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How to trade Apple in a small portfolio

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Here’s the transcript to this week’s Live Q&A chat from TradingWithCody.com. If you like this Q&A format, be sure to check out my new book, “Everything You Need to Know About Investing.” on sale for one day only for 99 cents.

Q. Hi Cody, I would like to ask your advice in how to start investing. I mean, I don’t have too much money, but I’m saving. What I actually do is buy and hold, because slippage can eat my savings. And then I read you saying “Buy this, trim your gains, use options,” and it drives me nuts because I can’t do that.
A. OK, let’s talk this through some. First off, as I’ve said before, but I probably need to make clear more often, is that you can just use common stock instead of options whenever you see me do an option buy. That is, if I send out a note that I’m adding to my AAPL long position by buying call options, then you can simply emulate that strategy by buying some AAPL common. There’s nothing wrong if you’re a starting-out investor and growing your income and have upside for the future, with just owning even a few shares of AAPL common. Say you have $3,000 or five shares of Apple Inc. as your largest position; well, sometimes you can sell one share when you see me trim and sometimes you can buy that one or two shares back when you see me get aggressive buying Apple calls. Finally, it can be frustrating to see other people with more capital be able to invest/trade/move it more effectively than you can … and I used to feel the same way when my hedge fund was just getting started and was tiny, and I would lose some profits through slippage and overtrading on little capital and what not. Know your own portfolio, your own income levels, your own future earnings power and your own tolerance for risk, and that will always be the best determinant of your strategies.

Q. How do you keep your head straight amid all the talk about macro, the fiscal cliff, China slowdown, the elections etc.? I find that there’s so much noise it paralyzes you when one person says up and another says down. Do you listen to this at all or just focus on the fundamentals and technicals?
A. Every macroeconomic/global headline that you read about in the mainstream newspaper and/or on the TV is almost wholly coming from someone who wants you to not focus on what’s important, because they have some vested interest in lying to you about what matters. The EU debt crisis doesn’t exist except when it’s in the headlines, you know? Meanwhile, Japan and China and Taiwan are really getting serious about war. But you won’t see that in the headlines unless/until it’s already factored into the markets. Let’s talk about Akin’s idiotic rape comments and not focus on the fact that both parties have added $7 trillion to our national deficit with bank bailouts, handouts and other forms of corporate welfare over the last five years alone.

Q. Just as a general comment I have to say I am really impressed with the quality of your research, Cody. It is very clear and concise, as well as easy to understand. I also like the focus of the portfolio on revolutionary trends that haven’t fully developed yet. Surely that is where the biggest gains are to be made in investing. Overall, I think your subscribers should be very pleased with the value they are getting from your efforts here. I know I am.
A. Thanks so much for the kind words. I try very hard to deliver a value-add product for every level of investor, and getting feedback like that sure helps me figure out whether I’m on the right path.

Q. Hey Cody, do you ever trim smaller positions or mainly just the ones at the top that are the biggest?

A. Yes, I trim positions from the bottom too. Trimming and trading in general are always more of an art than a science.

Q. I’ve recently read several articles regarding the impact of lockup expirations on recent IPOs including Facebook. “Other much-ballyhooed IPOs with imminent lockup expirations include consumer-reviews site Yelp, software company Splunk and private-equity firm Carlyle Group. Do you see any investment ideas here? What about the next lockup expiration for FB in October? Would you look to trade around FB if it rallies in coming weeks before the next lockup?
A. See, I already calculate all the outstanding shares and as much of the options for FB as I can, and so does the rest of the Street when we calculate its forward earnings multiple and whether insiders, early investors, employees or eventually the general public own those shares. Well it won’t affect FB’s stock price and its valuation over the next two to five years, which is what my time frame for this investment is. Those shares coming public in the lockup expirations might or might not overwhelm the buying demand for shares from the general public in the very near term, but trying to game that is just a guessing game of gambling approach to investing. The more you read about the coming FB expiration and the more you see current shareholders panic about it, the more likely that weakness is already more than priced in. Facebook’s stock price this time next year will be wholly dependent on how well it executes and grows its top line and bottom line and will have nothing to do with lockup floats and whatnot.

Q. Cody – nice call on trimming up AAPL a couple of days ago. Given the yesterday’s test, today’s rise, the upcoming launch and the Fed minutes signaling additional easing soon, are you still expecting $700 before the new iPhone? Thanks!
A. Yeah, I still expect $700 for AAPL before the new iPhone hits, but as you know I’m trimming my AAPL down because I was a buyer much lower and it’s still my biggest position.

Q: Thanks Cody – Any thoughts on your expectations for BRCM, INVN and QCOM as we head into the iPhone launch as well?
I don’t think anybody’s making any real money these days trying to game the iPhone suppliers into an iPhone announcement. I’d rather just trade the AAPL than the derivatives of the iPhone these days.

Cody Willard writes Revolution Investing for MarketWatch and posts the trades from his personal account at TradingWithCody.com. At time of publication, Cody was net long Apple, Facebook, and Broadcom. Follow Cody on Twitter at twitter.com/codywillard. Cody’s new book, “Everything You Need to Know About Investing,”, is available in digital and in paperback.

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Cody Willard

Cody Willard

Founder, CEO & Chairman at Wall Street All-Stars, LLC
Cody Willard is the founder of Wall Street All-Stars and the principal of CL Willard Capital. Cody serves as an adjunct professor at Seton Hall University and writes TradingWithCody.com. He was an anchor on the Fox Business Network, where he was the co-host of the long-time #1-rated show on the network, Fox Business Happy Hour. He wrote a monthly investment column for The Financial Times as well as columns for TheStreet.com and was a regular guest on CNBC’s Kudlow & Company from 2004 to 2006. Cody’s stock picking ideas and economic outlooks have been featured on NBC’s The Tonight Show with Jay Leno, ABC’s 20/20, CBS Evening News, CNBC’s SquawkBox, Jon Stewart’s The Daily Show, as well as in the Financial Times, Wall Street Journal, New York Times, and many other outlets.
Cody Willard
Cody Willard

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