I get dozens of questions from Marketwatch readers, especially my Revolution Investing subscribers, every month.
Here’s a compilation of this week’s emails from you guys with quite a few reflecting the explosion of interest in my new Scutify iPhone app which just hit #9 in the Apple App Store finance category.
Q. Cody, a question about the Scutify app and the company you recently bought. If Twitter and Alibaba are as now planning their IPO for (the first quarter of) 2014 and a few months after that you think the tech eco app bubble will burst, what’s the thinking behind your company buying/getting involved with the Scutify app? If indeed things pop and crater, who will want to watch their portfolios crater and thus use the app?
A. Amazon is currently nearly 10 times its high from the top of the dot-com bubble before it crashed and bottomed in 2002. I think there will be app companies worth billions of dollars in 10 years, even if there is a crash along the way to get there. As for market audience, there are millions of traders and investors out there in up and also down markets who need to be serviced. And I will tell you also that the highest ratings Fox Business has ever had to this day were back in 2008 during the crash.
Q. Hi, Cody. I have a question regarding hedges, such as the SPY put or VIX calls. In general terms, what percentage of a STOCK PORTFOLIO (caps to clarify not other assets) would you invest in those derivative hedges? My intuition might be to put 1%-2% per hedge, but would love to hear your methodology/reasoning for the amount that you invest in these hedge plays. Thanks.
A. Great question, and yes, you’ve got it about right. As always, how much you expose to any position relative to the rest of your portfolio (and net worth) depends on a variety of factors like income, income potential, risk tolerance, etc. I have less than 1% of the stock portfolio in SPY common short and even less than that in SPY puts right now. If the SPY rockets higher, I’ll lose probably about 0.3% of my portfolio’s value on those two positions. But obviously, I’d expect that the net long positioning of my portfolio overall and that my long picks will far outperform that 0.3% loss on those SPY hedges if the SPY does rocket from here.
Q. Cody, what percentage of your portfolio is long vs. short? Thanks.
A. To answer your question, it’s hard for me give a straight “I’m this long vs short” these days since I’m not running an outright fund. My portfolio extends beyond a single stock-market account. At any rate, I’m still mostly net long and not very short at all, though we added some SPY puts and shorts recently.
Q. Blackberry (BBRY) is closer to $8 then the $9 per share buyout offer. Would this be a good buy now as I imagine the floor should be $9? I am sure I am missing something huge; it’s never that easy.
A. Ha, that’s a great line — “I am sure I am missing something huge; it’s never that easy.” I think you’re probably onto a decent trade there, with low downside risk below $8 a share. But then again, your potential upside is only 10%, so it all depends on a personal choice from your own analysis which makes perfect sense. All of your analysis there, that is, “BBRY is closer to $8 then the $9 per share buyout offer… would this be a good buy now as I imagine the floor should be $9? I am sure I am missing something huge; it’s never that easy.”
Q. Cody, the price action and volume of BBRY indicate many are not believers in the Fairfax deal working out. Also, if the stock is near 8 now, is there a greater likelihood that others in the Fairfax consortium will not want to pay such a premium? Bottom line: Is this stock still a nice short?
A. I like the earlier logic that BBRY might be a short-term long than a short at all right now. I’ve cashed in my latest BBRY put profits and have moved on.
Q. Darn! I just added to both shorts and puts on BBRY cause the deal smells like an act of desperation from the largest shareholder. Friday earnings are going to be pivotal. Thanks for the reply. I will watch the trade a bit more and act if it pops.
A. I don’t think Friday’s earnings will change anything for BBRY now. The company’s likely to go private at some point, so the earnings and fundamental outlook for the business are no longer the primary drivers of the stock action, in my humble opinion.
Q. About your Zynga (ZNGA) trim. Sounds like a move right in with the Willard Philosophy: (1) make the hard decisions; (b) don’t go for the top; (c) trim and tranche. But here’s the question: Will you tell us when you’re getting back in, if and when it gets soft again? I know it’s one of your basket/forever stocks.
A. I don’t know that I even plan on ever buying back ZNGA at lower levels. I’ll just ride out what I’ve got, but I will certainly let you know if I go back in and buy any back.
Q. Cody, I could use a little explanation re: Zynga (ZNGA) and the Revolution Investing “Basket stocks.” If an equity deserves to be in a lifetime basket (like ZNGA) because it’s part of a major Revolution, I can see the logic of trimming some profits on the way up. But unless one doesn’t believe it still deserves to be in that basket looking ahead, why not refill the basket if it has a hiccup (say, goes back down to $3 or so). You’re not getting worried about ZNGA and its new CEO, are you?
A. I am a bit worried about the way ZNGA’s business model has had to morph, and they’ve had to change CEOs, etc. It raises risks.
Thanks for that insight.
Q. Hi, Cody. ZNGA is making big move this week. I have a small position. Should I take profits? Thanks.
A. I can only tell you what I did myself to answer your question, and that is that I trimmed 1/10th of my position because I think that is the best approach right here, right now.
Q. I’ve used and I love the Scutify app. My question is (this): Is Scutify the first app-related purchase “your companies” have made?
A. Hmm, sort of. As Thomas Edison once said about the light bulb, “I didn’t fail 10,000 times, I just found 10,000 ways that didn’t work”. I’ve certainly put a lot of time, energy and money into app development and have almost merged with a couple other app-centric companies, but this is the first time we’ve out and out bought an existing site and an app like the incredible Scutify iPhone app.
Cody Willard writes Revolution Investing for MarketWatch and posts the trades from his personal account at TradingWithCody.com, which is not affiliated with MarketWatch. At time of publication, Cody was net long Zynga and VIX and net short SPY. Follow Cody on Twitter at twitter.com/codywillard.
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