Hi There Again,
In February 2021, our portfolio had a net gain of 14.32%. During the same period, the S&P 500 went up by 2%. Look at our scorecard, RIOT is up 100% in 26 days. It will go down and then buy more. This market keeps going up without a major correction. “Boy who cried wolf”. Remember? I guess I sound like that (“bubble is coming”) to most people. The only difference is that in that story the boy who cried lost his life but in this case, the people who ignore all the signs of a bubble might end up losing a lot of money. In fact, most prudent analysts have been saying that this is a bubble for a long time. According to history, bubbles end when people who believe in bubble stop believing that we are in the middle of a bubble. Even when we were going through bubbles in the past, there were many who would come up with arguments to show that we are not in bubble territory. I am not saying we should avoid markets during “bubble times”. If you are in the market, do it AYOR (at your own risk). There are many ways to do it and know that what you have in the market is at risk. How much risk are you willing to tolerate? Are you young enough? In other words, if the market stay down for decades, what is the risk you are taking?
In February, we added items to our portfolio; TSLA (Tesla-Technology) and RIOT (a substitute for BITCOIN or crypto currency). For years, most people thought that Tesla stock craze was abnormal. Even Elan Musk stated that over and over again and then he did a wise thing, he increased the number of outstanding shares (when others were buying back their own stock). Brilliant move! In fact, Gamestop CFO was fired last week for not doing the same thing. Over the past month Gamestop got so much publicity for free and if they paid money for that publicity, it would have cost them hundreds of millions of dollars. Did the CEO or CFO say anything? No. Did the CFO take advantage of this craze to raise cash? No. Gamestop has about 90 million shares outstanding. On 2/26/21, the stock ended at $101 with a market cap of $7B. Prior to 1/12/21, for 2 years, it was below $15 and for the past 5 years (prior to 1/12/21), it was below $35. On 1/27/21, the stock price rose to $347! Then fell to $40 on 2/15/21. If the CFO was wise, he would have increased the outstanding shares from 9 million to about 100 million. Just to exploit the Robinhood idiots. Let us say that the market bought all that 100 million at even $100 per share, that is an increase of $10B to their cash situation. An analyst talking about another stock like this Quantumscape (QS), stated that the company should have about a million new issues, get the cash, put all the cash in Bitcoins and stop all other operations and be a profitable company for decades to come! If this is not a bubble, we never had a bubble in history. The biggest bubble, “tulip bubble” of 1637 was just a minor correction for those people. I bet there were people who were thinking that a tulip bubble could go up to a trillion dollars. As for Tesla, the technology part is what is good about Tesla; and not the car unit. A few years ago, according to Consumer Reports, Tesla was the perfect car with a score of 100% and in 2020, it was among the 5 worst cars. The only person to predict this amazing rise in Tesla stock price was Cathy Woods who is well respected on Wall Street. Now she predicts that Tesla would go up to $7,000 in 5 years and then to $40,000. From the very beginning, as a student of economics, I have been opposed to cryptocurrencies. Just like Jamie Dimon, CEO of JP Morgan, now I think, “if you cannot beat them, join them”. If Cryptos become a substitute for the money supply, in many ways we are going to be in big trouble. A sharp decline in the world’s money supply will put the whole world in a big depression that we cannot get out of. Also I do not buy the argument that one day hackers will not be able to get in and “steal” all the cryptos. Heard about the Russian hack “solarwinds/microsoft”? Even after all these months, one of the world’s biggest techies, Microsoft is clueless about the total damage! However it is okay to put a little bit of money to exploit the Bitcoin craze. So far our SEC has not approved an ETF to trade Bitcoins or cryptos. However I find that RIOT blockchain does a good job of following the Bitcoin trend. Prior to 11/13/20, RIOT was below $4 for years. It reached $78 on 2/17/21 !! During the same time Bitcoin went from $14K to $48K-which was predicted by my market analyst astrologer Merriman about 4 months ago. Merriman’s “big crash predictions” are yet to happen but my research shows that the predictions he gives each week for the DJIA, S&P and NASDAQ for 2% to 4% corrections are 80% accurate. On 12/23/20 I bought call options on RIOT at $650 per contract and those had an expiry date of June 2021 On 1/7/21, I sold those at a 82% profit in just 15 days! Stupid me!! If I sold them on 2/17/21, I could have sold them at a 1,000% profit in about 60 days! However I did not get out of RIOT, I thought that the options were in a real bubble and overpriced so I bought the stock instead; which went up about 150% in 30 days. Expect RIOT and TSLA to go down in the next 12 months and then we can buy more and decrease the average cost but never put more than 10% of the portfolio in to these 2 stocks.
I like listening to complex option traders but most of the time I think they take a riskier complex approach when a simpler, better path is available, At times I hear about good strategies and I share them with you. On 2/26/21, On CNBC Options Action, Tony Zhang said that he is going “Apple picking”. We started doing that in 2015 for our newsletter. Tony’s idea is a good one. Apple hit $120 last week and bounced back. Tony wants people to sell “naked put options” on Apple that expire 4/16/21 with a strike price of $120 for the current price of $600. What does this mean? This is like short selling but you have to get your brokers permission to do this. In fact to do a “covered put option”, you have to short sell Apple-which is very dangerous. This is no Gamestop. So going back to Tony’s idea, if you sell a naked put on Apple, as stated above, for each contract you sell, you get $600 in your account. 1 contract = 100 shares. Thereafter prior to 4/16/21, if Apple does not go below, $120, you do nothing and you get to keep your $600 (or multiples of it). Let us say that Apple falls below $120 before 4/17/21 and the buyer of the option exercises the option; then what happens? For each contract you sold, you have to buy 100 shares of Apple at $120. Since you have already received $6, your true net purchase price would be at $114. There are easier ways to make money off Apple options. I have been adding to my call options. Right now best buys are Apple and Boeing. As Jim Cramer says, “people ask can we get in to a stock that will perform like Disney in the future? Yes..it is called Boeing”. I have been going in and out of Boeing and Apple options for the past 12 months. I made some good money on Disney options too but I can kick myself for ignoring a friend who told me to get in to Disney when it was $100 a few weeks ago and now it is around $200. I could have done great in options. Going back to Apple. Carter Worth, one of the best technicians on CNBC says that it is unlikely that Apple will go below its support at $120. Carolyn Boroden the Fibonacci Queen says that if Apple goes below $120, it is dangerous but she see Apple going up to $160 within the next 12 months or prior. For me, it is not a big deal, as I have some Apple put options with the strike price $90 (June 2021 expiry) as a hedge. As Apple goes down, I buy more calls and puts so my puts will act as a hedge or a cushion. If Apple goes to $50 or so, that would be the deal of the century!! According to the above mentioned market technician, Carter Worth, the market cap of Apple, Amazon, Microsoft, Facebook etc. (the big techies) are so big and they are in so many ETF’s, the market cannot go up without those stocks going up so one of these days, those stocks will come up as a “come back trade”. However it could go lower or much lower too and if that happens, it is okay too.