Tuesday, December 14, 2010

14 December 2010 Me and Vinko


14 December 2010 Me and Vinko

At 6:30 am this morning I was feeling like Vinko Bogotaj. We know you know who this guy is. Raise a hands of everyone who knows Vinko. No one? Ok you remember the ABC Wide World of Sports opening theme and they show that poor skier who falls on the 90 meter jump as they say, “The Agony of Defeat.” Well that was my buddy from Slovania, Vinko. That’s how I was feeling this morning.

Yah, see last night I made the fatal mistake of telling my lovely wife Devin how darn good I was getting and picking up options and turning them for quick pop (financial term for big profits). She cautioned me, by saying you will jinx yourself by being so cocky. “Phisha”, I said (even if I did not know how to spell it.)

Well we told you all about the brilliant idea of buying some March 45 dollar calls for BBY Best Buy. And I quote:

“Tuesday, we got BBY Bestbuy. The street number is 61 cents a share. BBY is such a bell weather for electronics and retail that if they hit the guess, it will bring the market down, if they miss, they will bring the market down, if the just barely beat, no impact on the market, if they blow away the 61 cents it could be a nice bump for the market. Look for a really nice beat. We are thinking 69 cents a share. It could add another half a point to the market. That would be nice. (We are seriously looking at a March 45 dollar call for 1.40 a contract. DO YOUR HOME WORK. If they miss the earnings the call will be worth about 70 cents.)”

Ironically they missed and we still picked up a bit in the market.

They reported 54 cents a share. Ouch!  That was where I could feel me slipping out of the grooves on the 90 meter jump. BUT IT GOT WORSE.
I am so smart that I know the 16 point drop in the stock price would not hold so I jumped back in and bought some March options at 35 dollars. I figured if I could catch the bottom of the fall with an option I could balance my losses on the initial call option. By 6:34 am, I was feeling pretty smug about my screw up. Then I went to my positions page and saw the stock had recovered about 2% and I know I was making money on the new option. BUT I WASN’T, that option was down 23%. So my first call option was down 99.75% and my new one was down 23%. There I was was sliding toward the end of the 90 meter jump. I quickly went back in the positions page and realized I had bought a PUT option, not a call options. (Remember a put is a bet the stock will fall.) I quickly dumped the put, and picked up the 36 dollar March call. I could see the padding along the 90 meter jump heading towards me. All I could do now was to wait for the music to stop playing and the credits to keep rolling.

By lunch, my 45 dollar call had recovered to a 77% loss and my 36 dollar call was now 166% up and it covered my loss on the initial call and my short little 3 minute mistake with the put option. Darn I’m Good.

Tonight I did a little forensic study. If you remember about a year ago we held BBY long and we took a 14% loss on the stock. The financials were sound and Circuit City was OOB (Out of Business) and we were feeling that BBY had a nice holiday of electronic sales to look forward to. The did, but they chose to take on Uncle Wally in a price war and lost. Their margins ended up in the toilette despite and decent top line sales figure. This go around (last quarter) they decided not to drop their prices. Their respectable margins stayed in place, BUT they lost top lines sales (1.1%) to WMT and TGT Target. TGT and WMT have reported brisk sales in large format TVs and notebook and tablet computers. As a result, their earnings were off. That 36 dollar call looks good enough to hold on to for while.

Caution Book Review Ahead.

If you are a regular reader, you know one of my faves is “Active Value Investing: Making Money in Range-Bound Markets” by Vitaliy N. Katsenelson. You can imagine my excitement, well ok I was not that excited, when I heard he had a new book out it is called “The Little Book of Sideways Markets: How to Make Money in Markets that Go Nowhere” (Little Books. Big Profits). We downloaded it on the Kindle last night and started taking it apart. It is a kinder gentler approach to Active Value Investing. That book, the original was a bit heady and written for the investment professional. In this text he puts a Jim Cramerish wax to it and it is a lot easier to digest. I have some copies coming so if any one wants one. Let me know and I’ll get you a copy. Merry Christmas. First come first serve.

Ok, I know you would rather have a wine review than a book review. About a week ago I brought a bottle of 2003 Viña Almaviva S.A. Almaviva (Chile, Central Valley, Maipo Valley, Puente Alto to dinner. It is a Cab, Carmenere, Cab Franc Blend. It was inky purple in the glass and it was good glass as we were enjoying ourselves at Hanna’s, my favorite place. The aromas were all over the place from florals to exotic spices to smoky. You could have just sat there and waited for it to open up. In the mouth, it had an earthy pleasant feel and taste. We got some currant and dried berries, chocolate and smoky meaty taste to it. It went well with both the pork and 14 ounce bone in rib eye. Life was good.

Happy Trails to You

It is almost that time of year again. We will be putting our 2011 prognostication out there in the next week or so. Our guess for this year as laid out in here January 4, 2010 was a 19% increase in the S & P 500. That would mean we would hit 1,335. Our starting point would be 1113. The S & P closed today at 1241, an 11.5% increase. Not half bad, but not half good. We expect we will close the year a little higher, perhaps touching 1,300. We will let you know what the guess is by the first of the year.
Salve Lucrum


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