Financial Fever Dream: Mid-Year 2022 Core Portfolio Investment Update

We are heading into a generational economic storm. There is no question about it. When and how severe can be debated, but not if…

But this (overdue) leg of the cycle will be a cleansing purge that the markets and economy has needed for a long time. It will also offer unprecedented opportunities. Following is my mid-year investment update, covering some core portfolio previous wins and losses for the first half of the year.

Core-Portfolio-Update-Mid-Year-22-City-Sun-Bear

Market Outlook

Anyone that cared to look could see the dark storm clouds from far away. As the storm came closer there were plenty of signs. And the rough weather has only just begun. There are too many to mention, but here are a few.

Economic Storm Warning Signs

Unemployment Recession Indicator

A consistently reliable (and ominous) historical indicator is reflected below, in the FRED Unemployment Rate chart. When unemployment bottoms out, recessions always follow. Always. Every time in the last 70 years.

FRED-Unemployment-Mid-Year-2022

Yield Curve Recession Indicator

The 10-Year / 2-Year Treasury spread rolling over (or “inverting”) is another consistent indicator, frequently preceding periods of recession. The yield spread inverted briefly on June 13, 2022 and then again on July 5. 

How soon that recession emerges after the spread inverts (or how deep it will be) is not as predictable. But the weight of the evidence says that winter is coming.

How soon that recession emerges after the spread inverts (or how deep it will be) is not as predictable. But the weight of the evidence says that winter is coming.

US Dollar Up, Equity Markets Down

The macro economic indicators above are high-probability portents of recession, and all that comes with that. The recent spikes in the US dollar is a high-impact catalyst for recent and continued downward pressure on US equities markets, and risk assets in general. Dollar strength is likely due to two primary causes, flight to safety and increasing (yielding) interest rates.

US Dollar DXY Sky High

These symptoms of structural weakness also contribute to changes in sentiment, which adds to market pressure.

Good market returns often follow when fear is highest, but we have not yet gotten anything close to peak fear from individual investors.

Retail Investor Sentiment

The structural factors noted above are underlying drivers of the economic woes we are now facing. But markets are a reflection of human interactions and expectations. The AAII Investor Survey is one I watch, as it’s considered a good contrarian indicator. As Q2 comes to a close, bearish sentiment (at 46.7%) was higher than average but still well below the bearish high water mark of 59.4% from back in April.

Good market returns often follow when fear is highest, but we have not yet gotten anything close to peak fear from individual investors.

Institutional Sentiment

On June 16, the Bank of America Bull & Bear Indicator fell to 0.0. This slow-moving indicator aims to measure sentiment among professional traders, and the down-tick to zero has only happened 9 times since 2002.

These times of economic stress included August 2002 (dotcom bubble burst), July 2008 (Great Recession), September 2011 (European debt crisis), September 2015 (China macro shocks), and March 2020 (COVID crisis). What, historically, happened following these zero prints?

BofA Bull & Bear Indicator

Recession & Bear Market History

The 3-month returns following the 2015 and 2020 cases were strong (the latter in response to massive Fed doping). But 2002 brought a double-dip recession, while 2008 and 2011 were marked by systemic instability. In total, just 4 of 9 cases had positive 3-month returns.

Recession is definitely in the cards, and systemic risks are all around us. A defensive stance is essential, but that includes cash reserves. With the risks ahead, there will be major opportunities.

So, the path ahead is uneven and risks abound, and the possible outcomes range from bad to very bad. Regardless, I’m less interested in 3-month returns; more concerned about the longer term.

We are now in the 20th bear market in the past 140 years. The average bear market has lasted 289 days (according to BofA). That would put the projected average end at about mid-October. But there is nothing average about the markets or the global economy right now.

I think these challenges will persist well into 2023. Recession is definitely in the cards, and systemic risks are all around us. A defensive stance is essential, but that includes cash reserves. With the risks ahead, there will be major investment opportunities.

After reading below you can also review my latest alternative investment update. You can also check out my other investment reports.

Performance Summary

For anyone paying just a little attention to markets, the results below will not be a surprise. Equities are down (risk off), commodities are up (inflation + war) and crypto is in the toilet.

NOTE: these stats (and all the other charts and tables) are as of 06/30 and do not reflect the rally we have seen so far in July.

Year-To-Date Market Performance

Mid-Year-22-Market-Performance

I would feel happier about my realized P&L if it was realized for the right reasons. And the fact is that some of these exits could have been (should have been) better.

Core Portfolio Investment Performance

I would feel happier about my +55.95% realized P&L if it was realized for the right reasons. I have been very actively reducing positions, and gathering more cash. And the fact is that some of these exits could have been (should have been) better.

My unrealized -8.60% performance beat the market by a mile. Yet, again, I can only think about the scrapes and bruises I have gotten in the first half of 2022. It has been painful and, as you’ll see below, I have some big losers on the books.

2022-YTD-Portfolio-Relative-Performance

NOTE: I seek exposure to global markets (international stocks) but focus on North America, and hold fairly diffuse (not concentrated) positions. As such, I use the CRSP U.S. Total Market Index (~4,000 large, small and micro cap U.S. equities) as benchmark, and also show S&P 500 for reference.

As of mid year I have significantly increased my cash position (from 46.5% to 55.95%). This is my highest cash allocation in years. But I may increase it further, depending on macro conditions. Having said that, I continue looking for opportunities to deploy this cash as well. There are some juicy discounts out there! There are plenty of gory details about this and more below.

Investing Self-Improvement

As stated in the previous update, my investing self-improvement objectives for the year were as noted below. I have changed them to a numbered list to make it easier to reference.

  1. Take profits more aggressively (cash out more and do it sooner)
  2. Have more consistent stop loss discipline (especially for speculative plays)
  3. Consolidate more capital into fewer investments
  4. Generate more income from parked (idle) capital
  5. Reallocate proceeds from public markets to private and business ventures

I have made good progress on #1 and #4. As a goal, #3 and #5 will take longer to manifest, but I am actively working towards these objectives as well.

My greatest challenge remains #2. I have initiated a few new positions this year, but none are speculative, and so I’ve not had much chance to strengthen these muscles, but I suspect I’ll struggle with stop loss discipline when the time comes (which underscores why it’s on this list).

I have moved to cash from a range of positions, of all sizes and types. This (and the painful market performance) is the main reason why my top 10 changed so much from the last investment update.

Top 10 Holdings

These top 10 holdings constitute ~48% of my total invested capital as of Mid Year 2022, ordered by % of invested capital.

I have moved to cash from a range of positions, of all sizes and types. This (and the painful market performance) is the main reason why my top 10 changed so much from the last investment update.

The long tail of the portfolio has gotten longer; it saw profit-taking (and loss-taking) too but I remain in some of these mangy mutts as well.

Mid-Year-22-Top-10-Holdings

As noted further below, I reduced my $GS position by 25% (at over $400). Despite that it remains a portfolio linchpin. I reduced my $TSLA position by a larger amount, and this dropped it in my % of portfolio rankings. Likewise, I sold a chunk of Chuck ($SCHW). I continue to like the company, but sometimes L/T profits must be taken. I have not touched my $ED position, but it is obviously in the defensive sweet spot for a high-inflation, earnings-recessionary environment (gaining another 11% from the start of the year).

New to the list, $GOOG has fallen off significantly over the last 6 months (as did other growth stocks). I’ve watched and waited a long time, and started to build a larger position as prices fell.

I began redeploying to income-generating assets earlier in the year, which is how $DIVO jumped up the list. Another one, $HIPS, remains a larger holding. This is not the cheapest (most efficient) fund of its kind, but it continues to pay well. That yield is 8.49%, so the nominal loss above is misleading but still needs to be addressed.

New to the list, $GOOG has fallen off significantly over the last 6 months (as did other growth stocks). I’ve watched and waited a long time, and started to build a larger position as prices fell (WIP). Pinterest also fell. I remain confident in the long term prospects, but $PINS is a sore spot on the top ten. In contrast, $MAXR is one of the few high growth, speculative names that remains a strong part of my portfolio. More on that below.

Then there’s old man gold. The gold market is broken. But my gold hedge remains (and its relative performance speaks to why).

Investors that can consistently follow a successful strategy can potentially tread water and even grow in bad conditions. Those without a sound strategy for risk and opportunity management…are the ones swimming naked.

Public Market Investments

Warren Buffett is fond of the old investing adage that when the tide goes out you can see who is swimming naked. It’s meant to underscore that in bull markets everyone looks smart but bear markets test trader’s mettle.

Investors that can consistently follow a successful strategy can potentially tread water (to continue the ocean analogy) and even grow in bad conditions. Those without a sound strategy for risk and opportunity management, and lacking the discipline to follow it, are the ones swimming naked.

This has been a tough market, and I keep checking to see if I’m still wearing my shorts (undetermined).

New Initiated Positions

Alphabet ($GOOG)

I already had some exposure to Google but never built a position in earnest. Until now. The stock hit all time highs early in February, and has been down nearly 33%, but ended Q2 down just over 28%. I believe $GOOG remains overvalued, and ad revenues will certainly take a hit over the next couple of quarters.

I believe $GOOG remains overvalued, and ad revenues will certainly take a hit over the next couple of quarters.

The plan is to average in at various, lower price levels (current average price is a split-adjusted $116.29). The quarter closed at $109.38; there is strong support at $101 and again at $85.50, which are sensible target prices to buy at.

GOOG-YTD-Chart

C3.AI ($AI)

This one is very much in the ”speculative” bucket. Profitability is far away, and earnings growth is not looking good in the short term. Sales, however, have been strong, lending to their differentiated capabilities and talent pool. They are very much still in growth mode but, in contrast to many others, are well-positioned in terms of debt and cash.

They are also an America-first company; that scores extra points with me, especially in a sector like this.

I especially like the management and tech teams, led by legend Thomas Siebel. These contributed to C3.AI scoring some major government contracts. They are also an America-first company; that scores extra points with me, especially in a sector like this. The stock took a wild ride since its IPO (I watched and waited throughout) but is closer to fairly priced at current levels. I initiated a half-sized position on February 18 at $21.75, and added to it on March 3 at $17.10, and again at $15.75 on May 6, during a major market flush-down. I’m currently at an average price of $17.59 and am still building the position.

ASML Holding NV ($ASML)

As a semiconductor picks and shovels play, I’ve long been interested in ASML Holding, as a way to get broad, global exposure. $ASML is a rock, with excellent fundamentals and great revenue and earnings growth.

These names tend to move in lockstep with each other (I also added to my $INTC position this year) but if you are bullish on the overall market, this is the stock. On February 14 I initiated a position in this at $620.80, as part of a broader, longer term chip play. On Mar 8 (in the midst of the Ukraine-Russia war news) I added more at $566.

Position Adds

Grab Holdings ($GRAB)

Most US investors may not be aware but Grab provides its “everyday everything” app to millions of people daily. Its massive driver- and merchant-partner platform provides ride hailing, delivery of food, groceries and packages as well as telemedicine and financial services (including payments, lending, insurance and wealth management). The service dominates the Southeast Asia region, including Singapore, Malaysia, Thailand, Vietnam, the Philippines, Indonesia, Myanmar and Cambodia.

…regardless what the seers say, profitability is still years away. Yet, this is an incredible company with a massive future that will ride the big wave of Southeast Asia emergence.

This is a high conviction, long term play for me. It is a monster, diversified SG-based company that has huge potential on the back of the developing Asia megatrend. I started building the position after the de-Spac deal closed, with a $15.05 basis. The stock spent plenty of time above that, but institutional coverage and investment would always take time. I intended to hold off until more liquidity emerged, or until it went on sale. And in the dark days of January it was down significantly, so I added a chunk at $5.90. I bought more on March 3, following earnings, at $4.60and on April 25 at $2.80.

The view from the gutter isn’t nice. The average 12-month consensus target is $4.65 and the reach price is $8.30. But I don’t generally GAF what analysts think; regardless what the seers say, profitability is still years away. Yet, this is an incredible company with a massive future that will ride the big wave of Southeast Asia emergence. It’s also a biggish position in relative terms, and my basis is now $7.70. I’m done building this position for now. See more in Losers and Laggers below.

…in addition to improving revenue growth and fundamentals, there are two other promising developments. The first is a management change (and) the other is activist hedge fund Elliott Management.

Pinterest ($PINS)

Coming into the year I was already aware that growth stocks were about to start a long, painful journey through the valley of death. And it was easy to see that Pinterest would be in that wagon train. The right thing to do would be to wait and buy lower. But I added anyway, making a small purchase at $33.90 on January 4th, and then added ~30% more on February 3 at $24.25, heading into earnings. Now it’s below $20 and I’m not surprised. But, in addition to improving revenue growth and fundamentals, there are two other promising developments.

The first is a management change. On June 28, Ben Silbermann, the co-founder and CEO announced he would step away from the CEO role and become executive chairman. The new CEO will be Bill Ready, who has been Google’s president of commerce since 2020. Prior to Google Ready was COO of PayPal.

The other is activist hedge fund Elliott Management which, it was reported on July 22, took a 9% stake in Pinterest. This $50 billion hedge fund has a history of identifying high value assets that are (in their opinion) being mismanaged, and helping management unlock value.

SuRo invests in high-growth, venture-backed private companies and a look at their portfolio will say a lot. I love the diversity of plays.

SuRo Capital ($SSSS)

On March 9 this beloved little publicly-traded VC fund reported earnings that “surprised” to the downside, leading to a gap down in the price. In fact, for a public PE fund like this these lumpy quarters happen. In recent quarters they paid out some outsized distributions related to realized gains, including their stake in Coursera (was ~15% of their portfolio) which went public last year. An earlier example was Palantir. So, adjustments like the one in March ‘22 are not actually surprises.

SuRo invests in high-growth, venture-backed private companies and a look at their portfolio will say a lot. I love the diversity of plays. A few stand-outs for me are Forge, a private equity and secondaries platform, Skillsoft, a market leader in the corporate learning market, and Varo, a nationally chartered digital bank serving the underbanked and underserved communities in the US.

Of course, Q2 closed out with the stock at $6.40, near YTD lows. But it’s no surprise, as private equity mark-downs are happening right alongside the public market correction.

On March 14, following the gap down, I decided to add more, doubling my position at a price of $8.22. And wouldn’t you know it, they announced share buy-backs after the close on this very day. I don’t love buy-backs for most companies (hate them really) but that’s because I want excess capital to go into R&D or capital improvements.. OR pay it out as a dividend. A public investment company like this one is a different animal and, with abundant dividends already paid out, these buy-backs are more defensive in nature.

SuRo Capital SSSS - Public Private Equity

My average price is currently $8.98. Of course, Q2 closed out with the stock at $6.40, near YTD lows. But it’s no surprise, as private equity mark-downs are happening right alongside the public market correction. It’s trading sideways now in the mid-$6 zone, but if another breakdown occurs I will likely add more.

I added to positions in over a dozen other names including SEMR, INTC, SOFI and CHPT. There are some others of those discussed below in the ‘losers’ section. It’s hard to ignore a good sale but buying quality is the trick. Well, there will be more sales to come.

Position Exits

Astra Space ($ASTR)

I cut half my position as part of my year-end loss harvest. In the first week of Feb, once clear of the wash sale rule, I put in an order to buy back at a reach price. Then, on Feb 10 around 3PM ET, something unexpected happened.

The stock has never traded down here so I had used Fib extensions to pick the target price, but much of this is luck. As seen in the chart below, the stock traded higher in the after-hours…

Astra successfully launched from the Space Coast (Eastern US). But then failed to deploy their payload after reaching orbit. The upper stage was last seen spinning out of control. And the stock plummeted in 1 minute from where it was trading (~$5.65) to an intraday low of $3.25 (losing over 42%). My buy limit order was at $3.30. But the move was so severe that I got a $3.28 fill (price improvement).

Astra Space ASTR Stock Chart

The stock has never traded down here so I had used Fib extensions to pick the target price, but much of this is luck. As seen in the chart below, the stock traded higher in the after-hours, but it’s a long hold for me anyway. What IS interesting is the potential for very short term plays in these launch companies, given the highly concentrated (and potentially volatile) price action around these sub-5 minute launch events. Hmmm

MP Materials ($MP)

I’ve taken some profits on this before (at $42) but there was lots of lost opportunity with this position. It had gone much higher over the life of the trade. But in June it fell out of a long term uptrend channel, so it was time to exit.

I exited my remaining shares at $33.85 on June 21 for a ~104% gain. But this is a real passion position for me, as I believe in the associated long term megatrend. I also love the US re-onshoring story. So, I’ll be buying back lower down.

Tesla had been in a strong down channel since early April, helping to lead the market lower. And I chose nearly the bottom of the move to exit. So, I could have done better…

Tesla ($TSLA)

Taking profits doesn’t always feel good (in retrospect). There were some stark (but conflicting) market signals in June and I decided to lighten up on a few positions on the 20th. I sold half of my remaining shares in $TSLA at $675, for ~250% gain.

But within a week of this trade the stock was over $770, and settled into a sideway channel around the mid-700s. Tesla had been in a strong down channel since early April, helping to lead the market lower. And I chose nearly the bottom of the move to exit. So, I could have done better with this exit, though I’m still considering how I can do better next time. And, as long as you are taking profits, there will usually be a next time.

When it’s time to exit a position, don’t stress too much. Take your profit or loss and move on to the next opportunity.

ARK Autonomous Technology & Robotics ETF ($ARKQ)

I sold a good bit of this higher up. But the stock was breaking down, and I had some place to reallocate the funds to. So, on January 10 I sold the balance of position, at $71.15 (for a +142% gain).

Ironically, minutes after I closed it out, a Seeking Alpha headline hit my feed:

ARKQ: All six of Cathie Wood’s actively managed ETFs find themselves trading at 52-week lows

Yet, intraday my $71.15 price was sub-par. I sold near the lows of the day. Looking at it that day might have made me feel bad. But time and perspective informs a valuable takeaway…

When it’s time to exit a position, don’t stress too much. Take your profit or loss and move on to the next opportunity. And a look at the chart below shows how good my exit price actually turned out to be.

ARKQ-Final-Exit

iShares MSCI India ETF ($INDA)

As with some other exits noted above, I closed this entire position on June 20th. I sold at $39.50 for a ~67% gain. The fund took out long term support at $39 but this is another I could have sold sooner (at higher levels). The next couple of quarters will be hard on most countries, including a market like India with high adverse exposure to commodities supply shocks and inflation in general.

I exited (partial or entirely) about nine other positions as well. Some of these were sales of half holdings, such as $DIS (+56%) and $SCHW (+125%). I fully liquidated some other positions, including $SQ (+93%), $NVDA (+108%) and $IONQ (+37%). These latter may seem counter-intuitive considering that I added to INTC and initiated ASML (noted above). The former has higher exposure to crypto market weakness, and the latter is highly speculative and will stay on my watch list.

Holdings Highlights/Lowlights

Maxar On High

We can file this under doing well and doing good…

…institutional investors own well over 50% of the company, so they must like it too. It’s both a vote of confidence and has a stabilizing effect on the price.

It’s one of my best performing holdings but Maxar Technologies ($MAXR) has also played a pivotal role in the Russia-Ukraine war. Its earth intelligence unit has been providing critical data which has aided Ukraine in both civilian and military logistics. And in the aftermath of the apparent massacre of civilians in Bucha, Maxar released satellite images that dispelled any doubt about who was responsible. Maxar-Twitter

I bought the stock for its space infra division. I never invest in pure-play defense contractors nor any other company primarily focused on the defense industry. But I do appreciate how Maxar’s earth imagery and other geo-spatial data is being leveraged here. And institutional investors own well over 50% of the company, so they must like it too. It’s both a vote of confidence and has a stabilizing effect on the price.

Most of these (and some others not listed) reflect at least one and sometimes multiple, basic errors in trade selection. I’ve made some of these mistakes and worse before. But I do keep learning.

Stumbles, Fumbles & Fails

Losses are part of the game. And it’s good when you feel confident that you followed your strategy, and chose an investment well, yet some extreme edge case comes along and spoils an otherwise well-researched and perfectly timed plays. Most of the lowlight losers below are not those.

Most of these (and some others not listed) reflect at least one and sometimes multiple, basic errors in trade selection. I’ve made some of these mistakes and worse before (see the last investment update for a whole other list). But I do keep learning. And that’s why those rare losers described above, for which you can blame something else, have no value. They are edge cases, by nature.

The losers we learn from (or need to) are the more common kind: the ones we cause through our own laziness, carelessness or lack of discipline. Because these are the things we have control over.

Laggers & Losers

Mid-Year-22-Top-Losers

The losers we learn from (or need to) are the more common kind: the ones we cause through our own laziness, carelessness or lack of discipline. Because these are the things we have control over. So, on to the losers.

Let’s take these in reverse order…

Roblox ($RBLX)

This is far from my biggest loser (% or $). But it was a full sized position that I put on right around the IPO. It may have been an exception to the ‘don’t buy the IPO’ rule, but it is another example of a name that I had abundant opportunity to take (abundant) profit, and did not.

I took plenty of profits from my cannabis portfolio earlier in the year, and I had sell orders in for this but never got my price (and ended up holding it into the depths of the storm). That was a mistake.

AdvisorShares Cannabis ETF ($YOLO)

As I’ve discussed, this is an actively managed canna ETF. I took plenty of profits from my cannabis portfolio earlier in the year, and I had sell orders in for this but never got my price (and ended up holding it into the depths of the storm). That was a mistake. I should not have let a fund instrument like this slip deep into the loss zone. However, I still like the underlying exposure it offers. And heading into the US election cycle there may be some movement (at least a chance to exit with a smaller loss).

Coinbase ($COIN)

Coinbase is a future financial services leader (dependent on how giant the crypto market gets). Right now it’s also seriously dinged up. And this is one of a few stand-outs in my portfolio that scream “bad buy”.

I’ve written on this before but an IPO – especially a direct listing – as hyped as this one was should have been given time to settle. Oh, how it has “settled”.

Grab Holdings ($GRAB)

I wrote plenty about GRAB above, and previously regarding my long term commitment to the name. Of these lowlights this is far from the worst % loser. But it’s a larger than average position (on original basis), at about 1.5X a standard full-sized position.

Despite the outsized impact the overall market has had on this future logistics titan (see more above), in late June it broke out of its steep, multi-month downtrend. And $2.35 remains strong support. If externalities force it much lower, I could even be a buyer of more.

The company has its challenges but, like the little engine that could, they keep going. And this isn’t easy stuff…it is literally rocket science.

Astra ($ASTR)

I also wrote about Astra above. The company has its challenges but, like the little engine that could, they keep going. And this isn’t easy stuff…it is literally rocket science. Yet, they have been hot and cold in terms of mission success, and this has a direct impact on the stock price (as can be seen in the chart above).

I’m comfortable with my position size and basis price ($6.71), and I will continue to monitor for improvements in their launch success rate. I strongly believe in the small format launch vehicle concept. I’m also watching Virgin Orbit for the same reason. Regardless, this space (no pun intended) is extremely speculative and requires a long term perspective.

I had been aware of the risks among crypto lenders, and this name was falling faster than the crypto market overall. So, I should have taken the L a long time ago (probably in my December year-end purge).

Biggest Loser – Voyager ($VYGVQ)

What can I say about Voyager? It was a half-sized position, so not large in relative terms. But it’s my highest stupid score by far. I had been aware of the risks among crypto lenders, and this name was falling faster than the crypto market overall.

So, I should have taken the L a long time ago (probably in my December year-end purge). There’s a bigger, more poetic lesson I could come up with. And I probably will (I just haven’t thought of it yet). For another crypto-related oopsy with a high stupid score, check out my alts investment breakdown.

Other Investment Strategies (Income Generation, Vol Harvest, etc)

One of my stated goals coming into the year was to focus more on income-generating strategies and activities. I have dabbled with dividend harvesting in the distant past, but never in an organized or systematic way. So far the results are promising.

Active Dividend Harvesting

Coming into the year I had pulled together a starting list of good-fit candidate stocks. The idea behind this ongoing strategy of active dividend yield farming is to buy the stock before the ex-div date, get the dividend and then sell it after. The challenge is that many other people do this.

This process is decidedly more hands-on than I generally prefer. Despite the number of words I write about all this investing stuff, I like spending my time on other things.

So the stock price can run up before ex-div, and then fall right after. If you buy too high or sell too low then you lose the benefit of the dividend. Sometimes you can also make money on both the dividend and price move (which I did with these trades). But having enough target names with staggered earnings cycles means there should always be a few opportunities per quarter, allowing a single lump of cash to be rolled repeatedly from trade to trade.

This process is decidedly more hands-on than I generally prefer. Despite the number of words I write about all this investing stuff, I like spending my time on other things. So, I looked for high conviction opportunities, and found two. Note that I deployed ~10x my standard position size for these plays. It’s substantially more than I normally allocate in one go, but these are generally low volatility and short term plays.

Volatility-Harvest-Strategy

Volatility Harvesting

I also attempted some premium harvesting, selling small portions (half-sized positions) of both puts and covered calls. Some wins and some losses, netting out to a ~4% loss. There is a science to this, but I was never great at science. I liked the topic, but it wasn’t my strength.

Defensive, Portfolio Hedging & Counter-Trend Trading

Most of my defensive strategy has remained the same over the last couple of years. But reallocation out of growth and speculative names into more defensive and income-oriented stocks is a relatively newer shift. I am accelerating this transition as well, as can be seen in my larger holdings.

There are multiple systemic issues holding down the price, but when the shit really hits the fan, gold will run. It’s insurance; you don’t buy insurance because you want the policy to pay out.

Where Have All The Good Hedges Gone?

It’s the third act, and the inflation monster is right outside the door. Yet the hero (gold) is nowhere to be seen. As previously noted, the gold and silver markets (especially) are FUBAR. And this was the case long before JP Morgan got their grubby claws into it.

All the same, the go-to. There are multiple systemic issues holding down the price, but when the shit really hits the fan, gold will run. I still have my gold and silver positions. It’s insurance; you don’t buy insurance because you want the policy to pay out.

Taking The Under…

What has had a positive return as the markets fell was a chunky options trade that caught a decent part of the slide.

On Friday Feb 11, the market was under an inflation and Fed-driven correction. And then during the trading session the US govt announced that an invasion of Ukraine by Russia was imminent. The market spiked lower, with the S&P ending down nearly 2%. I had been shopping for a downside protection play, but premiums were too rich for my taste.

I decided that the probabilities now justified the higher cost. And during the session word also went around that a whale put on a particular butterfly trade. So, I joined in.

Yet with geopolitical factors adding to the larger macro momentum, I decided that the probabilities now justified the higher cost. And during the session word also went around that a whale put on a particular butterfly trade. So, I joined in.

I got long SPY Butterflies with a 14 APR 22 expiration, using 360/340/320 Puts @ 0.39 limit. I had opportunities to take profit but held, and the trade (as many do) failed to do what I wanted and when I wanted it. As Morphius says, in options, time is always against us.

options-time-is-always-against-us-JPH_compressed

So, on March 18, with about a month until expiration, I rolled out of the position at a small net loss, and re-established with slightly modified strike prices. This time was 17 JUN 22 expiration, with 375/350/330 Puts @ 0.98. I exited the position on June 10 (about 7 days to expiration) @1.83. Around mid-session it was trading in the 1.70s so 1.83 seemed a reach. But this was CPI day and vol continued to spike, sending the price over 1.90 afterwards.

After all, it returned ~87%. Including the original (losing) trade it was still a 65%+ gain with a ~3 month total hold. Not a bad result when most of my stocks were falling to pieces.

Stay safe out there, but stay out there.

OK, we’re done here. If you are actually reading this, I salute you. I’m trying to figure out the right balance of verbiage and value for these things. Still figuring….

If you want to see info about my alts and private investments then check out the separate, companion update. And if you have any questions about this core portfolio investment update, then use my contact page and get in touch!

Stay safe out there, but stay out there.