Marketocracy
The best thing that I have ever done is open up a Marketocracy account. Especially the short account. I am a huge loser in Marketocracy. Big time. But it has been a great learning experience. The short portfolio is the best learning.
If you are running a short only portfolio (which I would never do) every time stocks go up (which they do a lot) it levers your portfolio up significantly more as you are short more stock and your nav comes down. If stocks go up 75%, your portfolio is down 75% yet you are short 175% on 25% of original nav. You then need the portfolio to move 57% back to the downside because of the leverage. If you rebalance and keep the leverage the same it would be kind of a debacle because volatility alone could cause you to lose a lot of money.
Never short growth stocks. This should have been obvious. Crocs almost wiped me out. CME. Intuitive Surgical. Apple. I guess you can short these except you cannot "short and hold". You have to be managing the portfolio at all times.
Short stocks that have little chance of doing extremely well, and big chance of doing very poorly. It seems obvious but apparently it was not. Blockbuster could not do much better, the upside is known, the downside is zero. I am up 64%. This should be the prototype.
Other winners but not as obvious First Marblehead up 80%. MBIA 65%. JBLU 36%. JOSB 20%
If you are running a short only portfolio (which I would never do) every time stocks go up (which they do a lot) it levers your portfolio up significantly more as you are short more stock and your nav comes down. If stocks go up 75%, your portfolio is down 75% yet you are short 175% on 25% of original nav. You then need the portfolio to move 57% back to the downside because of the leverage. If you rebalance and keep the leverage the same it would be kind of a debacle because volatility alone could cause you to lose a lot of money.
Never short growth stocks. This should have been obvious. Crocs almost wiped me out. CME. Intuitive Surgical. Apple. I guess you can short these except you cannot "short and hold". You have to be managing the portfolio at all times.
Short stocks that have little chance of doing extremely well, and big chance of doing very poorly. It seems obvious but apparently it was not. Blockbuster could not do much better, the upside is known, the downside is zero. I am up 64%. This should be the prototype.
Other winners but not as obvious First Marblehead up 80%. MBIA 65%. JBLU 36%. JOSB 20%
posted by MattKelly54 at
6:31 AM
5 Comments:
I have very little to offer in terms of shorting, but this has never really stopped anyone from giving an opinion, right. One thing I was told, by Mr. Chanos, is to be careful shorting on valuation as a stock can be/look expensive for a very long time. Was that your call on CME or were you thinking about something else, just curious.
Stocks that I wouldn't get in front of now but appear way ahead of themselves are fertilizer stocks, i.e. MOS, POT, AG, CF, etc.... Once our Gov't finally wakes up and realizes how stupid & inefficient corn based ethanol is those stocks will get crushed. Although I can't envision that happening in an election year given the first primary is in the corn belt of Iowa.
Merry Christmas to all
Interestingly, US corn / Ethanol isn't the real reason some of those stocks are going up. Especially Mosaic and Potash.
China's missing 15% of its fertilizer consumption. And they can't feed themselves (not enough fertile land).
As for shorting, yeah, it's hard, a trader's game. My marketocracy short portfolio has gotten killed too. But I was trying some of those hero shorts just for the sake of doing so, too.
On the CME, I think, there is a virtual trading platform (the same one that OptionsXpress has you use) that you can try the same stuff with, except you can also bring in options.
Also a good tool...but nothing like losing 75% of your trade in a day b/c you made a stupid hedge with options in Genta Pharmaceuticals. Talk about a waste of a day at your real job when you're trying to unwind that bs.
Considering 20-30% of US corn harvest is going to ethanol in addition to the grain demand from China and India corn prices are much higher today. Therefore, farmers have even more incentive to increase their yields and with the support of higher grain prices. That means they are increasing fertilizer application rates, effectively increasing the demand for potash, nitrogen and phosphates. This isn’t the function that supply has all of a sudden dropped off. I've spoke with CFO from Mosaic and he flat out told me that the ethanol boom is helping their company and a end to that is how their story ends badly.
Yes and no. You're right that ethanol is a boost...but it's not the primary driver for the secular bull in ag. I think it's the icing on the cake. And, for CF and TRA , it's US corn (almost entirely U.S. nitrogen), of which ethanol is a big driver.
How much of the rise corn prices is the result of the ethanol boom / hype? I'm not sure, hard to quantify, but I do believe that it isn't as great, fundamentally speaking, as people think. That said, there's got to be an additional premium in these names that is not fundamentally justified (why you believe that the stocks are ahead of themselves, and I'd agree with that statement, fundamentally). And the increased mandate has just added to that.
That all being said, POT and MOS are far more global...and if you think Brazil will be a soybean haven for the Chinese, Mosaic is still a big winner.
The hard question is, where will these stocks be in a year or two? If you think MOS is a pure commodity chemical company, then it would top out around 11x peak earnings. What are those earnings? 5? 10? That would give a range of $55-$110. That's crappy r/r/r...
But, if you think that the market is more right and these co's deserve some kind of premium for the industry structure (which I'd agree with), then the upside is greater. What's the right mult? Not sure...but I think it's more like one for Praxair, albeit perhaps not that high because of PX's service component and stable operating history. So call it 17x peak earnings is the top.
But the peak's not in sight yet. At least, I can't see it...though there are tons of things that could go wrong (crop prices - which are, imo, primarily being driven by global gdp / China, not ethanol, nat gas price spike; the ethanol hype premium being eroded) that would hurt either the stock, its earnings power, or both. I think the thing's only worth about $55, but I could see it running to $180 (10.50 x 17)
Anyways, sorry for being long winded. These stocks are a thorn in my side. Long term, i think the way to play this sector is to be long competitive advantage and yield improvements at any crop price and short the commodities. Thus, I'd say long MON vs. Short TRA. But now doesn't seem to be the right time to put that trade on.
Agreed on MON. I've been long MON for a few years and being around the sr. executive team this on a couple of outings I am more impressed with what is in the pipline 4-7 yrs out. A low to no nitrogen seed has huge potential. Considering that is the biggest grain input cost the value is great. That company is so impressive, the stocks looks expensive but you need to do l-t earnings power on future seeds/traits to look at the real value. That will be a winner, although I would expect there will be better points to add/enter the stock. To much positive thoughts from the street right now.
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