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I never met an ‘e’ I didn’t like

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January 07, 2009 – Comments (2) | RELATED TICKERS: B , IN , VE

I am starting up a blog for the binve portfolio. As some of you may know, I am also binv271828. And as you can see, even the two names are very interrelated (e, Eulers number, is 2.71828182845…., so 271828 is simply the first 6 digits of e). And so if you have read any of my binv271828 blogs you can tell I am a math enthusiast (read: nerd). And for a blog on the love of the number e, please read this one: Why e is the coolest number.

The binve portfolio is going to be a more short-term/momentum based portfolio. Contrasting against binv271828, which is a much more long term and thesis-based portfolio (basically: Long term gold up, silver up, oil up, commodities up, alternative energy up, water infrastructure up, broad US equity market underperform, US dollar down, US Treasuries down). So a valid question is, am I giving up on those long term positions? The answer is an emphatic: NO! I have been thinking about my investing style a lot over the past year. There is a part of me that is still a thesis / long-term-buy-and-hold investor and then there is another part of me that responds to the "don't get married to your thesis" argument. The way I have resolved that conflict for myself and my investing style is two accounts. When I look at the macroeconomics and long-term trends, I see inflation. Now matter what happens in the next two years (credit collapse and deflationary pressures), I see inflation as the big long term issue. And so all of my long term thinking is greared toward protecting against that eventuality. So I hold gold, miners, and oil companies. Peak oil is an inevitable eventuality. Demand may drop precipitously near term, but eventually it will be a reality the earth will have to confront. So my long term accounts reflect that stance, and I will not release that stance easily (even the commodities correction did not change that stance). But I also want to allow for nimble and more flexible thinking in the short term, to 're-evaluate conditions on the ground' as it were.

So what will this portfolio and these picks be like? It will more or less represent my real life short term account. Obviously it will not be one-for-one. I will probably make more picks in CAPS than I actually will in real life. Also there are some pick that I will make in real life that I can’t make in CAPS (e.g. I bought NXG and TGB as real life copper plays, but couldn’t pick them in CAPS due to market cap / price restrictions). In general I will make picks by the following guidelines:

1. My picks will all be outperform picks. This has _absolutely nothing_ against short selling. I don’t begrudge short selling in real life or in CAPS. Underperform picks have a vital place in the market and in this game for metering reality (if that is possible for the market) and making the market more efficient. The simple reason I don’t for myself is simple: I hate margin. I want no debt, nor do I want access to it even for the purposes of making a short sale. It is simply a personal choice. So my green thumbs will not mean I am generally optimistic (which I am very much in certain sectors, and let’s face it, I tend to be a pretty happy guy :) ) it just reflects this personal trading stance.

2. Most of my picks will be sector-based …. sort of. What I mean by this is that instead of looking for individual oversold stocks or individual oversold value or momentum plays, I tend to look more at the bigger picture. I am looking for oversold, value and momentum sectors. And then I tend to pick several stocks in that sector that go with that sectors trend. Always this will be technically minded for this account. I will try to look at the technicals against my interpretation of the macro-economic backdrop.

3. I will often use ETFs to accompany my sector picks, sometimes even using 2x-3x leveraged ones. But wait! You ask, doesn’t that go against point 1?. No, not really. Even if you pick a 2x-3x ETF, but you go long in it, your downside risk is that the ETF goes to 0. You personally still cannot lose more money than you put in. There are lots of other risks too, such as the fact that 2x-3x leverage is based highly on options by the ETFs, which will become less effective over time. So these make lousy long term investments. But from the point of view of momentum plays, that can be useful as a small part of your overall portfolio.

Okay! So that is my spiel. I hope you are interested in following my progress and having discussions about some of these momentum plays. I think that the short term horizon is as important as the long term horizon, and that it pays to look at both. Good luck to us all!

2 Comments – Post Your Own

#1) On January 14, 2009 at 10:54 PM, TheGarcipian (36.21) wrote:

Hey binve,

Nice shorter moniker, easier for those people with mathematical or typing disabilities... heh heh. Glad to see you laid out your "spiel". And don't worry with the quantity of investing theses; I think Brigham Young had fourteen or fifteen. :-)

With respect to oil, I'm sensing the same exact investor inertia. It's nice to see oil finally pop back up to $50/bbl, but like you, I think it'll take a rest, drop back to $40 or $35, then push back up through $55-$65/bbl by summer 2009. I unloaded as many of my stock positions that I could over the past 4 months (which unfortunately were not enough), but I've held onto my copper, aluminum and oil stocks. I got burned on the commodities, as I don't know a lot about them (and still don't!). Copper & aluminum will take much longer to come back, and I think will only do so in earnest once the building industry cycles back in about 4-7 years. I'm willing to wait that long. (I've waited for Time-Warner to rebound since 2000, and that SOB still disappoints me. Oh well, something for a 2009 tax loss, I suppose). In oil, I've got positions in XOM, MCF, DO, GHM, HERO, MCD, OII, and WTI. So you can see, I'm in the sector Big Time, perhaps too much so as I'm sitting on big losses from the summer's unwinding.

Good luck with your alter-ego here, and may GREAT luck be ours in oil and gold!  We need some good news, man.

Cheers,
--Gar

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#2) On January 15, 2009 at 8:42 AM, binve (< 20) wrote:

Gar! Yeah, I confess. All this talk about having another portfolio to test out new ideas is a sham, I really just got tired of typing out 271828 .... :)

Seriously, thanks for all of the kind words and support. Yeah, this will be a critcal week for oil. If it can still maintain long term historical support and not drop below $30, I think we could see a potentially significant rally. What is very interesting is if you look at most of the crude symbols ($WTIC, USO, DXO, etc.) most of them are sporting potential (still too early to call this one) reverse head and shoulders. So with my short term money, I still see these potential setup and have placed money accordingly. And I won't move it until the setup breaks down. Interesting week :)

Yeah, all of my long term investments are mostly down, especially my commodity plays (COP, ACH, TGB, etc.) but the thesis / long term investor in me is not worried about those. I don't mind sitting out paper losses, because I believe in the long-term protection of these inflation hedges.

What is interesting is that I have played some of these same companies (TGB, NXG, FCX, etc.) with my short term money too. Most commodities are oversold, but copper especially. I played the copper rally last week and made a little profit on these copper miners. But I sold them because right now, the big potential setup I see is in oil, so I have a good chunk of capital allocated for that.

Thanks man! Good luck too! Good news would be most welcome for the long term portfolio :)

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