Howdy from The Mount Rushmore State!
Yet again we stay with the GLD. This seems to be the place to be recently as all our indicators lead us to the GLD week after week after week.
The first quarter also ended Thursday and it was a good one for Hashley Capital Management. We were profitable for the quarter and are well on the way to reducing the number of losing weeks for the year. Last year we had 5 and we had 1 for the quarter – I am still grousing about being stopped out of a trade that would have ended up being profitable. But I like to dwell on the positive. We were profitable from a trading account perspective and I like that a lot!!!
It is Sunday morning when I am writing this while I am waiting to hear form my daughter. I am visiting eldest daughter for the Easter weekend. She is stationed at Ellsworth AFB and seems to be doing very well. It is interesting that she is now an adult and on he own and doing well. Being in the military she has to keep up a decent level of fitness so I am happy on that as well.
Boy is now a licensed driver and is eager to use that license! He is even working on getting a job to help pay for the expense of a car. It is great to see him starting to take on responsibility and mature. His social calendar got busy with the spring break going to friends and having friends coming over to the house.
Youngest daughter had a busy spring break. Every day her or her brother or both were doing some activity. She took in quite the Easter Egg Hunt haul! She took a couple of friends along and they all got tons of eggs and had a great time.
Looks like I might be hitting the stage again my friend in film school has another scene to do for her directing classes. I am getting a great education myself. Last time with “The Doll House” cutting I was able to read a classic play and with the next selection I am sure it will be more of the same. I am looking forward to this latest theatrical adventure!
Ok, now before I leave the great state of South Dakota here is the info you all have been waiting for!!
ANALYSIS
Here is the trade done last week:
GLD 156.50 Call $ 0.1500
GLD 157.50 Call $(0.1111) This gave a $0.0389 Gross Credit for a 3.89% ROI
The GLD market returned to its’ long term patter of down trend this week going down almost $2 from last Friday’s close, but for the shortened week there was a net down of only about $0.30. A quick look at the weekly chart showed a great deal of volatility though. The tensions rising in Korea many thought would help gold go up, but these whackadoos in the North have done this so many times before it is almost like the boy who cried wolf.
1. The Bollinger Band filter was clear this week giving a good signal to go call side.
2. The probability was 92.44%
3. The trend was moving slightly lower for the week
4. IV > HV looked good
5. ROI was near the lower limit but was still good for us
PAPER TRADE
No new paper trade this week
Yahoo ongoing trade:
Yahoo Sell July22 Call $ 57 Buy Back $240
Yahoo Buy July20 Call -118 Sell Off $385
Yahoo Sell July17 Put 66 Buy Back $ 11 $ 5 $134
Net Profit = $129
We pretty much treaded water this week on price and so our gain in profit was not so much. We are keeping above our base price of $20 in the spread so that is good. As long as we keep above that we will have guaranteed profits from this point forward. As our profit gain is starting to plateau I am thinking of getting out of the trade. I have $129 now in net gain, I think if I hit in the $130s then I might exit and take a great gain!
COVERED CALLS
We still have our covered calls on Vivus and CBI again.
Symbol Company Stock Option Premium Initial Annualized
VVUS Vivus 11.00 Apr13 .29 2,676.00 13.00%
CBI Chicago Bridge 62.10 Apr60 2.30 5,670.00 48.67%
These are the completed covered call trades this year:
Symbol Month Premium Month Ann Month Cum Cum Ann
VVUS January $32 1.19% 14.35% $32 14.35%
VVUS February $63 2.35% 25.25% $95 21.30%
VVUS March $28 1.05% 12.56% $123 13.79%
CBI January $50 1.12% 13.39%
CBI March $ 125 2.31% 27.73% $175 12.94%
VVUS – This stock is still in the $10-$12 doldrums. It looks like it will be in this range for a while. I decided against selling the VVUS shares for now, basically because I couldn’t find a reliable substitute on the option premium. If I look at this from a cash flow standpoint I am doing ok, and I might want to hold onto this loss and use it later in the year. If I can find a reliable substitute then I will probably sell this and book the loss against the gains made this year.
CBI – Right now if the option expired we would be called away. We still have three weeks to go until expiration so we will see what happens. BUT if we are called away, like we have been before, it won’t be such a bad thing. We will have gain on the price we are called away at + option premium + this month we were paid a dividend since we held CBI past the EX-Dividend date. So this month we are at least two time winners and possibly three time winners!! If we get all three streams our return for the month would be 9.90%, if we get the call away and the option premium we are at 9.87%, and if we only get the option premium we are at 4.05% (I know that I had a typo for this last week stating 4.50% - I just noticed it when writing this and rechecking my calculations---sorry for that, we will try to do better)
Some people would say that we have had a great year already for the portfolio. True if we go on return based on premium, but if we go with the traditional measure of call premium PLUS liquidation value of underlying stock then we are hurting. But I like to look at cash flow and we are doing well with this. This is the cumulative covered call results for 2013:
Symbol Invested $ Option Prem Call Away Div Total Return
VVUS $2,676.00 $ 123 $123 4.60%
CBI $4,480.00 $ 50 $320 $370 8.26%
CBI $5,409.00 $125 $ 91 $5.00 $221 4.08%
Totals $12.925.00 $298 $411 $5.00 $714 5.52%
DIVIDEND STOCKS
Here are the two portfolios updated.
This portfolio is made up of 100 shares of each stock:
Ticker Name Buy Current Date Div
Price Price Yield
KO Coke 38.17 40.44 08/27/2012 2.71%
AGD Alpine Global Dynamic 5.76 4.80 08/27/2012 6.25%
AOD Alpine Total Dynamic 4.37 4.09 08/27/2012 7.41%
MO Altria 34.26 34.39 08/27/2012 5.17%
INTC Intel 22.87 21.84 10/01/2012 3.94%
HIX Western Asset Hi Inc II 10.53 10.00 10/15/2012 9.44%
MCD McDonald’s 91.74 99.69 10/30/2012 3.55%
MSFT Microsoft 28.55 28.61 10/30/2012 3.12%
JNJ Johnson and Johnson 68.03 81.53 11/23/2012 3.53%
PG Proctor and Gamble 68.72 77.27 12/21/2012 3.27%
Buy Price Portfolio Value = $37,300.00
Current Price Portfolio Value = $40,245.00
Gain/(Loss) So Far = $2,945.00
Portfolio Return = 7.90%
Dividends Received So Far = $640.49
Portfolio Return w/ Dividends = 9.61%
Current Prices as of 03/28/2013 Closing Price
We keep our slow and steady climb with this portfolio. This past week many of the stocks in the portfolio paid the quarterly dividend. Total return is now over 8% with the portfolio portion at almost 7%. This is great! This portfolio is showing my primary philosophy with stocks – buy great companies on sale and then let them ride.
After looking closer at the AGD and AOD situation I have decided to hold on to these. After their deep decline from the dividend cut the prices of both have remained stable. Also with all the potential replacements out there the dividend in actual dollar amounts would be similar. So I will be keeping them and not booking the loss on these.
Both portfolios will carry a 15% stop on them. Portfolio #1 has 100 shares of each stock and will generate $1,198 in dividend revenue assuming no reinvestment. This gives a 4.01% return. Portfolio #2 will have $5,000 invested into each stock and there will be dividend reinvestment. I will carry shares out 3 decimal places. So here is how Portfolio #2 shakes out:
Ticker Name Buy Current Ex-Div.
Price Price Date Shares
KO Coke 36.89 40.44 06/13/2013 135.917
AGD Alpine Global Dynamic 5.76 4.80 04/19/2013 982.153
AOD Alpine Total Dynamic 4.37 4.09 04/19/2013 1,257.549
MO Altria 34.26 34.39 06/22/2013 148.894
INTC Intel 22.87 21.84 05/03/2013 240.000
HIX Western Asset Hi Inc II 10.53 10.00 04/22/2013 527.137
MCD McDonald’s 91.74 99.69 05/28/2013 55.425
MSFT Microsoft 28.55 28.61 05/19/2013 183.492
JNJ Johnson and Johnson 68.03 81.53 05/25/2013 71.547
PG Proctor and Gamble 68.72 77.06 04/19/2013 72.529
Buy Price Portfolio Value = $51,996.01
Current Price Portfolio Value = $53,184.95
Dividends Received So Far = $490.41
Dividend ROI = 0.94%
Stock Return = 2.29%
Total Return = 3.23%
The difference in the portfolios is the timing in the buying of the securities.
Here is the watch list. Our three keys make getting on the list and then getting into the portfolio rather difficult. Here are the three keys: (1) a moat business model, (2) dividend of at least 3%, (3) solid fundamental analysis numbers.
Ticker Recent Date Div Target
Name Price Yield Price
WFC Wells Fargo 36.99 2.85% 35.00
COP ConocoPhillips 60.10 4.53% 58.00
BAC Bank of America 12.18 0.35% 11.00
BRKB Berkshire Hath B 104.20 No Div Pd 100.00
STI SunTrust Bank 28.81 0.69% 29.00
TCPC TCP Capital 15.96 9.46% 15.60
The first thing that should jump out at you is that these stocks really don’t fit the dividend portfolio model except for COP. These stocks were picked more on the basis of anticipated growth.
Wells Fargo – This stock is starting to reap the benefits of getting itself out of a lot of the mortgage mess it found itself in for the past few years. The dividend is likely to increase as the Feds loosen up on the banks
ConocoPhillips – This stock has great potential as the move significantly higher as the recent earnings was good and it has beat the street consistently.
Bank of America –This stock is keeping up a pattern of growing revenues and earnings after nearly collapsing in the banking crisis. This is a stock that I wish I had gotten into at this time last year at around $4.00
Berkshire Hathaway B Class – This is the way more affordable way to get into Berkshire Hathaway and Warren Buffett than the $150K+ regular Class A shares. Over any period of time 2years or greater an investment in Berkshire has made money. This past year (2012) the S&P beat Berkshire, only the 5th time that has happened in the history of Berkshire – over 40 years. So this is one that is purely price appreciation. DISCLOSURE – I own this in my personal stock portfolio –one of the few stocks I do own.
STI – SunTrust Bank – This is a regional bank that didn’t pass the stress test the first time around but did in the results announced Thursday. Regional banks seem to be where the action will probably be in the financial sector. It has a paltry dividend ROI right now, but now that the stress test is passed the bank will be able to modify this and will probably open up the dividend some more.
TCPC – This is a business called a business development corporation. These types of companies are basically like venture capital groups in that they invest in new businesses, but mostly they invest in the senior debt or hold some type of debt instrument or warrants for stock upon issue instead of investing directly in the companies. TCPC is considered the best of breed in these types of companies and with an 8% yield it is paying a great dividend. Now BDCs (Business Development Companies) must pay out most of their earnings like a REIT that is why the dividend is so high
QUESTIONS
I am continuing the series of trading rules from Jim Cramer. Here are Rules 11-15 of his 25 trading commandments:
Rule 11
That was my major task, one that I completed before anyone else came into the office, generally between 4 a.m. and 7 a.m. I would analyze every losing trade — you don't need to analyze the winners, they take care of themselves — and try to figure out how I could have made more money or lost less money.
I was maniacal about it.
And after a couple of years of this, I realized that good performance could be directly linked to having fewer positions.
I never will buy a stock without first taking one off. That's a great discipline and one you should adopt, pronto. All the bad money managers I know have hundreds of positions. All the good ones have a few that they know inside out and like on the way down. That's why I say:
Don't own too many stocks.
I know it can be constraining. For instance, I might like several stocks in the chemicals group, say, DuPont (DD - news), Dow Chemical (DOW - news) and Eastman Chemical (EMN - news). But my discipline leaves room for only one, so I would own the one that I thought was the cheapest and the best.
When I lost the most money as a hedge fund manager, by the way, my "sheets," my position sheets, were as thick as a brick. When I made the most money, my sheets were, well, one sheet of paper, double-spaced. And I ran hundreds of millions of dollars.
Please remember that whether you are a pro or an amateur, you can always have too many positions.
If you don't like the market or have anything compelling to buy, it's never wrong to go with cash. More
Rule 12
No, No, No!
You don't like any sectors? Sell everything and go into cash, don't short Advanced Micro Devices (AMD - news) vs. Intel (INTC - news) or Nortel (NT - news) vs. Lucent (LU - news).
You don't think the market's going to do anything? Don't try paired trades, like General Motors (GM - news) vs. Ford (F - news), and don't buy defensive stocks like Anheuser-Busch (BUD - news) or General Mills (GIS - news). Just get out.
So many people never want to get out and go to cash, which is literally short-term Treasuries of the less-than-a-year variety. People start talking about how little cash earns — although it sure earned more than a year ago. Or they say, "Can't be in cash, that's for losers." But I say:
Cash is for winners.
A lot of this cash aversion stems from something that occurred a decade ago, when Fidelity Magellan underperformed because it had too much cash. As a result of the weak performance, the manager was fired! But no one ever seems to get fired for bad stock-picking. The takeaway in this game ever since that high-profile firing was: Don't dare get caught with too much cash. That's why you see and hear all of these fund managers who have lukewarm views walking around with massively long-biased portfolios.
I grew up in a different time. I only shorted when I had an edge — I can't short at all right now by contract, but back when I could, I didn't short just for the sake of having some shorts on against longs. I don't care about not having enough exposure; I care about losing money!
If I were you and I didn't like the market or didn't have anything that compelling to buy — as defined by a willingness to buy it down if the stock keeps going lower — I would go with cash. It's never wrong when you don't like the tape or when you can't find anything that truly makes sense for you.
This damaging emotion is destructive to the positive mindset needed to make investment decisions. More
Rule 13
The most damaging recurring thought you can have is this: "If only I ..." — you can fill in the rest. As in, "If only I had acted sooner on Electronic Arts (ERTS - news)." Or, "I should have pulled the trigger on Nvidia (NVDA - news) ahead of that quarter." Or, "I could have made a fortune if I had stayed short that Sun Microsystems (SUNW - news)."
Don't get hung up on the woulda, shoulda, couldas.
This is wasted, damaging emotion. It is destructive to the positive psychology you need when you are making investment decisions. For a long time, I took it to an extreme. I would sit and be mesmerized by a couple of big misses, by things that I got wrong. I would be obsessed, hitting up the big miss over and over again.
Not anymore. With the help of my wife, the Trading Goddess, I was able to see just how destructive such a pattern of thinking is. In fact, I have had to build in methods of tricking my mind into not playing this game.
A while ago, I absorbed a terrible loss in Charter (CHTR - news) at the $2 level. I knew that to keep myself from thinking "I could have sold the stock at $4 and change for a nice gain," I had to take Charter off my screen. I do that with all stocks that go up huge after I leave them or that have gone down huge and I had to take the loss for fear that they then will rally and further shatter my confidence.
If you are like me, and you need help curbing this kind of destructive thinking, go to that extreme; take the stocks off your monitor or your portfolio watch. You will be surprised how much better you perform when you stop the woulda, shoulda, couldas.
It is not always clear when a correction will strike, so expect and be prepared for one at all times. More
Rule 14
To me, they are like the rain. I expect it has to rain. I prepare for it. When it comes, I am ready. I have an umbrella and a coat or I stay indoors.
Expect corrections; don't be afraid of them.
Of course, corrections happen at allegedly unexpected times. The last few we had were preceded by terrific days during which we made lots of money and all systems seemed go.
That's when I worry most. I used to have a rule at my hedge fund: When I made 2% in a day on the upside, I knew I was too exposed, I knew I was too long. I knew that my portfolio would kill me if we caught a storm. So as the market lifted, or if my performance was swinging too much to the upside, I would pull back, sometimes furiously, into strength, so I would be ready for that big down day.
Sometimes it never occurred, and I had to swallow my pride days later and come back in. But when it did occur, I outperformed by so much that my partners thought I was a genius. Plus, I was ready to buy things with the cash I had taken off the table.
For example, let's take the oils and the oil drillers, companies like ChevronTexaco (CVX:NYSE - commentary), ExxonMobil (XOM:NYSE - commentary), Halliburton (HAL:NYSE - commentary) and Schlumberger (SLB:NYSE - commentary). I like to pick on them because they are classic rally/correction stocks. When these stocks were ramping every single day in early 2005, I knew we were setting ourselves up for a fall. So I did my best to scale out into strength.
I felt terribly naked when, for example, Kerr-McGee (KMG:NYSE - commentary) spiked to $81-plus and I had none left because I had been selling into strength. Sure enough, though, a week later, and it was already below where I had sold it. If I liked it so much, I could have bought it back.
You may not know when a storm might strike. But we do have barometric readings that help immensely. When the S&P's proprietary oscillator registers plus 5, that signals to me a level of overbought that I regard as dangerous and I pull back aggressively and wait for a correction. That might mean that if I owned a portfolio of Intel (INTC:Nasdaq - commentary), PNC Financial (PNC:NYSE - commentary), Electronic Arts (ERTS:Nasdaq - commentary) and Procter & Gamble (PG:NYSE - commentary), I might be selling up to half of those positions, no matter what, in order to be ready for the storm.
If the rough weather doesn't come, I underperform on the upside. But think of this: I compounded at 24% after all fees for my hedge fund career, about twice what the market did during a long stretch in which it was pretty darned good. The only empirical conclusion: My method of avoiding the big down days more than made up for having less exposure on the big ramps up.
Rule 15
Yet people forget the bond market all the time. They forgot it in 2000, even though it told them the economy was softening. They forgot it in 2001, when it was clear that the cash rates were too competitive to stocks and would cause a massive selloff. That's why I say:
Don't forget bonds.
I was trained to focus on bonds because bonds are the competition to stocks, the competition I most fear. When short-term rates go sky-high, you have to expect companies that had been bought for good yields, stocks like Bank of America (BAC - news) or BP (BP - news), will sell off.
When long-term rates fall to 4%, you have to believe that the economy may be too soft to own deep cyclicals or that stocks that have high yields, like utilities — I like to watch Duke Energy (DUK - news) — will be on the move.
You need to watch more than the stocks. If this were basketball, I would be saying that if you just watch the man with the ball, let's call him Citigroup (C - news), and you don't watch what the others are doing on defense — the bonds — there's no way you are getting to the basket. The men without the ball — the bond market — can determine the action.
Many people who got in this game in the last decade still don't even know what bonds are. They are troubled when you say bonds went up today. They think that means interest rates are going up rather than what it really means, which is that interest rates are going down. If you don't understand how bonds work, I think you will not be able to make nearly as much money as if you do.
By the way, a lot of younger managers think they only need to think about bonds if they own Washington Mutual (WM - news), American International Group (AIG - news) or Fannie Mae (FNM - news).
They don't think bonds matter with a portfolio of Research In Motion (RIMM - news), eBay (EBAY - news) or Qualcomm (QCOM - news).
Wrong! When interest rates move significantly higher, no one's going to pay a lot for the future earnings growth stocks provide.
So keep your eye on the ball, and on the men without it.
All charts from freestockcharts.com. This is not a paid endorsement. They are a good free app that only asks for credit on their charts when you use them.
DISCLAIMER: Hashley Capital Management, LLC; as well as I are not giving any trading advice. All data is historical in nature and is intended for use as an educational tool. Trading in stocks and/or options is risky and can result in loss of capital. Stocks and options carry inherent risks and should be well researched before any buy/sell decision is made. There is no attempt to sell any brokerage services or act as a broker or dealer by Hashley Capital Management, LLC. Any forward looking comments on this blog are not attempts to solicit business for Hashley Capital Management, LLC and are the opinion of Hashley Capital Management only. If you choose to follow the same path and invest in the strategies and trades used by Hashley Capital Management, LLC after doing your own due diligence, that is your decision and yours alone.
Reach me @:
Twitter: @awagel01
Stocktwits: awagel01
Or leave a comment on the blog
TTFN
Ash
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