Sense of humor is an important weapon against falling markets. So are put options, or at the very least, writing call options against non-dividend-paying stocks, as I advocated in my Real Money column yesterday. Amazon (AMZN) was the example I used, and as those shares were falling yet again in today's trading, we have made a few shekels on that trade in its first day.
But when you really want to see my morbid sense of humor, you have to go deeper in to my list of model portfolios to get to the cheerily-named DEATH. As it is not updated, DEATH is a free-to-all spreadsheet, so feel free to request access.
I initiated DEATH on May 11th, and noted its existence in my Real Money column then. For the longest time, DEATH did nothing, as fundamentally-challenged plungers like Carvana (CVNA) and Peloton (PTON) were offset by gains in EV names like Rivian (RIVN) and Proterra (PTRA) . Thanks, Joe Manchin.
But in the past two weeks, DEATH has taken a decided turn for the worse. Obviously that was my intention in creating it. As of this writing the equally-weighted group of names in DEATH have fallen a collective 24.36%. Not bad in a little more than six months' time.
And that's the lesson there. I do not believe in portfolio diversification and do not invest my long-only clients' money in that manner. My benchmark model portfolio, HOAX, which is entirely composed of hydrocarbon-related companies, should give you an indication of the power of concentration. HOAX has risen 54% since inception on 12/23/21.
On the long side, I believe in the power of conviction, but, on the short side, I have learned to ditch the ego and realize that you can't win them all. But producing a 24% return in six months is pretty damn nice. A list of the 10 tickers in DEATH is included at the end of this column, but here is the key takeaway: access to capital is drying up, and companies that rely on a constant influx of fresh capital to survive are unlikely... to survive.
That's 2008, my friends. I lived through this once before. In 2008, the problem was the housing market - which has been dreadful for the past six months in the US as interest rates have risen - systemically caused the whole market to plotz. This time, while housing is not great, it is not Red Alert. Yet.
Now, the problems are centered around Big Tech, Small Tech, Disruptive Tech, and basically any company Cathie "Bankman-Fried" Wood has ever huffed on FinTV.
That's what you have to know, and something Wood doesn't understand. Systemically important companies receive bailouts, others do not.
Nobody is bailing out FTX. Also, hopefully Elizabeth Holmes will receive a long enough sentence today for her incredible fraud at Theranos that she needs a literal bailout, not a figurative one.
The market punishes excesses. Always. Make sure you are on the right side of history and the right (short) side of garbage companies with consistent cash outflows.
DEATH is composed of short positions in the following stocks: