Portfolio Review January 2017

By the end of 2016, uranium was down about 90% since 2010.

Ignorance of the science behind nuclear energy, the Fukushima disaster and assorted other nonsense had pushed the price far below levels where it could realistically be produced.

For a few years, commodity investing expert Rick Rule pounded the drum to speculators to invest in Uranium. His thesis that the basic laws of economics would not allow the price of a valuable commodity (nuclear energy still creates tons of demand for uranium around the world) to stay below the cost of production was logically sound but was taking a while to work out.

We added uranium producer Cameco to the Market Timing Portfolio when it debuted in November 2016.

On December 21, our favorite Quant, Meb Faber, wrote about uranium comparing it to coal stocks at the end of 2015.  Coal stocks en masse doubled in 2016.

The timing couldn’t have been better, Cameco is up 24% since Faber’s post and up more than 40% since it was added to the market timing portfolio.

The market timing portfolio as a whole has massacred the market, and good thing too, because the other portfolios have seen performances ranging from satisfactory to FUBAR.  In addition to Cameco’s massive return, our trades in the Russian, Polish and Brazilian ETFs are all up more than 15%.

Nice.

As for the other portfolios here’s the summary:

$7.99 ‘ template=’ProductLink’ store=’valueinvesand-20′ marketplace=’US’ link_id=’72382a35-e6ae-11e6-ab4a-c91505899412′] starts off strong… almost

The portfolio had four 5% gainers and two 10% gainers in its first month.  The S&P returned 2.4% in the month, so this should’ve spelled market beating returns for the new portfolio.  Unfortunately, Tesla has spiked 20% in the month and our short position in it has dragged the portfolio down.

Let’s look at why I think Tesla will soon return to saner levels.

You may recognize several of these indicators from the Fitbit chapter of the book.  In the book I used them to show how oversold Fitbit was and why reverting to the mean would push it higher.

Tesla’s chart shows the opposite.

Both the RSI and Stochastics show it as hugely overbought and the Bollinger Bands show that is hugging the upper band.  This price jump increased prices to levels not supported by the past price history.  I actually stopped out of a Tesla short in my personal portfolio due to it.

I believe the key to identifying when the stock will drop back to normal levels lies in the MACD.  When the MACD line crosses below the signal line I will look to reestablish my short.

Learning a lesson about option stop losses

I noticed earlier this week that I hadn’t updated my personal portfolio on the portfolio page in a while.

It’s on there now if you want to check it out.  Without a doubt you will notice a few 70+% losses it sustained in some gold miner trades.

Not the best look.

I did learn some good stuff to add to my option trading strategy, however, so let’s go over that.  If you hadn’t read it before, here’s the strategy.

In September last year, I purchased a basket of gold miner calls that expired in 6+ months.  The buy decision worked perfectly with my trading strategy and I had a fundamental and technical basis for each trade.

Unfortunately, Donald Trump getting elected killed the price of precious metals – driving the prices of all my calls well below the trailing stop.

“No biggie,” I thought, “I can ignore the stop here because the expiration is so far off it’s bound to get back to break-even at least.”

So I held the stock and each morning checked the portfolio just to see worse and worse results.

Here’s the issue: the price of the options collapsed so far that the daily drop in price for getting closer to the expiration (this is called time decay) often exceeded any potential increase in the price for the stocks going up.  Additionally, getting back to break-even is far harder than it sounds.  For example a 20% drop requires a 25% gain to the new lower prices to break-even.

50% requires a 100% gain and 70%, to which a couple of these options fell, requires a 233% gain.  Not good.

Going forward, I will respect the stop loss even if the expiration is pretty far off.

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