Linking strategy

Stocks ignored hawkish rhetoric and rose. Be a cautious buyer


It seems everyone is talking about an impending sale with a level of near certainty. When everyone is expecting something, and I’m in line with the audience, I feel frustrated. The market and pardon for the anthropomorphic allusion, the market always seeks to make as many people seem stupid as possible at any given time. A more sinister conceit is that the market tries to hurt as many people as possible. To lull the crowd into believing that a particular thesis is rock solid, and presto! Am I going too far? Maybe, and if so, advising caution and putting money aside, how can you hurt yourself? I’m not sure unless we were seduced by the “Siren’s Call” to increase our risk only to be rushed onto the rocks. The siren seduction I am referring to is the complacency that we are on a solid rally, so why not go “All In”.

The best approach is to take the middle path. Between now and Election Day, we must ensure that we are NOT “All In”. The scenario that worries me is when a selloff begins to rise, “everyone” buys the drop, and the market begins to rise. Then, once we’re sure we’re beating the market and spending all our money, the diving begins in earnest. Sorry to share this paranoid fever dream that haunts me, but that’s it.

That said, if we adhere to the Cash Management Discipline (CMD) and cut back as the market starts to recover, then for us it would just be another volatile 2-3 months. My selling theory is that a general feeling of satisfaction grows with the news of deflated prices, brought about by less demand. This good news becomes a nightmare as the crowd begins to realize that this is also what a recession looks like. As news of slowing demand comes in, fears of a deep recession grow. Add to that ever greater job losses and declining economic performance. It’s a prescription for another attempt to crack 3600.

My job as I see it is to try to see over the next hill and try to help navigate whatever might come up whether it’s a new opportunity or something to avoid. Right now, we have to stay the course. I don’t want us to change what we are already doing. Furthermore, there is no evidence that the economy is about to head into a deep recession. This is especially clear to us now that we had a job count of 500,000 just this Friday. There is no evidence yet of a rapid slowdown. Plus what could happen to make loudmouths like me feel dumb Have NO sale at all. Maybe we cling to a narrow channel and view any single dip as the “Big One” and overreact every time.

So we’re going to stick with the cash management discipline because it’s working very well in these unstable times. The first notion is that money has a value of its own. Which means that right now the goal is to be aware of your principle and as soon as you are long try to reap the money you have invested in other positions. Hopefully at this point you have some pretty green positions, so making money elsewhere means you are taking profits. If you have a lot of losing positions and only a few profitable ones, take most of the money from the losing positions provided they are not all new.

We are still in earnings season and we are enjoying it.

We have analyzed stocks that are profitable and selected names that we believe present good risks to provide alpha. We have found that in the moments just before and just after the earnings report, the stock sometimes fluctuates wildly. So like the fisherman who installs several rods with baited hooks, we do the same. We place bids well below the closing price. By that, we mean as low as 5% below the closing bid, or maybe less. If we get a super bite! Otherwise, we still have our money. It takes self-control to make an offer that is a lowball, especially if you really want that stock. I got lucky a few times, as did other members of our community. If not filled in I noted how far the stock fell in the aftermarket, in my experience once a stock hits a bottom very often it will come back to that level . Why do I think this is a worthwhile activity? That works! Specifically, we are in the midst of the scorching summer days, volume is already low during normal trades, and post-trade trades are even less liquid. Therefore, when making an offer, if someone needs to sell, they may be freaked out by the revenue ratio that your offer can be fulfilled. It happens so why not try to get a good deal? The other reason is that if I’m going to risk money right now, knowing that late August has been treacherous in the past, and of course September even more so, I want to make sure I have a margin of safety in a position. If my lowball offer isn’t fulfilled, great! I have my money ready for the jackpot. If the big one doesn’t come, I can always deploy it at better times.

My shopping list has grown this week.

First of all, I want to highlight a space that I haven’t participated in but that I think has more upside to it, and that’s the Biotech space. I have no real advantage in this space, I can satisfy my interest by investing in large pharmaceutical companies, which have proven that they can acquire the smallest fish. So names like AbbVie (ABBV), Bristol Myers (BMY) and Pfizer (PFE) have proven they can pick winning acquisition targets. As for the small fish themselves, I had less success. Currently I only own ABBV, but BMY and PFE are attractive. The only safe way to get into small names that I know of is the XBI. XBI is an equal weight biotech ETF. Thus, if a biotech stock that is part of XBI is taken over, it may affect the price of the ETF. See the 6-month chart.



Looks like I missed the boat on this one. I tend to agree. However, since almost everyone now expects the markets to fall sharply, it might make a lot of sense to take action. Just last week there were 3 pretty big biotech takeovers. I think the news that Medicare will negotiate prices may slam the healthcare space. I can’t imagine these biotechs going out of business, maybe they’ll be more willing to be bought out. Anyway, I’m not into XBI yet, but I’m patient.

My exchanges

Most of the names I’ve bought this week are stocks I’ve owned for a while. Or maybe household names in general. The way all stocks have been under pressure this year, the bushes had to be beaten for the lesser-known names to perform very well at this time.

That said, I’ve decided to expand my shopping list to include chip stocks now that the chip law has come into effect, I think the attention to chips will create alpha. I bought Taiwan Semiconductor (TSM) the day before Nancy Pelosi visited the country, and then, as she safely left Taiwan, I bought more. Before ON Semi (ON) reported last week, I broke my rule of not taking long stocks into profits and bought stocks there. They smashed earnings on Tuesday. So that was encouraging. I also wanted to find some chip making hardware, I’m sure I mentioned Axcelis (ACLS), they sell their hardware very well. A newer name is Nova (NVMI), a supplier of process control and measurement equipment for chip manufacturing. They had gains on Thursday and I bought some on Friday. The profit report was good and the product is needed for making chips. I’m going to switch tactics and look for more well-known chip-related names. It’s not chip stock but I added an adjacent tech related manufacturer and that’s MP Materials (MP). MP is a rare earth miner building a vertically integrated manufacturing business. It extracts, refines and transforms these rare earth metals into high-powered permanent magnets. These magnets are used for high-performance electric motors in electric vehicles, as well as wind turbines and military applications. General Motors (GM) signed on as the inaugural customer for the products. MP has been prioritized by the US government to reduce dependence on China.

I mentioned biotech, the only small biotech I added this week and that was bluebird bio (BLUE), they have a number of drug candidates that are very attractive. Raymond James updated this week and raised the price target to $8, last week it was trading above $4.

I continue to favor cloud software providers like Workday (WDAY), CrowdStrike (CRWD), UiPath (PATH) and Upstart (UPST). WDAY and CRWD were stocks I made lowball bids for in some sales last week. PATH made an interesting AI acquisition and announced a partnership with Box (BOX). I think this partnership is a great decision for both of them. I already had PATH this news was a prod to add others. I restarted a position in UPST because there is no recession and most consumers are not exhausted. Also, they didn’t have any major financial news from the auto finance initiative, they also started an auto refinance business. I’ll be interested to see the earnings report tomorrow. I still believe in their AI based credit scoring for personal loans and now car loans. Unlike many new technology companies, they make a profit. I believe they’ve taken a lot of the loans off their books, so the reason for selling the business is less of an issue. I have a much smaller position now, so I’m adding stocks. I also built my Confluent post (CFLT). CFLT had a great earnings report and that gave me the confidence to pursue this name further. Finally, I also added to my HashiCorp (HCP).

It’s a much wider range of positions than I had before. I still have positions in the “Tech Titans” that I have mentioned many times before. Most of these names haven’t made much headway recently. I think I’ll bide my time and add funds as they drop. I see them retreating, and when they reach my buy points, I will acquire them.