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reducing my long exposure some more



August 03, 2009 – Comments (23)

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.  



23 Comments – Post Your Own

#1) On August 03, 2009 at 10:42 PM, rexlove (99.70) wrote:

How bout using trailing stops? Say - 3-4% below the stock high. So if the market continues rocketing up .. you're good. The first sign of a pullback and you're in cash. Seems safe to me.  

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#2) On August 03, 2009 at 10:47 PM, goldminingXpert (28.70) wrote:

Other than Alstry, not sure what permabears you are referring to. I like how this post is grinding an axe with those terrible bears yet you are sounding like one yourself... you keep apologizing for sounding bearish in tone, and saying "This post isn't bearish." I don't understand why you can't just come out and say "this market is overvalued."

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#3) On August 03, 2009 at 11:34 PM, portefeuille (98.85) wrote:

How bout using trailing stops? Say - 3-4% below the stock high.

I would be surprised if more than 2 of these stocks survived such a strategy for more than 3 trading days (if the trailing stops are readjusted at the end of the day). I don't like stop loss/buy limits.

Sounds good that strategy, checklist34!

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#4) On August 03, 2009 at 11:44 PM, checklist34 (98.59) wrote:

How bout using trailing stops? Say - 3-4% below the stock high. So if the market continues rocketing up .. you're good. The first sign of a pullback and you're in cash. Seems safe to me.

Rexlove posted that.  Rex, the reason is that I'm sort of stuck in a high tax bracket and if I simply hold the stocks, I wind up in a situation where I make 20% tax savings for holding for 8 more months or so.  Plain and simple.

So instead of just selling OSK, ASH, or TCK, I've sold covered calls (think at or slightly above the money long in the future calls that pay 10-25%) or taken a synthetic short position with options (buy a put sell a call, doesn't need to cost much at all to do this).  I make 20% in 8 months by just sitting.  

Fear of taxes is why I opt for hedging over selling at this point.  TCK went as high as I thought it should (well I think its one day going to 40, but that doesn't mean its happening soon or even semi-soon)...  but the diff between cap gains and income is too big to ignore and must be considered.  

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#5) On August 03, 2009 at 11:49 PM, awallejr (35.54) wrote:

Interesting, this time last year an S&P 1000 was looking good for the bears and bad for the bulls.  What next year will bring, time will tell.  Nothing wrong with taking profits, especially if they are alot.  As for overvalued, undervalued, you can look at individual stocks or you can look at Index's I suppose.  While individual stocks can be pulled down or dragged up on general market trends, in the end you need to look at them on their own merit.

While I would expect another small correction, there are still plenty of individual stocks that have excellent value today. I don't really play with index funds.  I prefer individual stocks which for the most part pay dividends.  Last year I got hurt.  This year I am doing quite nicely.  In each year those dividends kept coming in for the most part.

I don't call tops, I don't call bottoms.  I do, however, believe that in the long run the market's direction is ultimately up.  Eventually we will see a DOW 14,000 again.  Personally I think it will take years, tho some like Zloj think by December.

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#6) On August 03, 2009 at 11:51 PM, checklist34 (98.59) wrote:

GMX.  my goal int he post was to make a point that involves potentially conflicting things.  These are A) my target exit point draws near and B) I think we're running out of blatantly cheap stocks plain and simple.  And the potentially really cheap stocks that are left are not sure-things fit for hte feint of heart.

I do not really wish for, nor consider myself worthy of, the responsibility of guiding other poeples investment decisions.  Therefore I don't want to emphatically post "sell now" or anything like that.  As my blog history has clearly shown, I am absolutely not good at predicting the marekt in the short term, that is clear, therefore I should not give emphatic advice nor try to sway the opinion of others.  Just think for a second of some of your very bearish blogs prevented someone with a wife and 2 kids from getyting in in late march.  And missing double his money and one kid going through college?  I personally could not live well with that.  I'm not here to be great or bolster my ego or be right, I'm hear to learn and make money.  Thats why Porte's blogs, on the days i'm sharp enough to filter through them, interest me.  There's a pot of info hidden in there sometimes but he never really pushes an opinion.  I don't mean that to say your blogs aren't interesting.

The money is all in the flop.  Perma anything is a loser...  permabull will always win given time.  Permabear will always lose given time, but the real money is in the flop.

I'm just trying to flop, GMX.  Just trying to flop.  

And, frankly, I think the market is fragile here.  It could tank 50 points on anything, like this weeks employment report.  

But ...  what if that report surprises?  1100 is only one material piece of actually bullish news away. 

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#7) On August 03, 2009 at 11:53 PM, checklist34 (98.59) wrote:

thanks porte, i appreciate it.  I hope i'm on the right track here. 

In truth, I think S&P at 1200 wouldn't be irrationally overpriced, but I try to tame my natural tendency for bullishness by aiming low.  I think 1100 is fair value.  

I will buy all the beer if you come to Moorhead, Minnesota where I am for work this week of ACAS has material good news tomorrow.  No belgian beer here, so Europeans probablyw on't like it, but i'm willing to make an arse of myself for the greater good.  

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#8) On August 03, 2009 at 11:55 PM, portefeuille (98.85) wrote:

chances of meeting me are much higher on this side of the atlantic. tell me a few days in advance!

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#9) On August 04, 2009 at 12:08 AM, checklist34 (98.59) wrote:

Awall, I've absolutely positively no doubt we'll see DOW 14,000 again.  Absolutely none.  And I find no fault nor point for debate in your post.  

Its just that my longtime biz partner and I made the hardest decision ever (well close, maybe not ever) in deciding to sell last fall to eventually buy into the crashing stock market, judging based only on history and literally no idea what was actually going on in the world that buying into a crashing market was likely to yield return better than running a biz in a heinous recession.

My tentative goal was 2-3x my money in 2-5 years.  That was checklist being ambitious.  I'm spitting distance from the high side of that, and I will be at the high side of that at 1100, and I've just decided to call it good.  I won, it worked out, I'll take it and walk away.  I won't be greedy, I won't be Cramers hog that gets slaughtered, I will leave some potentially good returns on the table for the next guy.  I'll hedge up.

Good enough.  I win.  I sit here tonight, as I've done every night for 3 weeks, thinking back on my time on this earth.  I grew up so poor...  as a kid if we got a box of sweetened cereal we had to mix it 1/2 with other cereal to save monehy.  I had my first pair of new Levis (an expensive brand to me then) when I bought them myself.  We had $10 for christmas presents every year.  My father was a hell of a man, and I'm not insulting his achievements, I'm just noting how I grew up.  Pl,ain and simple, people on welfare have it far, far better. 

I failed 4 or 5 ('d have to count) times in biz.  I wracked up 100's of thousands of dollars in credit card debt.  My best, and maybe the only friend i've ever had is my long time business partner.  When we moved our biz's out of the hole in the wall where we started them there were holes in the office walls, and blood all over the carpet from fist fights we got in over the strain.  It was nothing I care to really remember or think about, much less live again.  We ate cheese and bread for 2 meals a day for 4 years.  If that.  It was awful. 

But we won, we beat the game of life, starting with a trashbag full of table waiting tips and ending , well, somewhere its just not possible to imagine being after living my life.  I worked 110 hours a week (and that is a fact) for 7 years, 5 of those racking up debt.  1 of thos emaking money and 1 making a whole lot of money before selling out.  

I'm a bad guy to Obama and this congress. I created a couple dozen jobs, I balanced the trade deficit by millions (well, partly me, partly others).  But I am now a bad guy to the president of this great country and our congress.  Fk 'em.  

I beat the game of life and I'm quitting while I'm as ahead as my big dreams imagined.  Leave some for the next guy, even if that means I leave ALOT for the next guy, so be it.  Good for him.  Good for society, good for everybody.

But some stocks, like the aforementioned, are about run out.  If they go up 50% great for the next guy, but for me they've gone far enough.

Stare oblivion in the face and get to know it a bit...  you'll lose the urge to hold on for the last nickel.  

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#10) On August 04, 2009 at 12:08 AM, awallejr (35.54) wrote:

As for ACAS, I bought puts to cover my position since I never trust them on earnings day.

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#11) On August 04, 2009 at 12:17 AM, checklist34 (98.59) wrote:

porte i think i have a trip to the spa, belgium area in september maybe.  I am so disorganized I don't even know, i'll ask tomorrow and figure it out.  I bought a blackberry once, and then lost it a week alter in Frankfurt, lol.  I didn't buy another one. 

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#12) On August 04, 2009 at 12:20 AM, checklist34 (98.59) wrote:

awall, I ..  dammit, I didn't hedge this time, i'm exposed.  Last time I was smart.  I bought a mob of puts when it was near $5 and sold the next day for like 3x my money (on the puts).  This time I just haven't done it.  

I may sell some covered calls tomorrow or buy puts also.  Those guys release good news the second it happens so its usually safe to say no news is bad news.  

... fullness of time, I think ACAS unloads ECAS for at worst a modest loss, works out the default, and goes to 7 or so.  Thats my hope.  

But short term I think that sucker is going to 2.50.  oh well...  

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#13) On August 04, 2009 at 12:35 AM, portefeuille (98.85) wrote:

Spa is close enough. You should go to Liège as well.

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#14) On August 04, 2009 at 1:33 AM, checklist34 (98.59) wrote:

i sat in spa at a hotel where Michael Schumacher autographed my chair, that was pretty sweet.  I drank way too much and hung out with a very nice american couple one night, and two british business dudes one other night. 

Damn belgian beer, I can't even have 3 and stand.  lol  I guess thats why someone invented crawling, so you can have a 5th belgian beer.

Can we email on this site?

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#15) On August 04, 2009 at 1:38 AM, goldminingXpert (28.70) wrote:

The Dow will eventually go back to 14,000 of course... as long as there is inflation, this is near-guaranteed (the only way this doesn't happen is if people pull the plug on the Dow realizing its complete uselessness and everyone switches to the S&P.)

I can't believe ACAS hasn't gotten shut down by either its lenders or the FBI yet. Only in America.

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#16) On August 04, 2009 at 2:05 AM, checklist34 (98.59) wrote:

well lets see.  ACAS.  $0.79 (my cost avg), owes $1.07 divi.  Taht was cast in stone from last fall.  Even if the PPS drops to $0.12, it still owes enough shares to make $1.07. 

Just de-listed from the S&P (all but casting in stone that the epic selling resulting from said de-listing leads to a pop in PPS later) near the march lows.

If that wasn't the buy of a lifetime I can't begin to imagine what was.  There was literally no way to not make 50%.  Which, bTW, is about what you claim to have made shorting the crash of a liftime.

BTW, BK doesn'tequal 0 shareholder value.  ACAS has big insider ownership and even in a run-off its overwhelmingly likely that residual value would exceed PPS where I was buying.

Fish in a barrel, fish in a barrel, fish in a barrel.  Im hopeful for ACAS today, I think there is talent in teh company and the price/book is by basic ongoing investment thesis.  

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#17) On August 04, 2009 at 2:14 AM, awallejr (35.54) wrote:

Personally I like PSEC better.  But I won't sell my ACAS for years since when I rebought into it I assumed a zero loss anyway ;p

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#18) On August 04, 2009 at 2:19 AM, BigFatBEAR (28.30) wrote:


I like cut of your jib. Favorited, and look forward to hearing more from you.

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#19) On August 04, 2009 at 2:44 AM, checklist34 (98.59) wrote:

awall, I also like PSEC far more at todays prices.  But at the march bottoms ACAS was the better play.  I like PSECs buyout of PCAP today...  accretive, makes all PSECs recent dilutions worthwhile

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#20) On August 04, 2009 at 2:45 AM, checklist34 (98.59) wrote:

BigFat, I really appreciate it, I hope I can post something worth reading now and again.  !

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#21) On August 11, 2009 at 9:24 PM, dragonLZ (93.16) wrote:

Very happy to hear checklist34's success story. Congratulations and Good Luck in the future...

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#22) On August 13, 2009 at 10:26 PM, Roto1177 (78.13) wrote:

Pretty cool story- you sound like a good dude- Good luck to you and if you are ever in NYC let me know....I am thinking about placing a bet on BZ....

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#23) On August 14, 2009 at 1:02 AM, checklist34 (98.59) wrote:

thanks dragon, roto, I really appreciate it.  Roto, I think I have a visit to manhattan coming up i'll post when i figure out the details.

I think BZ has, even at todays prices, a fair chance of offering some really good returns

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