David Pinsen

Portfolio strategy
David Pinsen
Portfolio strategy
Contributor since: 2010
Company: Portfolio armor
Thanks a lot, Dankinvestor.
Thanks for the comment, bilbobaggins, that's a good question.
A few years ago, mini options were introduced for GOOG, AAPL, and a few other securities. The mini options covered 10 shares instead of 100, and were distinguished by having a "7" immediately to the right of the root symbol (e.g., GOOG7...). Checking option chains in a few different places just now, I don't see any mini options for GOOG. It's possible they discontinued them due to low demand.
What you could do, instead, is buy one optimal put on GOOG. Because it covers 100 shares, it will more than protect you against a decline in a smaller number of shares of the stock. To reduce the cost, you could scan for one to protect against a larger decline threshold than 15%.
The one thing you won't want to do, though, is open a collar for 100 shares if you don't own 100 shares. Because if the stock goes through the roof, and your call option gets exercised, you'll have to hand over 100 shares of GOOG to the investor who bought your call option. And if you don't own 100 shares, then you'll have to buy them at the current market price.
Thanks, SqueezeMetrics. Interesting stat about the GOOG short interest in dark pools.
Thanks for the comment, Kikou5.
It's interesting to think back on when governments were raising antitrust concerns about Microsoft. Google seems a bit more formidable of an oligopolist than Microsoft ever was.
You mention its leadership in search. Google also has a venture capital arm. Is it possible it tweaks its search algorithm to favor the websites of its portfolio companies? Granted, that might violate "Don't be evil", but maybe Google has its own definitions of good and evil. I don't know.
Thanks, Googler. I'm glad you found this helpful.
The site doesn't attempt to calculate a fair value for stocks. It doesn't take valuation into account at all. Its potential return estimates are based on price action and option sentiment.
Thanks for your comment, anonymous20130909.
Re your 5th point: note that Portfolio Armor currently shows a potential return of 12.4% for GOOG. Historically, actual returns have averaged about 0.3x Portfolio Armor's potential returns, so this is a high-end estimate; nevertheless, it's not a bearish one.
The reason to consider hedging isn't because you are bearish -- if you were bearish, you wouldn't be long GOOG -- it's to limit your downside risk in the event that you are wrong, or the market goes against you.
Thanks, Adam.
I can see Forbes's point from a valuation perspective, but I should note that Portfolio Armor, which uses price action and option sentiment - but not valuation - to estimate potential returns over the next several months, is currently more bullish on Google than Apple. But those potential return estimates can certainly be wrong, so it's worth it for GOOG longs to take the Forbes analysis under advisement and considering hedging.
Thanks for the comment, Zipper0. Bill Maurer touched on this point about costs as well.
Carly Fiorina will be free soon.
Thanks for the comment, Lstahler. In the 1996 book The Millionaire Next Door ( http://bit.ly/1QGGgv2 ), the authors noted that, among millionaire entrepreneurs, it was often the wives who handled the finances.
Which one?
Bloomberg reports Einhorn's clients have pulled out 5% of their money: http://bloom.bg/1TAoT1F
Our site is currently bearish on BABA.
Our site is currently bearish on BABA.
This is a pretty interesting comment about Amazon's de facto float as compared to Berkshire Hathaway's: http://bit.ly/1P57Bq8
Thanks. ICYMI, my post on how hedging limited losses for GoPro investors: http://seekingalpha.co...
You could consider buying more FB but hedging it with an optimal collar capped at what you think its potential return will be over the time frame of the hedge. For example, if you think our 11% potential return for it sounds right, you could cap it there.
Right now, our system estimates a potential return of <1% for NFLX over the next 6 months, and 11% for FB.
Someone should have strapped a GoPro camera to a share of GPRO.
"If you're hedging with a strategy like this, aren't you kinda going short in a way? Why would you want to own a stock that you feel comfortable shorting?"
No, hedging is not the same as shorting. If you own an underlying security and are hedged, you want to see the underlying security go up in price; the hedge is to limit your downside risk in the event it goes down, as, for example, your last two long recommendations have since your articles on them were published (USG, -26%; NRF, -51%).
"Right, right, because it only goes up (in the backtesting)."
If the underlying securities only went up, there'd be no need for hedging. But they don't always go up, and you can see that in the backtests. If you scroll about two-thirds down the page here ( http://bit.ly/1J3kR8w ), and click "show/hide positions" on the 21% threshold backtest, for example, you can see exactly what positions the portfolio held when Lehman went bust in 2008. Of course those names went down. And the portfolio value declined then as well, but by less than the market, because each position was hedged.
"This seems like a good strategy for finding momentum names right before they're about to collapse."
If you believe that, you should short the system's top names. I don't think you'll find that a profitable strategy though.
Value investing has become something of a cult. In reality, the chance of uncovering some unappreciated value in large, heavily-traded stocks seems slim. Our approach isn't to try to outsmart the market, but to listen to what the stock and option markets are saying, bet on the names they currently like, and hedge against those bets going bad.
Thanks a lot, Bill. Following you now as well too. We'll see how well Mr. Market's drumbeat worked with those REITs in a few months.
I assume you meant to write $550, but you actually wrote that you covered at $500. See here: http://seekingalpha.co...
It looked worse after hours on Thursday. Too bad for those who exited at the AH lows.
"What they do have in common, IMO, is that they are both just too large, too many AUM."
This is an important point. A lot of hedge fund managers build great track records with small assets under management, which lets them invest in pretty much anything they want. Then, success breeds more AUM, which limits the universe of securities they can invest in. Applying the same strategies to larger, more efficiently-priced securities may not offer the same results.
Now, in Buffett's case, he modified his investing methods as his AUM grew. He moved closer to Munger than Graham: a much loser sort of value investing, aiming to buy great companies at ok prices. And Buffett got into larger private acquisitions, with him establishing Berkshire as the buyer of choice for large, family owned businesses.
Has Einhorn been making a similar transition in his investing style?
You said about you covered at $500. I don't recall the stock trading that low since late September. Did you mean to write that you got out at a higher level?
They haven't prioritized profits over expanding their current business lines and venturing into new ones. But commenter JP24 here ( http://seekingalpha.co... ) raises a good question about whether the company's recent earnings may have affected Wall Street's expectations.
PSalerno,
Thanks for commenting, but please note that I have never recommended shorting AMZN. In fact, the title of my previous article ( http://seekingalpha.co... ) was "Einhorn Shorted Amazon - You Shouldn't". AMZN remains one of the top names in Portfolio Armor's ranking, though it has dropped from #1 to #10 post-earnings, as we noted in this article.
Thanks for the detailed analysis of PLD here, Bill. A couple of related links, for readers who may be interested.
- PLD was one of the REITs that passed our "two screens to avoid bad investments" when we applied them to some of the most widely-traded REITs: http://seekingalpha.co...
- Our take on the latest earnings release by PLD's tenant AMZN: http://seekingalpha.co...
Thanks for the comment, JP24. You make a good point about expectations concerning consistent profits.
Ok, here's my follow up article on Amazon, discussing its earnings, the current status of the hedge posted above, etc.: http://seekingalpha.co...