Trade against the idiot hedge fund ‘professionals’


DATE: Nov. 15, 2013, 9:47 a.m.

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  1. With my recent commentary about bitcoin, fear, and the Twitter IPO “debacle”, I’ve gotten hundreds of emails and comments from Marketwatch readers. Also, be sure to download the Scutify Android app and the Scutify iPhone app — the best stock market apps on the planet. These “Scuttles” are so much better than Tweets. They’re longer and juicier and give much more value-add since they are all about stocks and markets. And who is YOUR favorite All-Star?
  2. Here are some of the highlights from my inbox this week:
  3. Q. A tactical question and a process question. I took a beating on some $21 January JNPR calls. Would you recommend riding those out or selling here before Cisco earnings and preserving at least some capital? Speaking of capital, our January GDX calls are down just huge. We’ve only got about eight weeks left before they go worthless…at what point do you act to preserve some capital? What is your thought process in these instances where odds are we are whipped on a call (anything more than “these are hedges and if we lose them we are winning elsewhere” would be great). Thanks.
  4. A. I have to tell you first that after chatting with you lately on these options topics, I probably would suggest looking at just using common stock instead of options. I almost always have much more common stock in a position than I have options exposure. Because I’ve mainly been using slightly-out-of-the-money and longer-dated options when I’ve been trading, I’m not terribly surprised when those sometimes end up worthless when they expire and that’s built into how much I’m willing to risk on options. I’ve gone back many times, including recently, and have found that my 300-1000% gains in options like we’ve had on $FB and $XONE and $FSLR and $TSLA and others, have more than made up for the times I’ve lost 100% on options like we probably will on the $GDX calls. I think JNPR JNPR +0.21% has good upside in the next couple years and I own the common, but I don’t know if it’ll get up above your strike price with a profitable margin by the time January’s third Friday rolls around and your options expire. Does this help?
  5. Q. It does. I guess I am putting too much into options and so the pain of a number of these losing option positions is way more than a little hedge loss. You don’t mind losing them and so don’t send a trade alert recommending getting out with capital to fight another day…kind of a big mismatch and I need to make an adjustment. Thanks.
  6. A. We can make 10x our money over the next couple decades with a disciplined, patient, steady approach to investing and trading. Discipline above all else though.
  7. Q. The market seems a bit struggling for direction. Do you see the money managers starting to chase performance toward the end of year?
  8. A. With the DJIA about to have its 40th record close for the year, which I’m sure would be a record number of record closes in a single calendar year, I think the direction has been still upward. I was patiently bullish about the markets’ near-term direction most all of this year, but the last month or so, I’ve been thinking we should have a 5%-10% pullback at some point. I feel a bit out of synch right now about calling the near-term market action since the markets have instead been continuing their nonstop climb higher.
  9. Q. Have you seen data or can show us data on U.S.-based hedge funds LAGGING the S&P returns year to date? Many are looking for an extended rally as a result of many funds running way behind the averages. Have you heard the same?
  10. A. Yeah, the hedge fund “professionals” out there (i.e., idiots) were bearish heading into this year and never got a chance to get long or cover their shorts. Many were short the biggest high-flying bubble stocks like $PCLN, $TSLA and $FB and have spent all year trying to keep their investors from pulling their money. I don’t know how I’d game that though, because it’s likely priced in at least somewhat already.
  11. Q. Do you pay any attention to overbought/oversold metrics when deciding entries and exits?
  12. A. Not much, but I am paying more attention to those kind of metrics lately as the machines and high-frequency trading algorithm scams drive the near-term action more and more. Richard Gobel is your man for help on this topic.
  13. Q. Your take on Apple supplier GTAT at this time? And the OLED display technologies coming to our screens and who would be a good investment in this arena? Years and years ago I invested in Universal Display ….thanks.
  14. A. GT Advanced Systems $GTAT seems more hype- and momentum-driven than fundamentally driven on this spike. It might very well turn out to be a great investment for the long run if they truly end up being the dominant supplier of sapphire glass, and if sapphire glass ends up being a dominant technology. My gut tells me that this is more like when I was on Kudlow & Company on CNBC and we were talking to the CEO of a titanium company whose stock was up 50% that day after already being up 500% in a straight line because they’d signed a 10-year multibillion dollar supply deal for Boeing planes. I literally told Larry on air right there that I was going to sell everything in my hedge fund and get into the TV business because we had to be near a top in a bubble that was about to crash. That was early 2007. Market crashed in 2008 and that stock was never at those levels again. I don’t think the markets are topped out here yet, but I don’t like the long-term prospects for GTAT at this time. Besides, their stock symbol sounds like something from a bad gangster movie, “Hey, man, where’d you get that sweet-looking G-tat on your forearm there?” Hoohah.
  15. Q. What is your take on Apple? Seems like it will never go up, no matter what it does. Where do you see it mid-Jan before earnings?
  16. A. $AAPL will likely go up if iPad and iPhone Xmas season sales are big. It’ll fade if they’re so-so.
  17. Q. Cody, New rumors are that Apple will offer just the iWatch in 2014 and delay an iTV until 2015. If true is it time to let go of Apple? Timid Tim seems to drag things out.
  18. A. Depends on your goals and time frame on this $AAPL. I’ve owned it since $7 and am not going to dump it over timing of iWatch and iTV.
  20. And don’t forget to download the Scutify Android app or the Scutify iPhone app — the best stock market apps on the planet.

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