by Travis Johnson, Stock Gumshoe | February 26, 2021 6:03 pm
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Hi Travis. Thank you so much for sharing your wisdom and experience in trading along with your investment ideas. When you are new to trading is easy to get caught in making bad decisions, still no idea in which direction to go. Most probably neither the market looking at the recent action. Reading your last Friday file got my attention the part where you are mentioning to buy some index put options??? That would be QQQ’s for example? Could you please elaborate on this, maybe you share any insights as well??? Thank you
Over the past few years I’ve spent 1-2% of my portfolio buying hedges to protect against a loss of more than 20-25%, generally using IWM and SPY, but you could do the same with QQQ (which is much more richly valued, of course, and more volatile — so the downside protection is more expensive).
This has become prohibitively expensive to do on a large scale, to my mind, as option prices have surged over the past year or so, but everyone has to judge what risks they can afford to take and what protection they can afford to buy. My last detailed piece on hedging was posted almost a year ago, in a time that certainly felt very different, but it explains my basic thinking and some of the options: https://www.stockgumshoe.com/2020/04/friday-file-how-about-hedging/
Thank you Travis. I will go through the file and in case I need clarifications can I raise my hand?
Sure, I can’t provide personal advice but when there are questions of general appeal that I can answer to some degree, I do try to answer them in future Friday Files or comments.
Hi Travis, Have you looked at or assessed IVOL and INFL as inflation hedge? any thoughts?
Nope. I think they got highlighted by Barron’s a couple weeks ago, but I haven’t looked into them personally.
I hate to just throw tickers at you Travis, but I’m really curious about $STPK. My younger brother is in the interview process with them and I believe he’ll get something if and when he takes the job (options, warrants, straight up stock shares? Im not sure.)
He believes in the work the company is doing and has worked for several battery companies in recent years. I saw today that Cramer had a blurb about this SPAC saying under $30 would be a good target and I think it just dipped under that price as I type this.
I look at it as a fun speculation, especially if my brother ends up working for them, but I also think battery tech is a wave of the future and was wondering if you have come across anything on STPK or even heard of them.
Nope, have never looked at that one.
Hi Travis, its been a tough past two weeks and I believe this is just the beginning. Holding long on sizable positions in EDIT and TSLA, two stocks I strongly believe in long-term but are the main culprits of my fast-declining portfolio, since selling now would incur a big loss. Today I sold my Teladoc shares. Recently I got into ROKU too late and bought in too high right before their recent earnings, and also added shares to my FVRR position.. In hindsight these were clearly mistakes.
I’m not asking for financial advice, but just asking a general question of how you feel when there are strong indications pointing to a potential crash: Can you personally justify selling off a good chunk (20%-25% or as high as 50%) of positions for LARGE losses in companies you believe in to mitigate short-term losses (or to move those proceeds into other positions) , even if you believe these stocks will recover in 1-3 years?
I think I answered that as best I can above — the market has almost never seen these kinds of valuations before, so there’s no guarantee that if we collapse from here that these stocks will all bounce back, certainly not within a short time period like 1-3 years.
I focus on the long term, but manage my risk exposure with diversification and with both small stop losses and profit taking on the margins, and some disciplined stop losses for at least partial positions when I’m dealing with a momentum stock that I know could fall 50-90% and still be fundamentally overvalued based on any kind of historical average valuations. For the stocks that I am most worried about, valuation-wise, I have sold half of my position when they hit stop losses (that’s what I did with Shopify not that long ago, for example), but I tend to only be that aggressive in loss-avoidance for large holdings — for a small speculative position I’m much more likely to “let it ride”. It feels different when your position is in the red than it does when the position in the green, so that’s what makes this a psychological challenge… and a reason to try to be somewhat disciplined and come up with some rules or guidelines that you can live with (even if the rule is, “I’m sure enough that I will hold for ever, and I know that one or two of these will be huge winners and make up for the ones that were mistakes”). Days like today are not ideal times to be coming up with a plan, probably, because emotions are so fraught when you see big 10%+ moves, but a plan doesn’t have to be finalized in one day. Moving slow is my general preference, because if I either build or shrink a position slowly I’m much less likely to be emotionally committed to finding the perfect price (which is, of course, impossible).
jetrbby80316. I know how you feel but taking a loss as I have had to do this. Unfortunately, my concern is if there is a major correction it may take a prolonged time to make that loss back up. I am a firm believer in taking a loss and putting some cash aside to invest at a time when valuations are not so high. I know you can not “time” the markets. But I also know that currently valuations seem high and there is almost certainly going to be a correction. People who are much smarter than me like Warren Buffet are also feeling this way. I have not gotten out of the market totally but am now in a greater than 50% cash position which will allow me to get some bargains in the future if I am correct. If not I will not increase my earnings by as much but will still be able to use the cash at some time in the future.
Hey Travis, I have a similar approach and it’s worked well for me.
Hi Travis. Seeing the prices falling, what would be a good entry point to PAR?