Wednesday, February 10, 2016

Why I Bought PayPal

Bought PayPal (PYPL) yesterday. Wanted to buy this great company for a long time, but didn't like the price. Now price is OK. Doesn't mean it can't go lower, nothing is certain. But fast growing company, part of internet financial revolution, trading at less that 20 future P/E and PEG 1.20 is cheap in my view.
There are several new growth areas for a company. First of all, now many companies offer PayPal as an option when paying for online purchases. Second is If you transfer money between countries, you know how outrageously expensive it is for small amounts. Xoom lets you transfer money much cheaper at better currency conversion rates that alternatives.
There are companies on the receiving side as well. I don't know how long Moneygram (MGI) and Western Union (WU) can survive. MGI, in my opinion, is walking dead. WU has bigger reach and a lot of loyal customers. I think those loyal customers are growing old and dying, and company will be dying with them.

Full disclosure: I have long position in PYPL and no positions in MGI and WU.

Saturday, January 23, 2016

Market Is Down. Now What?

Correct answer is "I don't know". Of course. I thought that Wednesday intra-day drop of more than 500 Dow points is a capitulation. Maybe even THE capitulation. Which signifies the end of bear market and a start of a new bull one. But there is one interesting fact which goes against it. Bottom on that day happened exactly at 2:30 ET. That was the time of Feb WTI futures expiration. Oil futures roll over usually doesn't create huge drop at expiration, although some analysts claim that's what happened. It looks like some huge dump of contracts in which buyer had to take delivery, but didn't want to. It also appears that a lot of trading algorithms are currently trained to trade stock ETFs in line with oil. It shouldn't be this way, but if high frequency guys use neural networks algos, that's how such networks would react, according to the last several months of trading. Unfortunately, HFT is the majority of trading now. Not complaining, just clarifying the reality in which we trade.
OK, so what is the current situation? China is in a big trouble. Widely advertised turn to consumer economics isn't happening. At the same time, workforce in the country is not the cheapest in the world anymore, banking system is still doesn't really exist, and nobody believes government statistics. Some analysts wonder why volatility of Chinese market affects much bigger US one. The answer is simple: hedge funds invested in China are getting margin calls and selling whatever they can. Plus HFT algos are doing their thing, magnifying the effect.
Next elephant in the room: sovereign wealth funds of oil producing countries. These funds are huge net sellers of everything they own in the last 6 months. They have to, budgets of these countries need money now. Of course, this selling is also magnified by algos.
Last, but not least, is a bunch of idiot fund managers invested in commodities (especially oil futures). They are losing money hand over fist, need to sell something to avoid margin calls, so they sell stocks and bonds.
Market direction will be defined by money balance, as usual. On one side above mentioned sellers. On the other side multiple funds investing money long term, not bothering with trading. In the long term, bulls always win. The main question: when sellers are going to be exausted?
Interesting trivia. I watched Rose Bowl Parade this year and was surprised how many bears were on the floats. Never seen that many.

Sunday, January 10, 2016

Lousy Year

I lost 2.5%. No excuses. Yeah, I know, some hedge funds lost 25%. Well, I never invested in commodities, they are not an investment class. So no, I didn't have margin calls, didn't have to do a fire sale. I didn't predict some trends, true. I thought that China's crash is coming, just didn't think how much could it scare investors. I thought that oil going down is good for economy. I still do. I just didn't see that oil crash would create huge problems for funds, which would have to fire sell everything to avoid margin calls. What I completely forgot about is the amount of oil money invested in US equities. That's a big issue nobody's talking about. It affected equities in 2015, and going to affect them more in 2016.
Anyway, no excuses. I lost money. Not much. But lost.
The only bright things in 2015: Althabet (GOOGL), Facebook (FB), Raytheon (RTN) and muni bonds.
What I think about 2016? Wait for the next article.

Disclosure: I have long positions in GOOGL, FB, RTN and muni bonds.

Tuesday, August 25, 2015

Is It Really China?

Everybody is sure that current sell-off is triggered by China. I have my doubts.
Yesterday everything was down. Global panic. What usually happens during global panic? Yes, everybody buys dollars, which is going up. What happened yesterday? Dollar down. Why?
There is one possible explanation. I am not sure it's true, but it fits know data, including the fall of the dollar. This sell-off is driven by sovereign wealth funds of oil producing nations. It's a well known fact that Saudi Arabia has deficit budget this year. They are not borrowing money, because they have more than 700 billion reserves. And most of these reserves are kept in sovereign wealth funds, mostly in US. Other oil producing nations have similar investments. It's not easy to follow them, the don't report daily. If they are selling, they are selling dollars as well, converting to local currencies.
If this idea is right, this sell-off should end soon, most probably this week. One thing can make things worse: window dressing. Hedge funds are probably selling like crazy, to show their customers in the end of month report that they were in cash (mostly).
In any case, I am going to make a purchase or two by the end of the week. Wrong or right, time will tell. But discipline tells me to buy when there is blood on the streets.

Saturday, August 8, 2015

Trading Around

This is trader's market. If you are buy and hold (or buy and pray) investor, bad luck.
I did several trades around my positions in last several months

Facebook (FB): was selling put and call out of money options. Unfortunately, last call option ($86 on Jul 31) was exercised, so effectively I sold part of position for $88. Less profit than expected.

Polaris (PII): Added to position at 143 some time ago, sold at 150 before earnings, bought back several days ago at 133.

Raytheon (RTN): Added to position in June at 100, sold lately at 110.

I'm going to continue such trades, that's the only way to make money in current market. Yes, Google (GOOGL) and Facebook (FB) made money for me, but with everything else down or flat, that's not enough.

Monday, May 4, 2015

Rearranging Fixed Income Portfolio

Did some thinking last week, today started acting. I don't like First Trust Strategic High Income Fund (FHY) anymore. Fund reduced distribution and started including return of capital into distribution. ROC doesn't do anything for you, just complicates your tax return. I decided to replace it with Credit Suisse High Yield Bond Fund (DHY). Distribution yield is higher, and it doesn't include ROC most of the time. Done my first trades today.

A little bit of trading history for this year. Didn't mention it before, I did some Facebook (FB) optioin selling (naked puts and covered calls). Profitable so far, even though first time covered call got exercised, second time - put. You can see those trades on my twitter account.

Full disclosure: author is long FHY, DHY, FB and short FB June puts and calls.

Tuesday, February 17, 2015

Annual Portfolio Review

It's this time of the year again. Need to explain myself what am I doing. Lot's of worries around the world: Ukraine (it's a real war in Europe, make no mistake), Greece, ISIS. Ebola just subsided (don't know why that one scared investors). And yes, collapse of oil prices (only really rich people think it's bad). But let's not forget, worries are good for investors. They allow us to get good entry points. And bull markets climb a wall of worry. It's scary when everybody's happy (remember March 2000?)

Portfolio goal. Growth. This is high beta, unapologetic growth portfolio with some safeguards and some boring investments. The goal remains unchanged.
Basic Principles. Most of the stocks in this portfolio were chosen for long term investment, which, for me, is about 18 months. Every stock is under review all the time, with a major review of the portfolio twice a year. I can trade around any position if I feel like it. The portfolio is not diversified by sectors. Diversification reduces risk, but it also reduces potential gain. No change in basic principles either.
Strategy. Most money is invested in US. But I increased my European exposure lately. Europe is coming back. Domestically, with GOP controlling Congress, we might get into some ugly fights, with possible veto and government (or parts of government) shutdowns. I think every such fight is a buying opportunity.
Paradigm Changers. These are stocks of companies that are changing business in sectors or even in the whole world.
Ultimate disruptor. Google is changing the advertising world. The company is also aggressively moving to mobile internet advertising.
Risk: All great empires were destroyed by internal problems. There is also a risk of search ad market saturation.
No changes since last review.
Plan: Hold, trade around.
Pure brain company. Company designs ARM CPUs for a wide range of mobile devices and licenses them to different companies. Most smartphones and all tablet computers I know run on ARM CPUs. Additional plus in current environment: it's a European company, based in UK.
Added to position since last review
Risk: Tech world is changing quickly, somebody can invent a revolutionary new design and beat ARMH.
Plan: hold, trade around.
Facebook (NASDAQ:FB)
Not the only social network company worth investing anymore. But the most profitable so far.
Sold some calls and puts since last review.
Risk: Wall Street hates the company.
Plan: hold, trade around.
Yes, retailer can be a paradigm changer. This is a great company and I like shopping there.
No changes since last review.
Risk: Any retailer is a high risk company. Anything can go wrong.
Plan: hold.
Twitter (NYSE:TWTR)
Many people think that company is only good as a possible takeover target. Wrong! They are just at the beginning of monetizing their popularity.
No changes since last reivew.
Plan: hold.
Banks / Financials
Banco Santander (NYSE:SAN)
Probably the best Spanish, and maybe European bank out there. High yield, big investments around the world. Bought it because I believe in resolution of Euro troubles.
Added to position and reinvested dividends since last review.
Risk: Currency fluctuations, more problems in Eurozone.
Plan: Hold.
As far as I know, the biggest bank in the world. European, more to the point, British. And UK loves her banks.
Reinvested dividends since last review.
Risk:currency fluctuation, another financial crisis.
Plan: hold.
Steady growers / high yield. Companies with steady growth, high dividend or both. I am increasing weight of this group, such companies are best investments in depression times.
Airbus Group (OTCPK:EADSY)
One of two big aircraft manufacturers. As Cramer would say, we love duopolies. Company has at least 8 years of backlog.
No changes since last review.
Risk: currency fluctuation.
Plan: hold, add on weakness.
Polaris Industries Inc (NYSE:PII)
One of the best recreation equipment manufacturers out there. Local (for me) company as well.
Added to position since last review.
Risks: another recession, people don't like buying discretionary items in recessions.
Plan: Hold, reinvest dividends.
3M Company (NYSE:MMM)
Most innovative company in Dow Jones index. Another company headquartered in Minnesota.
No changes since last review.
Risk: another recession, management mistakes.
Plan: Hold, reinvest dividends.
Raytheon (NYSE:RTN)
Bought this company because of instability in the world. Company makes missiles, including popular air-to-air AMRAAM and SIdewinder, radars, software, i.e. most sophisticated military equipment.
Reinvested dividends since last review.

Sold since last review: l'Oreal (OTCPK:LRLCY), Diana Containerships (NASDAQ:DCIX). I hate all shipping now. As for l'Oreal, I sold it just to take profit, can return at a lower level

Fixed Income
I have a group of closed-end funds, which are bought when at discount to net asset value or at low premium and sold at high premium. There are two groups of funds: corporate bond funds and muni funds. There are too many of them and they are rotating too fast to present them in the portfolio review. Watch my trades on Twitter, @afilonov
Disclosure: The author is long ARMH, DSW, EADSY, FB, GOOG, GOOGL, HSBC, MMM, PII, RTN, SAN, TWTR.
Additional disclosure: I have no position in DCIX or LRLCY. Positions can change any time.