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#16: Skim The Cream Off The Top

Jan. 13, 2021 12:52 PM ET16 Comments
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SamHain31's Blog
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Seeking Alpha Analyst Since 2019

89, still driving.  Often badly.

World's oldest bodybuilder, former tiger trainer.

At my age, I've done it all, much of it during naps.

It says "Users may not have bios with less than 150 characters" so there's this line, too.


  • The bubble is underway and will accelerate.
  • When will it pop?  Nobody knows.
  • You might want to skim some profits.

I pity the fools who chase yield from distressed companies, because the nominal income they seek will decline with distribution cuts, and the effective yield they get will decline after inflation.  Here is an extreme example of what I would call a "good" income portfolio of 50% SCHD/50% TMF compared to high-yield CEFs CLM/CRF.  During the accumulation stage, the charts look similar, so high-yield CEFs look like a good investment method.  But let's see what happens to portfolio value during a retiree's aggressive withdrawal stage:

Retirees who thought they were making big money with high-yield CEFs will outlive their portfolio.  Because as the NAV of their crappy CEFs declines, so does their wealth.  Dividends are great, as long as they come from earnings of companies with rising revenue and cash from operations.

Inflation is an invisible tax.  The national debt is at an idiotic level and rising.  Interest on the debt is rising.  When the dollar falls apart as the world reserve currency, the value of the dollar will debased by the debt level, and debt/GDP is still over 100%, which means we're all screwed. 20+ All Things Beaker ideas | beaker, muppets, the muppet show A 5% dividend is useless during 7% inflation.  The best that dividend investors can ever hope for is mediocrity.  Think bigger!  I once sent a girl a dick pic, and she texted back that she had a peanut allergy.  Inflation will shrivel your buying power, like shrinkage in cold water.   Trying to get rich off only dividends is like buying a buffet and just eating biscuits.

What if inflation doesn't hit?  Would a dividend portfolio be safer during a deflationary depression?  The buying power of the dividends might be better than during an inflationary period, but companies might cut their dividends to conserve increasingly-valuable cash.  Deflation, surprisingly enough, is actually possible.  The national debt so high that QE tricks will eventually stop working.  With such bad workforce participation rates, the velocity of transactions could decline.

I also pity the fools who chase momentum.  Here is a 5-year chart of TQQQ to illustrate my point.  Don't buy at the pinnacle.

Feelings are garbage.  Human instinct in this massive rally might be like Chowder's, telling him to switch from DGI to loading up on explosive tech stocks such as TSLA.

When the DGI advocates scream to back up the truck to FAANG stocks, you know the top is near.  Fear of Missing Out sets you up for a collapse.   Instinct is a lie told by a fearful brain, afraid of being left behind. 

This is not the time to switch from DGI investing to "BUY TSLA!" investing.  Things look so peaky that I'm switching back to the The Half-Naked Inverted Diagonal Calendar Strangle technique until after a crash.  It makes less money than a calendar straddle and much less money than a naked strangle, but it's safer.  Here is a boring example with T:

Sell Jan 15 '21 $29.5 Put +$64, and sell Jan 22 '21 $29.0 Call +$48
Collect $112 in premiums.
$-2950 shares put to you Jan 15, then +2900 shares get called away Jan 22.
$62 profit on 2950 invested is 2.1% in two weeks.
26 weeks is 52% annualized return. On T!

Losing money on every share of stock to skim the option premiums seems like fake investing.  It's not real investing.  But do I care?The Matrix, 1999 Ignorance is bliss | Matrix quotes, Movie quotes, 1999 quotesIf I based my investing practices only on my basic "BTD and Hold" philosophy, I would deny myself the possibility of a new reality of 50% minimum annualized returns.

Fate is cruel; we are FATED to be wrong.  It is when we are absolutely sure of direction that things go sideways.  If you see a crash coming, also prepare for the rally.  If you see euphoria, also prepare for Black Monday.  Good trades become good memories, but bad trades become good lessons.  You will probably fail over and over again, until you are so financially mangled that you have no choice but to change your technique.  Failure forces you to try again, but this time, more wisely...  Fate, it seems, is not without a sense of irony.

Hope for a crash.  The only thing better than finding what you were looking for is finding it at a great bargain.

But what if you are determined to trade TQQQ right now? This is a potential inverted diagonal strangle:

Sell Jan 15 '21 $180 Put, and sell Jan 22 '21 $160 Call
Collect $3486 in premiums.
$-18,000 shares put to you Jan 15, then +16,000 shares get called away Jan 22.
$1,486 profit on $18,000 invested is 8.3% in two weeks.
26 weeks is 206% annualized return, even after adding put and call risk danger together!

For good or for bad, this is what actually ended up executing:

100 shares -$18446
Jan 15 $180 call +$644
2-Jan 15 $180 put +$760
100 shares called away +$18000
$958 1-week profit
135% annualized profit based on money- at- risk

If you seek profit, you might find some, but if you seek only mediocrity, you are guaranteed to find it.  Unless you're in it to win it, just buy RSP.  I am short on time, so I am making risky bets.  As the *completely fictional character* Anna used to say... TQQQ will implode one day, so lets hope I profit in time...

I am determined to make enough money to get this reaction whenever I whip out my bank statement: When he tells you “Actually, Frankenstein is the name of the doctor, not the creature” - Album on Imgur And at the current annualized return remaining consistently over 100%, it might happen one day: May your new year be filled with bitches and riches,

Yr. Most Hmbl. and Obt. Svt,

Sam Hain

AASECT cert. CDL  (and almost KBE)

Analyst's Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in TQQQ over the next 72 hours.

I will outlive all my haters

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.

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