Entering text into the input field will update the search result below

How Our AMD Portfolio Is Weathering The Coronavirus Correction

Mar. 04, 2020 1:41 PM ETAAPL, FDRXX, GNRC, LITE, SNX, SPY, AMD22 Comments
David Pinsen profile picture
David Pinsen


  • Last month, before the current correction started, I wrote of the coronavirus risk to AMD's supply chains and presented a hedged portfolio built around an AMD position.
  • Here, I recap how that AMD hedged portfolio was constructed and show how it has weathered the coronavirus correction so far.
  • Although the AMD portfolio was hedged against a greater-than-16% decline, it was only down 4.36% as of Tuesday's close, versus SPY which was down 10.89%.
  • Looking for a helping hand in the market? Members of Bulletproof Investing get exclusive ideas and guidance to navigate any climate. Get started today »

AMD promotes the Borderlands 3 Broken Hearts Day seasonal event (image via AMD Gaming's Twitter account).

A Hedged Portfolio Around An AMD Position

Last month, before the current coronavirus correction started, I wrote an article about building a hedged portfolio around an Advanced Micro Devices (AMD) position, in light of the coronavirus risk to its supply chains. Let's see how our AMD portfolio has weathered the correction so far. First, a reminder of how the portfolio was constructed and what it consisted of in addition to AMD.

Constructing The February AMD Hedged Portfolio

We used the Hedged Portfolio Method to build a concentrated portfolio around AMD in February starting with these premises:

  • You had $250,000 to invest.
  • You were unwilling to risk a drawdown of more than 16% during the next six months, so you wanted to be hedged against any decline greater than that.
  • You wanted to invest in a handful of names, including AMD, with a goal of maximizing your expected total return net of hedging costs.

These were the steps involved for those who wanted to do this manually (your returns would obviously have varied based on which approach you used).

Step 1: Estimate Potential Returns

The goal of this step was to find names that had the potential to generate high total returns to include alongside AMD. Our system calculates its own potential returns by analyzing adjusted price history and options market sentiment, but you could have derived yours from Wall Street price targets or the price targets given by Seeking Alpha contributors you follow. Your initial universe could have been as big as Portfolio Armor's (the ~4,500 stocks and Exchange-Traded Products with options traded on them in the U.S.) or something smaller, such as the Dow 30.

Step 2: Calculate Hedging Costs

Since you

Better Returns Through Security Selection

I take a unique approach to security selection in my Marketplace service, working to generate better returns by reducing outliers. You can see evidence of that in the hedged portfolio discussed in this article, and read about my approach in this article, "Better Returns By Reducing Outliers."

This article was written by

David Pinsen profile picture
I developed the hedged portfolio method of investing at Portfolio Armor, and I run a Marketplace service at Seeking Alpha based on it called Bulletproof Investing.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (22)

microhoo profile picture
Some facts about coronavirus

No hedging will be effective when the whole market is exposed to panic risk. Even the most efficient portfolio diversification, this one proposed by the author is not, cannot prevent huge losses under the panicky impulses.
David Pinsen profile picture
@rgard64 Hedging can strictly limit your downside risk, regardless of market panic. That's what it's designed for.
pohzzer profile picture
Bloodbath incoming!
pohzzer profile picture
Please read the entire article to understand why there is no bottom to the stock market. www.zerohedge.com/...

Let’s trust Italy’s numbers and assume that about 10% of cases are serious enough to require hospitalization. (Keep in mind that for many patients, hospitalization lasts for *weeks* — in other words, turnover will be *very* slow as beds fill with COVID19 patients).
By this estimate, by about May 8th, all open hospital beds in the US will be filled. (This says nothing, of course, about whether these beds are suitable for isolation of patients with a highly infectious virus.)
If we’re wrong by a factor of two regarding the fraction of severe cases, that only changes the timeline of bed saturation by 6 days in either direction. If 20% of cases require hospitalization, we run out of beds by ~May 2nd.
If only 5% of cases require it, we can make it until ~May 14th. 2.5% gets us to May 20th. This, of course, assumes that there is no uptick in demand for beds from *other* (non-COVID19) causes, which seems like a dubious assumption.
As healthcare system becomes increasingly burdened, Rx shortages, etc, people w/ chronic conditions that are normally well-managed may find themselves slipping into severe states of medical distress requiring intensive care & hospitalization. But let’s ignore that for now.
Alright, so that’s beds. Now masks. Feds say we have a national stockpile of 12M N95 masks and 30M surgical masks (which are not ideal, but better than nothing).
There are about 18M healthcare workers in the US. Let’s assume only 6M HCW are working on any given day. (This is likely an underestimate as most people work most days of the week, but again, I’m playing conservative at every turn.)
As COVID19 cases saturate virtually every state and county, which seems likely to happen any day now, it will soon be irresponsible for all HCWs to not wear a mask. These HCWs would burn through N95 stockpile in 2 days if each HCW only got ONE mask per day.
One per day would be neither sanitary nor pragmatic, though this is indeed what we saw in Wuhan, with HCWs collapsing on their shift from dehydration because they were trying to avoid changing their PPE suits as they cannot be reused.
How quickly could we ramp up production of new masks? Not very fast at all. The vast majority are manufactured overseas, almost all in China. Even when manufactured here in US, the raw materials are predominantly from overseas... again, predominantly from China.
Keep in mind that all countries globally will be going through the exact same crises and shortages simultaneously. We can’t force trade in our favor.
Now consider how these 2 factors – bed and mask shortages – compound each other’s severity. Full hospitals + few masks + HCWs running around between beds without proper PPE = very bad mix.
HCWs are already getting infected even w/ access to full PPE. In the face of PPE limitations this severe, it’s only a matter of time. HCWs will start dropping from the workforce for weeks at a time, leading to a shortage of HCWs that then further compounds both issues above.
We could go on and on about thousands of factors – # of ventilators, or even simple things like saline drip bags. You see where this is going.
Importantly, I cannot stress this enough: even if I’m wrong – even VERY wrong – about core assumptions like % of severe cases or current case #, it only changes the timeline by days or weeks. This is how exponential growth in an immunologically naïve population works.
A nurse gets CV, it will be common cold for her for a few days, she is back to work soon after. Does she need any special wear after that?
kkvakk profile picture
You read stuff, do you have any explanation why Hong Kong has 1-2 cases per day when Italy has 3000?
pohzzer profile picture

I consider both Hong Kong and Taiwan numbers are suspect. While they both responded effectively relative to the early days of Wuhan, here was too much exposure early on that should have resulted in clusters that expended. Hong Kong, for instance, took weeks to close their border with mainland China. I suspect there will be more happening in both those locations.
pohzzer profile picture
Oh yay! We get to see what happens when doing nothing to stop the coronavirus becomes out national policy. On the bright side it does ensure martial law will be implemented and Trump acquires near dictatorial powers. Smart. Very smart.

"Kudlow explained that the White House would rather take a more measured response to the virus and hold off on measures that could disrupt local economies such as large-scale quarantines ... Can we possibly do this fact by fact, day by day? Because we don’t know what the magnitude of the economy might be in terms of a slowdown,” Kudlow added on Friday. “We don’t actually know what the magnitude of the virus is going to be. Although, frankly, so far it looks relatively contained.”
AMD will weather recession better than others.
Why ?
It's coming from rock bottom. LOL.
What goes up fast will come down fast.
Don't be so sure.
I like amd but amd is not immune
Diesel profile picture
Chris Lau profile picture
I modeled $AMD's price movements to that of the indices.
And because every rally is a head fake, so too will AMD face some upside resistance.
AMD is a buy. Those who missed it before the great run-up will get a second chance.

Wait. That is the DIY way.
ProfessorSmatt profile picture
What happens when Lisa Su comes out and says AMD is going to take a $100-500million hit from this virus? Does anyone know how this is affecting AMD? Did they say yet?
Diesel profile picture
Just today she said that they are seeing minimal to no effect from the virus, the supply chains are back to normal and they will meet both quarterly and annual guidance goals during the analyst call.
Southern Asia infection cases not increasing
ProfessorSmatt profile picture
How do we know if this is accurate?
pohzzer profile picture
The numbers are totally fake. A pragmatic, life is cheap, assessment. Losing 5% of the least productive members of society, in the main, while the 95% can carry on would be the least disruptive course of action.
update from Thailand.
47 cases
31 recovered.
1 dead.
believe it or not. it's your call.
Companies may have more motivations to experiment with AMD servers rather than Intel's, no?
COVID-19 may turn out to be less than anticipated. But you-all have heard the numbers and the medicos comments - we’ll see.
I suspect we'll know a lot more tomorrow from the analysts day. I'm expecting an earnings warning with guidance of limited visibility. Of couse there will be confidence in the future beyond coronaviris.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.