reducing my long exposure some more
As I've posted before, my target hedge or exit point (depending on timing) from the market is around S&P 1100. I am not posting this to be bearish. Indeed I still think that there are many good bargains on the markets today, although I will concede that bargains today are limited to stocks with tangible risk and tangible, real turmoil or challenging surrounding the underlying companies. CNO, GNW, BZ, RJET, and MGM come to mind. Possibly FIG or BX. I think AA and GE will deliver nice returns from todays prices in the fullness of time as will DELL or maybe even BA - the 787 will eventually fly and it will be a multi-platinum hit. I'm sure there are many stocks that still have alot of room to run from here. High yielding BDCs in good shape can certainly be great investments from here in my view. ARCC, HTGC, PSEC, FSC, PNNT, and maybe AINV come to mind. AINV is riskier. ACAS could easily be a great investment from here, but some good things have to happen for this to be so. I think natty gas related MLPs could yield great returns going forward.
My point with this blog isn't to say that stocks are a bad investment or that they can't, shouldn't, or won't go higher. They might, they maybe should ( i think fair value is still quite a way above here, 10% or so), and anybody who has ever read my blog must know by now that my market timing skills are toilet-bowl quality at best, if not a counter-indicator, lol.
But some of my holdings are simply approaching fair value. ASH at almost $35 is no longer a screaming bargain. Could it go to 50? in the fullness of time it will. Could TCK go to $40? Yes, but its not cheap at $28. DIN beyond the $34 where I hedged it up? Could. Frankly if DIN dips significantly on a secondary I'd be a buyer. Its probably worth 40 fullness of time. OSK to $40? Lots of happy at OSK these days, but its not cheap anymore even with the new contract.
And I have decided to NOT fall into the "bear" trap and not declare victory when I'm right but instead raise (lower for bears) my target and stay in. Bears always predict doom and market crashes, but then when they get their wish they just predict an even lower market and never change teams and turn neutral or bullish. I am not going to do that, and I am not holding any of my stocks for a "best case" PPS outcome. I have decided that you should sell when you honestly think a stock could go 25% higher. By leaving that money ont he table for the next guy, you ensure that you yourself don't wind up going all the way up, andt hen all the way back down. (we aren't going back to anywhere near the march lows, thats not what I meant, I just mean that its never a sin to take a profit).
And so i've hedged those holdings to some extent. Basically selling far-in-the-future above or slightly above the money covered calls. These bring in big premium (honestly 10-15% of the current PPS for strike prices reasonably above the money). I HOPE I lose money on those, I hope the other guys make money, I hope the S&P goes to 1500. But I'm sticking to my guns and as we approach my 1100 2009 target price... I'm hedging up.
Some stocks i'm letting ride. CNO, GNW, ACAS, MCGC, BZ, MGM come to mind. Others i'm hedging.
This post isn't bearish, its just to offer this thought: the real money is made by flopping. Being bearish in expensive marekts and bullish in cheap markets, the real money is never made by being a perma-anything, permabear or permabull. Well, permabulls make money and probably eat stake, permabears eat McDs leftovers.
The key to returns is the flop. At 1100 we will be fully 65-70% above teh bottoms, and thats far enough, its also fair value, and I don't think macroecnomic conditions even remotely support a market staying at or above far value for a really long time. I am often wrong.
I'm not telling anybody what they should do, I'm telling what I am doing. I chose my fair value through a whole lot of analysis, I decided not to stay in above it, and I'm doing that. Individual stocks of mine that I judge to be still well under fair value I'll let ride come bumpy roads or a dip back to 880 or whatever, but stocks I think are within 20% of fair value I'm hedging. Always leave some money for th enext guy, always leave some money for the next guy.