to 4,465 has bounce lines of 4,512 (weak) and 4,559 (strong) 
    • Nasdaq 16,500 to 15,675 has bounce lines of 15,840 (weak) and 16,005 (strong) 
    • Russell 2,400 to 2,080 has bounce lines of 2,144 (weak) and 2,208 (strong)

    Just keep track of whether we're gaining or losing ground and keep in mind this is the bounce ZONE, the top of which is a 40% recovery of the drop so, once we are over it, we probably have another 60% (of the drop) to go up but, if we fail it – then another 5% (of the total) further down is very likely.  


  3. THO director buys $1M stock on Dec 10.   Our play from last Wednesday below     

    There's a hidden gem.  THO is in a pretty good trend as people are using RV's to live in.  They are on a great growth path and $720M in profits is over 10% of their $6Bn market cap at $106.  They are super-attractive over the option prices too so, for the Future is Now Portfolio (where no one can afford a proper home anymore), let's:

    Sell 5 THO 2024 $100 puts for $22 ($11,000)

    Buy 10 THO 2024 $100 calls for $30 ($30,000)

    Sell 10 THO 2024 $130 calls for $17.50 ($17,500)

    That's net $1,500 on the $30,000 spread that's $8,500 in the money to start.  Upside potential at $130 is $28,500 (1,900%) and the worst case is owning 500 shares at net $103.  


  4. THO/Stock – Well about time someone called a bottom.

    JPM +1.21%Dec. 14, 2021 10:54 AM ET

    • Wall Street investment giants Goldman Sachs (NYSE:GS) and JPMorgan Chase (NYSE:JPM) plan to expand its bonus pool for investment banking to retain bankers, people familiar with the matter told Bloomberg.
    • Goldman Sachs (GS) could boost its investment banking bonus pool by about 50%, and JPMorgan Chase (JPM) may reach a 40% jump, the people told Bloomberg.
    • "You are paying for retention and not just paying for performance," said former Goldman Sachs Banker Eric Dobkin. "This year, the firms may well have to overpay to keep the people they most want."
    • Recall towards the end of November, Goldman Sachs (GS) introduced new employee perks to address worker burnout.
    • Additionally, the investment banking business, which covers M&A advisory and underwriting groups, "is poised for the biggest windfalls after recent meetings to set pay for the year," the people told Bloomberg.
    • Meanwhile, shares of (GS +1.1%) and (JPM +1.2%) rise intra-day as the long end of the U.S. Treasury yield curve gains.
    • Last week, Goldman Sachs could cut back on its annual 5% firing of bankers.

    BABA +2.46%Dec. 14, 2021 10:51 AM ET1 Comment

    • Chinese tech stocks were mixed on Tuesday, with Alibaba (NYSE:BABA) on the rise and JD.com (NASDAQ:JD) slipping into the red after Chinese regulators slapped a fine on social-media company Weibo (NASDAQ:WB).
    • According to a report from CNBC, the Cyberspace Administration of China fined Weibo (WBthe equivalent of $471,151 because some of its accounts content violated Chinese laws over illegal content online. The fine is one of the latest moves in a line of steps that Chinese regulators have taken this year to exert more influence over China's tech industries.
    • Weibo (WB) shares gave up almost 1.6% as trading progressed.
    • Among other Chinese tech companies, Alibaba (BABA) shook off its early losses to rise almost 4%, JD.com (JD) was off by 0.7%, Pinduoduo (NASDAQ:PDD) edged up by 0.4%, NetEase (NASDAQ:NTES) added 0.3%, Baidu (NASDAQ:BIDU) was up by 0.2% and Tencent Holdings (OTCPK:TCEHY) slipped by 0.5%.
    • Last week, Alibaba (BABA) got a lift when Macquarie Research analyst Ellie Jiang set an outperform rating on Alibaba's (BABA) stock, saying the company is building a "strong moat" around its business.

    In the LTP, it only costs us about $10 to roll 40 BABA 2024 $180 calls at $10 down to 40 2024 $140 calls at $20.50 so let's do that.  


  5. Bugs across globe are evolving to eat plastic, study finds


  6. Why Companies Are Hesitant to Invest, Even if Demand Is Soaring




  7. Japan’s Toyota promises more electric models, investment


  8. ‘This is a charade’: GOP senator, voting experts urge Wisconsin Republicans to halt election attacks


  9. index volume looks very low.


  10. “If it becomes necessary to get yet another boost, then we’ll just have to deal with it when that occurs"….

     

    In proper context, the above Dr.Fauci comment looks a lot different than the above headline from Fauci to "Deal with it"….

     

    …of course, the article is from deseret news… :(


  11. Phil / VIAC – Very interesting  - Viacom no.1….

    https://morningconsult.com/fastest-growing-brands-2021/

     

    The Fastest Growing Brands Overall

     

    This ranking is determined by measuring growth in purchasing consideration over the course of 2021. The “Growth” score represents the net shift between the share of consumers who said they were considering purchasing from the brand in January 2021 and the share who said the same in October.

    Morning Consult Brand Intelligence tracks consumer perceptions on thousands of brands on a daily basis, forming the basis of this report.


  12. I'm sure it's dead.  People just lose interest around mid-December.   

    Of course not being able to rally on low volume is – BAD.  

    • Uber (UBER +4.4%) shares leap after CEO Dara Khosrowshahi told investors that last week was the ride-hailing company's "best week ever in terms of overall gross bookings.” According to Khrosrowshahi, Uber is on track to reach the high end of its adjusted EBITDA forecast.
    • Our overall mobility business continues to get closer to pre-pandemic levels,” He added at a digital fireside chat hosted by UBS. “We’re starting to inch up to call it like the 90% mark, we’re not quite there. Last week was our best week, you know, post-pandemic.”
    • Additionally, Khosrowshahi said that the Uber Ads business is performing "well ahead" of expectations and is profitable.
    • The positive Uber comments are also pulling peer Lyft (LYFT +2.7%) higher.
    • UBS sees a path to $80 for Uber based on evidence that it is taking market share from competitors like Lyft.

    AMGN +1.43%Dec. 14, 2021 12:14 PM ET1 Comment

    • Amgen (NASDAQ:AMGN), Moderna (NASDAQ:MRNA), and Sarepta Therapeutics (NASDAQ:SRPT) have pulled out of the upcoming J.P. Morgan Healthcare Conference due to COVID-related safety and travel concerns, Stat News reported citing people close to the companies. More biopharma companies are reportedly weighing whether to follow suit.
    • J.P. Morgan Healthcare Conference, scheduled to take place from Jan. 10 – Jan. 13 in San Francisco, is considered one of the biggest events in the biotech calendar.
    • J.P. Morgan Chase, the organizer of the event, has resisted calls for virtual presentations. Instead, the bank has insisted CEOs attend the event in person, prompting the companies wary of close interactions with attendees to push back.
    • On Monday, Los Angeles imposed a state-wide requirement for indoor mask-wearing beginning Wednesday. The mandate applicable for all indoor public places regardless of the vaccination status will be in effect until Jan. 15.
    • The newly found Omicron variant of coronavirus has sparked renewed fears over COVID-19 across the globe amid concerns over its impact on vaccine-driven protection against the virus.

    DISCA +0.40%Dec. 14, 2021 11:36 AM ET15 Comments

    • A sharp valuation drop in the last three quarters of 2021 is presenting the opportunity to nearly double investment in a media company headed for a transformation in the coming year, Citi says.
    • There will be enough scale and free cash flow in the company emerging from the combination of Discovery (NASDAQ:DISCA) with WarnerMedia (NYSE:T) to make a Discovery that can de-lever while "aggressively" investing in direct-to-consumer content, analyst Jason Bazinet and team write.
    • "Firms that allocate a larger share of their total content spending on DTC fetch a higher EV-to-Sales multiple," Citi says.
    • The spin-off and combination are targeted for the halfway point of 2022. Between the second half of 2022 and 2024, the new Discovery could generate $24 billion in free cash flow, assuming investments hold steady, Citi says. "And across 10 quarters, we expect $12 billion of FCF to be directed toward debt reduction, $10 billion to be reinvested in DTC content and $2 billion to be spent on buybacks."
    • Rising EBITDA combined with debt reduction means that gross leverage should fall from some 5.3x in 2022 to around 3.0x in 2024 (and net leverage to cut in half, from 4.2x now to 2.1x in 2024).
    • Meanwhile, it estimates the pro forma company spent about a third of its $18 billion of total content outlays in 2021 (or about $6 billion) on DTC apps – and sees DTC outlays to hit $16 billion of a total $28 billion by 2024, or closer to 55%.
    • That increase spending should help multiples as the Street gives higher EV/sales multiples to those directing more spending share to DTC, Citi says: "Based on the current multiples for Netflix, Disney and ViacomCBS, every 10% increase in the share of total content spend that is directed to DTC assets causes EV-to-Sales multiples to expand 0.8x."
    • Leverage will be high next year at 5.3x gross, and Discovery is behind both Netflix and Disney in the pace of its DTC pivot. But the new Discovery should have the revenue scale (at $53 billion by 2024) to compete.
    • Discovery has slipped 71% from its 52-week high reached in March.
    • It's valuing the new company at 2.9x EV/sales and 20.1 EV/EBTIDA using 2024 estimates – akin to $44/share, now implying 95% upside.

    FB -1.14%Dec. 14, 2021 11:33 AM ET7 Comments

    • Meta's (NASDAQ:FB) Instagram service has surpassed 2 billion monthly active users, CNBC reports.
    • The news outlet, citing sources familiar with the milestone, noted that Instagram surpassed the milestone this fall.
    • The sources told CNBC they learned of the figure in internal conversations and the milestone was hit roughly one week before the company changed its name in October.
    • In June 2018, Instagram said it surpassed 1 billion monthly active users, but has not updated figures since then.
    • Meta Platforms (FB) shares are down more than 1.5% to $328.93 on Tuesday, but have gained more than 22% year-to-date.
    • Last week, venture capitalist Roger McNamee, an early investor in Meta Platforms (FB) when it was previously known as Facebook, gave a failing grade to Instagram chief Adam Mosseri, saying the social media bigwig deserved an "F" for his performance in front of a congressional committee earlier this month.

    Not even much news going on.

    News/1020 – Everyone has their own slant these days.  Do they even teach ethics in Journalism anymore?  

    VIAC/Batman – I know, it's very interesting to me how people just don't get VIAC.  Notice we own all top 4 brands.


  13. UK Omicron infections ‘could reach 1m a day by end of December’





  14. Hi Phil,

    Is it advisable to wait before California Solar Incentives get decided before jumping into spwr? Seems to be heading lower continuously

    Thanks


  15. SPWR/Harip – It's always good to wait for better information but CA incentives wasn't the reason we were long on them.  

    Another weak finish.