7net11: The Arrogance of Wall Street in Full View - The Robinhood Dilemma

Perhaps I see the world through rose colored glasses. However, as I have grown older, I assumed that many in this world, especially the individuals that I hold in high regard for their financial successes, have concerns for the greater good in their heart.

"WRONG." After listening to some Wall Street talking heads and billionaires that have themselves been recipients either directly or indirectly from tax cuts and PPP loans and THEN attacking the common working person for using such investing apps as Robinhood, I have become WOKE to the unabashed arrogance of Wall Street (AGAIN).

To say, "many do not deserve a stimulus check" and "many are making more on unemployment now than they do when working" as a mean dig to validate market volatility created by new/small investors, is a completely tone deaf response to the situation we as a country face right now.  How dare these individuals blame the everyday working person for creating more volatility in "their" markets, making the ride to their future gains rockier than necessary.

"TRUE." Many new investors do not have the skills or the understanding to sustain long term gains in the stock market. This has been the case since the stock market began!

That said, do these same Wall Street individuals really think that new investors have that much POWER to move the markets? Compared to their own turret systems and supercomputers that both hedge the market and manipulate it with high volume trades? 

This out of touch and entitled response by some on Wall Street EXPOSES the truly arrogant and unacceptable situation this country faces now as we move forward. It is this type of behavior that makes our economy toxic. It is this type of behavior which will expedite the failure of capitalism to future generations. 

We are better than this. I challenge all on Wall Street to put on their empathy hats, roll up their sleeves, and try to see beyond their own situations for the benefit and care of the greater good.

7net11: Anton Kreil - The Real Deal. Great Seminar about Investing.

Appropriate viewing for today. Enjoy!

7net11: Are you a Prudent Investor, or just a Gambling Stooge?

Discipline makes a great investor over the long term. Anyone can have a great day in this kind of market.  

You may have heard the Kenny Rogers line, "Know when to hold em, know when to fold em." Value investing is NOT about all that. True, investing is about making more income which demands taking risk, but investing is also about an attitude and a philosophy. I believe in general, that the value investor is more of an idealist, the gambler more cynical. Only you can decide what side you fall on.

Great poker players aren't really gamblers first and foremost, they are experts at accessing risk. The gambling part comes in when deciding if the gain/loss is worth the implied risk. 

The desperate gambler has fewer choices, because he/she is often backed up against a wall with nowhere to go. This is where the problems come in. 

CONCLUSION: Devise a game plan and stick with it. Learn what works for you and stay true. Chances are, you will have long term success. 

7net11: Cash is KING!

I have said it once and I will say it again. CASH is an asset. As we approach pre-Covid levels for the markets, let's remember that we were dealing with an overbought market to begin with.  P/E ratios were north of 24 on average for the S and P and many retail stocks had been heading downward for years. 

The only activity I am doing now is:

1) Long Puts: 3, 6, 12, 24 month expirations.

2) Long Calls: 1 - 3 months

3) Buying discounted shares 5 - 7% on average already in my long portfolio.

The weak dollar, low interest rates, and FED intervention are propping up these woeful conditions. Airlines are a classic example of bad chasing bad. Don't believe the hype. More than one airline could be bankrupt within a year. 

HOLD your cash. I know the temptation is there right now.  Sentiment is charged which is creating more volatility. The BIG money is playing/preying on this sentiment and cashing in up or down further complicating the situation.  

7net11: Pragmatism Will Prevail. Market Report June 2020

The train has left the station.  Most of my bids were canceled or unpurchased late Friday and Monday morning as the upward move in the market left most realistic pricing behind. 

It was as if the market was letting me know to kick back and see what happens in the next few weeks. Granted, most of my moves were set up for puts to expire this fall, winter 2020, I am in no rush to do anything but HOLD my positions right now. 

Causes for concern:

1) FED support will stop at some point.

2) No vaccine in the near future.

3) Virus still problematic.

4) Economic damage still largely unknown.

5) Unknown how banks will react/survive long term.

6) Longer term virus effects on cities unknown.

7) Election uncertainty.

8) Major changes in future domestic policies.

9) The market has already rebounded to its overpriced levels before the virus.

I agree with the more conservative analysis about this market. Many of my current valuations are at/over current prices and the historical 5 yr. downside stocks are giving me no reason to look for bargains right now. 

Daily price jumps between 5% - 100% or more should be viewed with extreme skepticism. Most of these upward trending stocks are not based on any sound logic, mostly pure speculation.  

If you have not bought already in March, April, or May, I suggest holding off until after the election at least and see how things pan out in 2021.

7net11: Liquidity - Equities and Options Trading 2020

Liquidity is a key element in acquiring stocks/options. I am steadily moving towards larger, more stable stocks all the time with plenty of liquidity, yet taking the steps to get there still takes navigation through illiquid terrain. 

There are plenty of small cap and penny stocks that I have passed on over the last few months that have had stock gains of over 100% and I DO NOT think I have missed out on these opportunities. 

Why you may ask?  

Because many of these securities trade at very LOW levels and are often susceptible to manipulation by pump and dump actors. This is even true now with larger securities that have billion dollar market caps. Whenever you see a chart that goes STRAIGHT UP/DOWN 10, 20, 30% or more, you know that a big fish is entering in or out of a position.  What's to stop these players? Not much.  

So if this is being done with larger securities, image how much easier it is to do with smaller cap, less liquid companies.  Take a guess.  CORRECT: Much easier!

Do your research, take a look at the charts, identify large buy ins, sell offs on a companies stock information page. All the information is right there.  

I also see this as a big problem with BITCOIN and crypto in general. First off, there are many fewer controls and regulations overseeing crypto. Secondly, how does a currency with 100 billion dollar+++ market cap have price fluctuations straight up and down all the time?  Easy...it's called manipulation.  Also, crypto markets are eerily illiquid. Price movements have been reduced to zippo for long periods of time then, boom, a big movement up and down.  You may be better off taking your chances at the craps tables in Vegas. At least there is continuous action and money changing hands! 

Stay liquid and watch sudden large spikes +/- in stock price. Chances are, someone or some super computer is taking advantage of sentiment.

BONKERS Market: Assessing Portfolio Fair Market Value: 2020

Today the market is up almost 900 points on good jobs news. Money if flooding back into the market because of hyper hot positive sentiment. What does it all mean?

Look back to about one year (2015) before the last presidential election. The market already had a long bull run that started sometime in 2009.  Then, there was a four year power boost stimulated by tax cuts, followed by a coronavirus "mini-recession" move and now  a "mini-recovery."

I was bearish on the market after the tax cuts because I surmised that the Fed had artificially pumping up the markets. P/E ratios were already off the charts and earnings seemed to be good for the big guns and not so great for small-mid caps in general. 

That said, a possible guide to find fair market value for ones portfolio with a 2 - 3 year forward projection into 2023-24, in general, is to take the value of your portfolio (each companies average share price 2015, 2020) and compare them to each other.  These two years appear to be two pivot points for organic valuations in this warped time frame. Take the average of those two valuations and reduce by approximately 15% for historically upward trending stocks and 45% for downward trending shares just to be safe.  

You may also want take into account any change in P/E ratios for your respective company shares, preferred shares outstanding and goodwill. This may give you a clue as to the more intangible revenue fluctuations and debt obligations including EBITDA that existed during this time frame.

Granted, some/many of your positions may have changed since 2015. This method will help you to evaluate your portfolio against current prices and to understand your own investment behavior over time.

Good luck!

BUYING "OUT OF THE MONEY" CALL and PUT CONTRACTS - OPTION HEDGING - WAY OUT OF THE MONEY!

I have started to buy very liquid CALL and PUT options way, way out of the money...way, way far out in the future at deep discounts and have found that there is a sub-market for these contracts.  I suppose it's contrarian thinking, but at such deep discounts, these bets are worth it.  Some returns have been over +300% to date. Even if you a buy a call/put with no open interest at the strike price, you will be surprised how many players enter into your far out strike price slot when price sentiment starts going your way! 

Give it a try. It's better than a dollar and a dream!  (It may cost you $5 upfront for a single contract!)

Good luck!

GOAL: +/- Two Percent Monthly Against the DJIA

Navigating this bear/bull market has been a learning experience for sure. One thing I have noticed is that my relatively conservative portfolio has bounced upward when the DJIA is in the negative and down when the DJIA has crossed into positive territory.

I use the DJIA as a standard in relation to the overall diversity of my portfolio: I hold S and P stocks, small caps, and some long shots.

Instinctively, this trend in my portfolios movement suggests that:

a) I am invested in closer to fair market stocks.
b) I am hedged by balancing put buys against the rest of my portfolio.


The goal is to have slow and steady returns over the long haul and to hedge against unexpected tailspins in the market. No portfolio is bulletproof, but I am minimizing risk at every turn to keep my overall investment safe from wild fluctuations and adverse event possibilities in the future.

As a result, I have set long term goals of having +/- two percent return AVERAGE against the DOW on a monthly basis. If I can consistently hit this goal month after month, my annual return will most likely be in the 11% + range.

***I am about 5% hedged as a result of buying put options to expire 1/15/21. I am always looking for opportunities to hedge more.  

Thinking of Share Losses as "Learning Curve" Debt Expenditure in the Big Picture

I was researching more complex option strategies today such as straddles, strangles, protective collars, and butterfly spreads. All makes me think of the KISS principle..."KEEP IT SIMPLE STUPID."  One thing I did get out of this research is that different option strategies can best be utilized by matching their risk/reward to specific market conditions, the amount of investment, and sector volatility related to share price.

Without getting too far down the rabbit whole, my instinct says that one would be more inclined to hedge more by implementing complex option strategies in volatile markets/larger investments. It is more difficult to keep the ship sailing smoothly with these implied risks, so more complex option "navigation" strategies seem warranted. The difficulty lies in covered calls/puts and writing contracts because upfront investment is greater and one exposes oneself to unlimited losses on the up and down sides if call/put buyers come calling for their shares in adverse/negative return environments.

Ok, enough of that for the moment. I geared down these option trading strategies thinking of the new beginner investor. I stated in a previous post that when starting out in the market, one should think of all stock buys with a "call" mentality. Inherent in this thinking, risks associated with declines in stock price can also be considered "debt expenditure" instead of simply, the defeatist sounding "loss."

"Debt expenditure" in this circumstance can be considered the "risk loss" factor when taking a chance on a long position that may not be at the bottom of the overall market. There is truly NO WAY to predict the bottom of a market. Based on this fact, if one has done their diligence and believes in, let's say the prospects of a small cap company, there is a good chance that the initial investment may drop 30% or more, much like a call or put option does before the stock heads toward positive gains. Anyway, thinking of the decline in a stocks price for a small investment/small cap stock that one strong believes in, it may be better to think of it as the "debt expenditure" or in more basic financial terms, the "cost of goods sold" or "learning curve loss" when getting familiar with a new investment. 

In my experience, when I first started investing, I would close out of positions because of short term losses, only to watch a stock go up over the long term. My instincts were correct, I just did not give the buy enough time to turn positive. Once I started viewing stock price losses in terms of "learning curve debt expenditure," I started to become a better investor because I became more disciplined and patient.  It make the ride more interesting and often times, more financially rewarding.  Give it a try, you might like it! 

Good Ole P/E Ratio: Riding The Bear/Bull Into 2020

I started to inch my way into this market at the end of March 2020.  I have been a hobby investor for many years and this time, I swore I would do it right. Utilizing P/E ratio: "Price to Earnings Ratio"  has helped! 

When I was earning my MBA at Binghamton University in the early 90's, I had a great finance professor. He was fascinated by the fact that I bought a used 1980 Toyota Celica for $800 and seemed to NOT have to put a lot of money into it to keep it on the road. He kind of pushed me to see the long view of investing in a historically bad investment, a used car with lots of unknown factors. How long would the engine hold out? When would I need new tires? Would the axle and muffler hold up? Well long story short, the car held up for a few years until it didn't and I ended up spending alot of money until the car just died. The original PRICE of the car $800, ended up ballooning to about $3,000 over four years. 

Ultimately, there were probably better options to spend the $3,000 up front for a better vehicle that may have lasted longer than the life of my Celica! The "earnings" aspect here would be the good functioning of the car over time, which ended up going up dramatically, (increased cost for maintenance.) My theoretical P/E ratio sky rocketed off the charts until the car died. I ended up paying an extraordinarily high price for every mile I put on that car before it died. CONCLUSION: BAD INVESTMENT!

So, the moral of this story, is that an investment can look GREAT in the beginning, but many factors can lead an investment to go downhill...rather quickly. This is very true when investing and understanding P/E ratios can help you to minimize your risk so you can make better choices when choosing stocks.

In this same finance class, it was at a time when craft beer brewing was coming onto the scene. Large corporate brewers like Budweiser dominated the market. Their P/E ratios were around 10, more like an financial institution/bank. Big, slow, and steady. BUD still dominated the market and it was fair to say, still a pretty good investment. That said, new players such as Sam Adams, were starting to take away market share from BUD. All in all, small craft brewers only made up about 5 - 10% of the entire beer brewing market.  BUD(INBEV) currently sells at $46 per share and has a 11.49 P/E ratio. Today SAM is selling at $560+ per share with a 61.58 P/E ratio!

Wow, what a change in the beer industry over the last 30 years!

So what do these contrasting P/E ratio stories infer about the journey of these two companies in relation to their prospects as investments? See below.

1) DISCLAIMER: BUD issues a quarterly dividend, sharing its' earnings directly in cash with shareholders. SAM does not issue dividends, hence earnings are re-invested into the stock price. This creates an overall higher stock price for SAM. Dividend or not, neither methodology has an affect on calculating their respective P/E ratios.

2) BUD was bought by INBEV, and huge international beverage company in 2008 for $70 per share. As a result, BUD's finances were embedded into the finances of INBEV's entire portfolio. BUD's finances became a smaller part of a larger picture. The average P/E ratio for the entire S and P 500 was 21.46 in 2008 and unbelievably skyrocketed to 70.91 in 2009, most likely as a result of the "Great Recession" of 2008-2009. I could only find a P/E ratio for BUD in 2010 which was 13.47, approximately two points higher than currently listed. SAM'S P/E ratio bounced around between 2006-2008 and landed at an average of about 55 compared to its current 61.58. These incremental changes in P/E ratio show a consistent industry trend from 2008 - present. BUD taking on the role of stable old warhorse, and SAM taking on the role as new white night entrant.

BUD's P/E ratio has remained rather low and slow, whereas investors have always been willing to pay a higher premium for SAM as reflected in its higher P/E ratio.  Has SAM been a better investment over the long term? Perhaps in relation to returns, but BUD still presents as the more stable and consistent investment over time. Lower return, yet more stability in that investors pay closer to earnings for BUD than for SAM.

No surprise, beer always seems to have a market! This simple analysis also shows how volatile downward markets can have a dramatic immediate effect on P/E ratios (S and P 500 2008-2009 variances 21.46 - 70.91), and also be an indicator of a company's/industry's overall health in relation to varying market conditions and other industries.

3) Over the last twenty years, BUD became a part of a bigger entity whereas SAM became the bigger entity under its own brand.  Contrasting evolutions, yet the historical evolutions of their P/E ratios seem to be surprisingly consistent in relation to each other and the overall beer industry.

Conclusion:

The beer industry has served as a steady source of investment opportunity through the decades. A case study comparing P/E ratios between BUD and SAM through their respective evolutions over time shows how P/E ratios can help gauge the overall health of a particular company/industry in relation to other players in that industry and other business sectors in general. 

The bottom line is that a company that shows earnings and a P/E ratio greatly enhances a prospective investors ability to analyze a company and make more informed stock picks in the short and long term.