Mid Year Performance

 

Aloha all, I’ve been lazy for a month without any addition to the blog. Gonna try to turn the ship around if I can. 

When I started this blog earlier this year I summarized my performance for 2017 in my two trading accounts. I have an IRA that I call my speculative account and a taxable account that I call my conservative account. 

For 2017 I made about 75% in the speculative account and about 35% in the taxable account, which I will now call my moderate account.  

So now as we approach the end of the second quarter I am happy to report that since January 1st of this year I am up about 29% in the speculative account and DOWN about 6% in the moderate account 

If you combine the accounts, I am up about 10% overall. My professionally managed accounts are up about 2.5% over the same period. 

Some may ask why I don’t manage my whole account rather than put up with this meager 5% annualized return on the managed accounts? The answer lies in the divergence of my two accounts. If I did this and practiced what I do in the moderate account then I could be down 6% instead of up 2.5% on the bulk of our assets. There’s no guarantee I can duplicate what I do in the speculative account. Remember, too, that there are no tax implications in the speculative account. And besides, I’d have to go back to not sleeping at night. 

I make too many daily trades to really document them here but over the last month or two I have pocketed some really good gains in $AMZN, $TWTR, $SQ, $TSLA among others. I went into this early quarter with both calendar put spreads and calendar call spreads in these names. Slowly I have sold off the put spreads and rolled the call spreads up. I am preparing to add some put spreads to all the names I am long now. 

I’ve got two recommendations for the 2-3 people that read this. First the Animal Spirits podcast can’t be beat, you can find it here and here. 

Secondly I’ve read Joel Greenblatt’s ‘The Little Book That Beats the Market’. Check out the synopsis on Amazon here, and it’s relevant website here. 

As always, please comment! God knows I have 50 or so registrations a day, are they all bots? (Simple answer is yes, but why are they doing that?) 

I live in Austin, Texas. I want to thank the FBI, the ATF and the Austin Police Department for their hard work. We all owe them our gratitude.

If you have read my blog over the last few months, you know I really try to avoid commenting on the political climate now in the US. As far as investing and trading goes, I think it is counterproductive to do so. 

Recently, many in Washington have denigrated the FBI and the Justice Department, eroding trust in these institutions. I think this is dangerous. 

I probably wouldn’t comment on this today, but I live in Austin and there have been 4 local bombings and 1 bombing in a Fedex facility just south of Austin.  

There has been a HUGE influx of federal agents into town, according to our local news channels. This includes agents of the FBI and the ATF. 

I want this to be over as soon as possible and I believe it will only come to an end after a lot of work by these federal agents as well as our local police. 

Those of us here in Austin, as well as everyone else in this great country owe these law enforcement agents a huge debt of gratitude. 

The Cult of Personality, the Fallacy of Testimonials $VRX $GS $NFLX $HLF

We are fascinated in this country by celebrity, turning our most valuable asset constantly in their direction. We watch their tweets, buy their books and listen when they speak. 

When people become celebrities in the financial community we put them on TV, we listen to what they say and we give them our money. If we don’t give them our money, we follow them into trades thinking that whatever made them rich, will also make us rich. 

Thursday night I watched an episode of Dirty Money on Netflix. It’s an excellent series. The episode I watched on Thursday was titled ‘Drug Short’ and started off with Martin Shkreli and his legacy of acquiring the rights to Daraprim, a drug used in treating patients with HIV, and then raising the price 5000%. This action, although lucrative, is immoral. The documentary then goes on to investigate the pharmaceutical company, Valeant. 

 

Valeant ($VRX) took Wall Street, and particularly Bill Ackman of Pershing Square Capital, by storm. This company acquired drug companies, eliminated research and development (R&D) and raised the prices on orphan drugs, a la Shkreli. The stock price soared helped along by presentations by Ackman and Valeant’s CEO Michael Pearson.  

Ackman seems to have fallen for Pearson’s cult of personality, and much of the financial news industry seems to have fallen for the Ackman’s cult of personality.  

The last year hasn’t been kind for either of these two men. VRX is down about 90% from its highs and Pershing Square has had a horrible year, losing money when everyone else has been making money. Even after Congressional hearings when Ackman promised to look into pricing, nothing has changed about orphan drug pricing. Syprine, a drug used to treat Wilsons Disease, is still about 2500% higher than it was in 2010. 

On Friday at Fast Money Halftime, over half of the hour was taken up by the report that Lloyd Blankfein may leave Goldman Sachs. Although newsworthy, I’m not sure we needed to spend that much time with this, but again it points our fascination with personalities instead of performance. 

Just because someone is rich, doesn’t mean they are smart or gifted. It’s entirely possible they were lucky and we only pay attention to those that are rich, whether by skill or luck. 

We still pay attention to Ackman because he is still rich. Take a look at his big bet on Valeant, or his big short on HerbaLife and then tell me if you think he is smart/gifted? 

At the very least, we should be skeptical of what anyone says, especially celebrities, financial or otherwise.  

Trump Holds Firm on a Trade War, Let’s Hope it Gets Derailed.

Aside from Wilbur Ross and Peter Navarro, almost everyone disagrees with Trump’s new steel and aluminum tariffs. Even Paul Ryan today admits he is very worried. And worried he should be. 

I promised last post to outline why I think these tariffs may very well pose a real hazard to the market and the value of our trading and investing accounts.  

The corporate tax cut has predictably accelerated the economy. The problem is we didn’t need the stimulus right not. Stimulus should be saved for recessions. But, the reality is that the tax cuts have passed and been signed. No going back. 

Predictably, the tax cuts have ballooned the deficit. Trillion and a half, more or less. No problem, say its proponents. Accelerated growth of the GDP will take care of it, and in the meantime, interest rates remain low.  

But now with these tariffs there is real concern that growth could stall because input costs could rise. If input costs rise then finished products cost more. Voila, inflation! 

Inflation could hinder the growth of the GDP and inflation could force the Federal Reserve to raise interest rates more quickly. If this happens then our ever-widening deficit could become much more expensive to finance. Voila, recession! 

I think this line of reasoning is why the market took a knee jerk swoon when Trump announced these tariffs. Should they become enacted against the wishes of everyone but Trump, Ross, Navarro and every steel and aluminum CEO, we might see a repeat.  

I’m holding out hope that someone can talk him out of it, but I keep coming back to this quote by the Existentialist, Ralph Waldo Emerson: 

“A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines. With consistency a great soul has simply nothing to do. He may as well concern himself with his shadow on the wall.” 

“Grown Men Will Weep” says Kevin O’Leary on Fast Money Halftime Report. Why will they weep, and what about grown women?

Today on CNBC’s Fast Money Halftime report Kevin O’Leary stated the QQQ should just change it’s name to AMZN. After he was challenged on that, he changed the point he was making to be that AMZN and NFLX had “insane” valuations. 

He went on to say that these names will eventually blow up and that “grown men will weep”. Are we to believe that grown women will maintain their composure during this apocalypse? Perhaps he just left them out accidently.   

His relatively short exposure on the show at the beginning made me wonder, is his appearance on the show really just an arrangement whereby the show gets a bit of apocalyptic talk and O’Leary gets some exposure for his O Shares investment product? 

O’Leary appears on CNBC with regularity. He always projects an image of calm and sanity. He only recommends stocks with dividends, particularly if they are “succulent”. Today he criticized Josh Brown for owning AMZN (despite Josh correcting him that he doesn’t own it). 

He also implies that he is studying all the balance sheets of the US based mid-cap companies finding those that will have outsize benefits from the most recent tax cut legislation.  

I think O’Leary is just marketing with these appearances. He’s not trying to give good advice to those of us trying to trade. He is just trying to scare us into buying into his ETF products. 

O’Leary is not the first of these marketers. In the relatively recent past, Dennis Gartman used to come on frequently and used to tout the buying of gold in a currency other than dollars. I thought at the time, and still do, that this is an absurd recommendation to those that may be watching the show. Gartman went on to launch some Risk On/Risk Off ETFs. I always got the impression that Melissa Lee didn’t really think much of Gartman.  

Before Gartman, there was Peter Schiff who believed that buying gold was the answer to everything. He was always sitting in front of a backdrop promoting his firm.  

And before him was Scaramucci . . . . .  

All of them, well maybe not the Mooch, had an apocalyptic shtick. They were the voices of reason in a topsy turvy world. Maybe just the sort of advisor that a senior, retired investor or widows/orphans might want. 

Who doesn’t love free advertising? 

Hell, I’ll go on if they want. Problem is, I don’t have an apocalyptic vision. That’s what sells . . . .  

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