Happy New Year and welcome to a brand new decade!! If you invested $1,000 in Netflix stock, on 1/1/10, today that investment would have grown to $4,000,000!! To make this newsletter truly unique, I share my personal experiences with the market-my observations and experiments. For the past 35 years I have had a lot of faith in market technicians. The good technicians are extremely expensive. As I stated about 2 months ago, when the Dow Jones was around 27,000, a good technician Happy predicted that we would “melt up” to 29,000 soon so I bought a call option on the Dow Jones or DJIA (symbol DIA) that expires on 1/21/20 with a strike price of 29,000. Most people did not expect that so I got 2 options for $100. On 12/27/19, the Dow was around 28,700 and I sold my options. For one reason as we get closer to expiry date, it becomes very risky and in the market, volume was dropping significantly which is a bad omen-“price follow volume’. I made a 104.48% profit in 51 days! My timing was perfect, on the next day, 12/30/19, the market fell 200! Out of the past 20 years, only 7 times did the market go up on 12/31. People say that the market went up so much in 2019, it cannot happen in 2020 but historical data shows that it is quite possible for us to have a good year in 2020 but the future is unknown to all.
Over the past 4 months, our portfolio grew by 19.87% (without dividends)!!
Another strategy I have used during the past 35 years is to look for stocks with long term potential but stuck in a range. On these stocks, if you buy at the low end of the range, sell at the high end and wait patiently to repeat the process, one can make a lot of money. At this time, many believe that one day, maybe in a few years (or more) Schlumberger (SLB) could more than double but most prudent investors who invested in it, got out totally disappointed. When I looked at that chart, I noticed that 2 times in 2019, the price fluctuated between $30 and $40 (that is a 1/3 move up each time!). Theoretically one could have made a 67% profit in SLB this year by trading! Last time SLB was around $35, I bought the stock and sold it when it reached $40 making a 13% profit in 18 days !! Now most brokerages do not charge commission so even if you buy one share, there is no additional cost for buying and selling. In the 1980s, it was amazing that we got discount brokers but now we are so lucky to have brokerages that do not charge any commission at all! In 2019 alone, Apple rose by 85%!! After helping the stock turn around and holding the stock for a long time when Carl Icahn sold all his Apple and when all analysts stated that Apple is no longer a growth stock I asked you to increase your holdings to lower our average cost to $92.62 and on 2/31/19, Apple ended at $293.65!! I want to add Intel to our list this month. It could easily go down by 50% but if that happens, it would be a blessing in disguise as you can buy much more and lower your average cost. Intel has a forward PE of 13.84 and current PE of 12.29. Compare that to popular PE of AMD at 241 !! Some analysts expect Intel to catch up and sky rocket in 2020. About 20 years ago I worked for a man who used to work at Intel financial analyst. He made so much money from the Intel stock, he bought a house with his gains-which saved him from the 2000 tech crash. Some analysts expect Intel to sky rocket in 2020 but with such a low PE, it is value investing! I also added Uber to our portfolio. Uber is facing many challenges all over the world and just about 6 months ago, Uber was trading around $48 and it ended 12/31/19 at $29.74. Many experts expect Uber to go down further and not go up in price for another 2 years but I am skeptical. Over the past 40 years I have seen experts say that stock would rise in a couple of years and if you wait that long you will miss the boat on making money. My advice is start “nibbling” now and as the price drops buy more to lower the average cost. Never buy when the current price is above our average cost which would make it difficult to make money in the long run. One does not really make money in the long run by getting lucky or finding opportunities, you make money by having a good Investment or trading discipline. If Uber price go back to $48 as it was in the summer of 2019, you would make a 60% gain! We had a 30% gain (with dividends) in 2019. Historically after such a year, the following year we could have a 6% gain. If the market goes down, it is just a mere opportunity to buy more!
Have a great month and year!
Fernando