Week 3 Performance Update and CERN Moves
Go LIVEROCKET! Up 9.4% since inception 3 weeks ago
Portfolio Performance to date: 9.4%
Weeks since inception: 3
Week 3 is a holiday week. The portfolio matched the broader market for the week and added 1.5% to the portfolio value.
For the 3 week period, the broader market is up 3.1% (Dow) ~3.9% (S&P).
Liverocket is up 9.4%.
We are well over our target of exceeding the broader market by 2% per month.
Getting Ready to Make Some Trades
I think we need to look at some stocks in the portfolio and decide if they are getting overbought. And, if so, how to manage.
Getting Short
In simple terms, short interest is a sign that investors think a stock is heading down. Investors borrow and sell shares in a gamble that the stock will get cheaper and they can buy it back cheaper. Every stock has short sellers. Some stocks have more than their share, and that inevitably distorts prices.
Imagine that you borrow a gas tanker when gas was $50 a barrel, then you sold it. You thought gas would go down, but it goes up to $70. You have to buy that same amount of gas back at $70. If a lot of people are doing the same, a scramble is on to find enough gas - and demand drives prices.
The same hold true for stocks. Short sellers get nervous and start to unwind their bet by buying shares. That adds more fuel to the stock price and sends the price higher. Which in turn touches off a stock price inflation cycle.
Let’s look at Hansen (HANS) which is NOT in our portfolio. Hansen scored big with its high sugar, high caffeine drink called Monster. I owned and recently sold HANS because I just don't see accelerating growth. I don’t think these drinks are a fad – they’ve been around Japan and Europe for almost 20 years. I see limits to the niche market growth. It is now worth ~13% of Coca Cola, which is obvious exuberance for a company that has ~0.5% of Coke's sales.
Hansen's short ratio toda is 34%. That is: of the total shares available for trading, 34% have been borrowed and sold short. That's a $550M bet that the stock will drop. And the bet keeps growing not just in dollar terms, but more importantly in the amount of shares being sold short.
Stock Price Growth from Speculation
Some of the stock price growth comes from new investors and momentum players. But most is from short sellers caught out. They bet big against Hansen and now need to buy Hansen stock to cover. They are responsible for the demand that drives much of the price.
Typically, these situations play out with the stock spiraling upwards until a breaking point is reached and the price collapses. After all, the demand for the stock is not an investment demand but the opposite.
Short selling in LIVEROCKET portfolio
Jetblue (JBLU), Cerner (CERN), Blue Coat (BCSI) all have short interest >10%. The one that concerns me most is Cerner with a 28% short ratio.
That’s a big bet against this company. It begs the question: is Cerner stock price growth coming from short interest? Because if it is – we need to prepare an exit.
In reviewing the data, I don’t see major disconnects between the price and the underlying fundamentals. I do see that the price is high, but no more than other growth companies and certainly not like Hansen. In other words, I don’t see warning signs. And they are in a major growth market: IT integration in the healthcare industry. GE is making significant moves into this market – a sure sign of growing recognition of the growth opportunities.
At the same time, betting against the market is not necessarily a winning strategy. Let’s lock in our gains by setting the Stop at $93.
BCSI $41
PWR $13
WFMI $140
GILD $51
CERN $93
MRVL $52
JLG $42
GYI $89
JBLU $17.5
DESC $9
The Stop levels lock in profit at 6 out of 10 stocks. The gains would be slight at this point, but it shows that we are now in the money.
Portfolio Performance to date: 9.4%
Weeks since inception: 3
Week 3 is a holiday week. The portfolio matched the broader market for the week and added 1.5% to the portfolio value.
For the 3 week period, the broader market is up 3.1% (Dow) ~3.9% (S&P).
Liverocket is up 9.4%.
We are well over our target of exceeding the broader market by 2% per month.
Getting Ready to Make Some Trades
I think we need to look at some stocks in the portfolio and decide if they are getting overbought. And, if so, how to manage.
Getting Short
In simple terms, short interest is a sign that investors think a stock is heading down. Investors borrow and sell shares in a gamble that the stock will get cheaper and they can buy it back cheaper. Every stock has short sellers. Some stocks have more than their share, and that inevitably distorts prices.
Imagine that you borrow a gas tanker when gas was $50 a barrel, then you sold it. You thought gas would go down, but it goes up to $70. You have to buy that same amount of gas back at $70. If a lot of people are doing the same, a scramble is on to find enough gas - and demand drives prices.
The same hold true for stocks. Short sellers get nervous and start to unwind their bet by buying shares. That adds more fuel to the stock price and sends the price higher. Which in turn touches off a stock price inflation cycle.
Let’s look at Hansen (HANS) which is NOT in our portfolio. Hansen scored big with its high sugar, high caffeine drink called Monster. I owned and recently sold HANS because I just don't see accelerating growth. I don’t think these drinks are a fad – they’ve been around Japan and Europe for almost 20 years. I see limits to the niche market growth. It is now worth ~13% of Coca Cola, which is obvious exuberance for a company that has ~0.5% of Coke's sales.
Hansen's short ratio toda is 34%. That is: of the total shares available for trading, 34% have been borrowed and sold short. That's a $550M bet that the stock will drop. And the bet keeps growing not just in dollar terms, but more importantly in the amount of shares being sold short.
Stock Price Growth from Speculation
Some of the stock price growth comes from new investors and momentum players. But most is from short sellers caught out. They bet big against Hansen and now need to buy Hansen stock to cover. They are responsible for the demand that drives much of the price.
Typically, these situations play out with the stock spiraling upwards until a breaking point is reached and the price collapses. After all, the demand for the stock is not an investment demand but the opposite.
Short selling in LIVEROCKET portfolio
Jetblue (JBLU), Cerner (CERN), Blue Coat (BCSI) all have short interest >10%. The one that concerns me most is Cerner with a 28% short ratio.
That’s a big bet against this company. It begs the question: is Cerner stock price growth coming from short interest? Because if it is – we need to prepare an exit.
In reviewing the data, I don’t see major disconnects between the price and the underlying fundamentals. I do see that the price is high, but no more than other growth companies and certainly not like Hansen. In other words, I don’t see warning signs. And they are in a major growth market: IT integration in the healthcare industry. GE is making significant moves into this market – a sure sign of growing recognition of the growth opportunities.
At the same time, betting against the market is not necessarily a winning strategy. Let’s lock in our gains by setting the Stop at $93.
BCSI $41
PWR $13
WFMI $140
GILD $51
CERN $93
MRVL $52
JLG $42
GYI $89
JBLU $17.5
DESC $9
The Stop levels lock in profit at 6 out of 10 stocks. The gains would be slight at this point, but it shows that we are now in the money.
posted by Andrew at
11:54 AM
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home