PORTFOLIO UPDATE: CHANGES GALORE AND DETAILS GALORE
During the trading day, I tweeted the following: Dramatic changes to the structure of the portfolio, no doubt. Market neutral exposure, which has been the standard since October 10th, has been replaced with a 75% exposure to equities. 25% remains in cash. Should the market continue its strength, the remaining amount of cash will have a home over the next couple of weeks. As it stands, the portfolio consists of WMIH, PTGI, SPNS, PXLW, PRXI and UPIP. No, I did not intentionally choose companies that had symbols containing the letter "P", as unbelievable as that may seem to some of you. Here is some brief detail into the reasoning behind today's additions. Looking at things on a micro level here: PTGI - Restructured, post-BK company here. Company essentially has very little sell side coverage. Very under the radar. Free cash flow machine. Continues to pay down debt, increase operating efficiency and expand margins. Revenues have been somewhat soft sequentially. It is trading at a ridiculously low 3.5 times EBITDA. Unless there is an utter collapse at the company, there is very little downside in the stock at these prices. I bought into PTGI in January of this year and sold in April for a near 40% gain. The company has only become leaner since I sold in the $17 range in April. Paying $11 and change for the company down here is a gift. SPNS - I'm at a complete loss for words as to why the market is overlooking this company. Been adding all week. Their earnings are terrific. The CEO raised guidance when they reported earnings earlier this month. Here are some highlights: - Revenues up 67% YOY - Net income up 86% YOY - Profit margin up 200 basis points YOY - Raised guidance to $113 million in revenue for the year. Cash position has increased over $10 million YOY. All of this and the company is trading almost exactly where it was one year ago. PRXI - Same reasons as I had in the recent research report. Adding, as well. As I do at the end of every month, I will be posting my letter to investors on the site that will detail all the positions in the...
PROTECT YA NECK
Frankly, I'm bored. This market neutral position I have adopted doesn't make for a very entertaining portfolio. I prefer acrobatics to the ballet. Adaptability is important, however. Sometimes you must be a ballerina. Other times you have to put on your Cirque Du Soleil tights. I've been in a ballerina costume for nearly two months now. In November it has paid off. With a few days left in the month I am sitting on a gain of about 1% for November. This is important for a number of reasons: 1. It stops the bleeding that last month brought. 2. It puts me ahead of the performance of my benchmark, the S&P 500. 3. It validates my tactical asset allocation approach once more. For those of you who haven't been paying attention or are new to this venue, there are two sides to my process. The first is to look for small-cap stocks with some type of restructuring, distressed or activist angle. I look outside of this venue from time to time, but know that in order to make my bread, I have to use the right butter. I outline all of my investment ideas via research reports, as most of you are aware. The second part of my approach, shrouded in a bit more mystery being that it isn't highlighted as often, involves a tactical asset allocation approach that is mechanical in nature. This means that whatever personal opinion I have about the market or a group of investments doesn't matter. When the bell rings, my response becomes Pavlovian in nature, with complete and utter disregard for whatever else is occurring in the financial ecosystem. I have mentioned many times the emotional dilemma I face from being at odds with the mechanical side of my trading. Give me a recent example, you ask? On November 18th, in a posting titled Everything Is Everything I spoke about my TZA hedge being up some 18% since I initiated the position during the first half of October. I also foretold of a turbulent path ahead for my TZA hedge that would likely create only a single digit percentage profit at the time of my exit. I pacified myself gently and came to terms with my fate, ultimately stating that, "I am perfectly fine with that." The reason I am perfectly fine with giving up a good portion of a profit in this hedge is simple: The moment I become involved in overriding whatever system I have developed for creating consistency in returns is the moment I fail as a portfolio manager. It is the investment equivalent of hurling yourself into a black...
4 CHARTS THAT HAVE GOOD CHEER WRITTEN ALL OVER THEM FOR THE MONTH AHEAD
click chart to enlarge
CRUDE OIL WARMING JETS FOR A RUN INTO TRIPLE DIGITS
Under no circumstances did I expect Crude Oil to pullback as far as it has over the past couple of months. In my analysis dated September 16th, the price pattern was giving no indication of the type of pullback we experienced. It wasn't until more than a week later that Crude made its intentions clear, signifying that a test of the all important generational trajectory pictured below was bound to take place. Here is my revised analysis from September 23rd, after Crude decided to show its hand. Now that we have essentially been meandering around the generational trajectory for a number of weeks, I wanted to post an update as to what the intention may be: click chart to...
A STUDY OF THE CYCLICAL NATURE OF THE SOX GIVING RISE TO A 1-2 MONTH PRICE TARGET
This study will demonstrate the cyclical nature of the SOX, arguably one of the key sub-indexes for the entire market. There is a concept here that I have not shared to date. It is the idea of time compression or expansion across trajectory points. The best example I can give is during the second half of 2011 during the Euro crisis, the SOX had a compressed cycle of volatility and price movement along the trajectory you will see in the chart below. That compression took place due to the volatile, unpredictable circumstances created by massive macro shocks coming out of Europe. When a market is allowed to function normally, without macro shocks, you get time EXPANSION across the trajectory. This simply means that you get mirrored or correlated price movements along the trajectory in an expanded or normalized state. Here is a real-time demonstration of price compression and expansion, followed by a projected date and price target to prove the validity of the...
AN ODE TO THE SHORT-TERM TRADER
First, a warning: If you are a short-term trader what you are about to read is going to be disheartening and slightly devastating. It may cause your lip to quiver and salty fluid to drip from your eyes. I don't really care because I am here to spit truth gained from dropping out of college at the age of 19 to trade, working on an institutional trading desk by the time I was 21, starting a hedge fund at 26, spending money like it was going out of style by 28 and losing it all by the time I was 30. With every bull or bear market cycle there are those who come along thinking that they can beat the market utilizing short-term trading strategies based on hourly or daily movements in stocks. At the same time, pops up a crop of supposed market mavens who are there to advise these starry eyed traders of the opportunities across short-term strategies. For every aspiring short-term trader, there is an aspiring market maven who is willing to hold their hand. The dreamer and the facilitator of that dream. The perfect union or so it seems. I have literally witnessed the careers of dozens upon dozens of short-term traders who started in the mid to late 90's. I have also witnessed the careers of the accompanying hand holding, market gurus who accompany these short-term traders. They all start the same way. Inspired by a story about how much John Q. trader made last year at the age of 23 trading AAPL stock by simply buying and selling at advantageous trading points. Or the story of how the guy who used to work an office job discovered an options trading strategy that has managed to provide 5000% gains, allowing him to smile brightly while working from home in flip flops and a wife beater. Flashes in the pan. I do not know of ONE single scalper or trader with a time horizon less than a week who started in the 90s and is still in the game today. Not one. Perhaps more curiously, the professionals stock pickers who purport to be able to beat all the obstacles one faces when trading on a short-term time frame are also gone. Some are in jail. Some are bankrupt. Others have simply vanished to a life making ham & cheese omelettes for Russian tourists in coastal cities across the Eastern U.S. Today an entire new crop of traders and gurus has sprouted up utilizing a new means of disseminating trading ideas through Twitter and various other social media venues. Never mind that today's trading environment is infinitely more difficult than...
PORTFOLIO UPDATE
During the trading day, I tweeted the following: The research report for PRXI can be found here: http://www.zenpenny.com/prxi-a-simple-situation-equaling-a-simple-opportunity/ PRXI is a small position. I classify a small position as being less than 10% of the portfolio overall. I would be happy to add to it once my trend indicators start perking up a bit and if the stock shows some strength over the intermediate term. After this addition to the portfolio, current holdings now include: PRXI, WMIH, SPNS, PXLW, UPIP and...
PRXI: A SIMPLE SITUATION EQUALING A SIMPLE OPPORTUNITY
PRXI position taken between 2.56-2.60 on 11/19/12 - 11/20/12 This is as extraordinarily simple a research report as can be. There are no complicated tax situations, post bankruptcy, creating a potential value proposition a la WMIH. There are no worries about whether a particular technology will be accepted in the marketplace a la PXLW. There are no industry advancements that create a window of opportunity for the company a la SPNS. And there surely are no complicated patent issues that need to be decided in a court of law in various states before value can be created a la UPIP. PRXI is about as old economy a company as you can get. Literally. Here is a description of their business: Premier Exhibitions, Inc. presents museum quality touring exhibitions worldwide. The company develops, deploys, operates, and presents exhibition products in exhibition centers, museums, and non-traditional venues. It operates and manages exhibitions, including Titanic: The Artifact Exhibition, which features the artifacts recovered from the wreck site; Bodies...The Exhibition and Bodies Revealed that displays multiple human anatomy sets, which contains a collection of whole human body specimens, single human organs, and body parts; and Dialog in the Dark that provides insight and experience to the paradox of learning to see without the use of sight. The company also sells exclusively sourced merchandise, such as apparel, posters, gifts, and Titanic-related jewelry; publishes exhibition catalogs; and provides ancillary services, including audio tours and visitor exhibition themed photographs through its exhibition gift shops. In addition, it sells Titanic themed and show related merchandise at thetitanicstore.com. Further, the company has the rights to present four exhibitions, including Tutankhamun and the Golden Age of the Pharaohs that consists of possessions unearthed from Tutankhamun's tomb, such as King Tut's golden canopic coffinette and the crown found on his head when the tomb was discovered; Cleopatra: The Exhibition, which offers artifacts and multi-media atmospheres from Cleopatras world; Real Pirates that features authentic items recovered from the Whydah real treasure last touched by real pirates; and America I AM: The African American Imprint. Premier Exhibitions, Inc. was founded in 1987 and is based in Atlanta, Georgia. That's right. Internet, metals, oil and banking be damned. I prefer a company that runs museum exhibits. Not because there will be a sudden onslaught of young men abandoning Call of Duty so that they can see an exhibit about the Pharaohs. Kids aren't about to start bugging their parents to take them to an exhibit about the Titanic either. Completely vanilla industry, with little in the way of growth prospects. I know. I'm not buying this because I like the museum business....
EVERYTHING IS EVERYTHING
Yesterday I posted a detailed study looking into what I believe is a significant relationship between the post 1987 market and the post 2008 market. The obvious question after posting such a study is what tangible difference to portfolio net exposure will this study make? Here is the answer: None. I'm going into this week net neutral, with a TZA hedge that is up 18% since I initiated the position on October 10th to a chorus of boos and jeers in reaction to my emerging bearish bias. Despite the fact that I strongly believe the study I posted yesterday makes this an astoundingly promising risk/reward spot for initiating equity exposure, I am bound by a system of allocation that I follow through thick and thin. I know full well that this system will cost me in some spots. I expect this to be one of those spots. My TZA hedge will probably be exited with a single digit percentage profit instead of the 18% it is currently at. I am perfectly fine with that. I know that my method of allocation, over the long run, has a positive expected value. That is all I care about. The long term equity curve and return data is my concern. If I were to abandon my methodology based on one study - and worse yet be successful because of that abandonment - then I open Pandora's Box into a realm of volatility that I don't necessarily want to experience. The studies I post to this site assist with clarity. They allow me to read the playbook of the market, which inevitably helps me pad my performance numbers as a result of foresight. I can't emphasize enough how important it is for traders of all sizes and methods to have some mechanical method of allocating assets. It protects wealth and allows you peace of mind through even the most treacherous market environments. Additionally, it doesn't allow you, as an investor, to be swayed by every data point that comes your way throughout the day. Believe in something or you will fall for...