What are you buying today?

[Spekulatius]

Buying V at a forward pe of 20. For all those who have been waiting for V , this looks like a good chance. Once the case curve flattens, economic activity should return to normal slowly. Given where rates are , this seems like an good price for a good company

 

Seems like a good low risk bet, I wouldn’t put too much into forward multiples, as they sure will come down though. I do agree that V and MA are probably the quickest to bounce back.

[Castanza]

re-entered some GOOG around 1080

 

Edit: RTN 117

[Williams406]

Buying V at a forward pe of 20. For all those who have been waiting for V , this looks like a good chance. Once the case curve flattens, economic activity should return to normal slowly. Given where rates are , this seems like an good price for a good company

 

Where are you getting the forward earnings #? Is that consensus earnings? Your estimate of future earnings?

[LC]

Bought V,

Sold some IRM calls

Bought back some SPY calls that I sold earlier in the week.

 

I had a pretty good experience selling calls last week with such high volatility premiums. I was selling calls that would have me breakeven at equity prices seen in the early market response to COVID19 (prices at SP500 levels of 28/2900). With short tenors too, for example 3/31 expiry. I figured, if the markets stay depressed I pocket some nice premiums, if the markets rebound I lose out on the calls but the remainder of my portfolio will outperform.

[sleepydragon]

Added BRKB

and also TSCO..  With people wfh, maybe more will start raising chicken!

 

[Uccmal]

Added BRKB

and also TSCO..  With people wfh, maybe more will start raising chicken!

 

I hear bats make good eating.  Taste like chicken. 

[Uccmal]

Bought V,

Sold some IRM calls

Bought back some SPY calls that I sold earlier in the week.

 

I had a pretty good experience selling calls last week with such high volatility premiums. I was selling calls that would have me breakeven at equity prices seen in the early market response to COVID19 (prices at SP500 levels of 28/2900). With short tenors too, for example 3/31 expiry. I figured, if the markets stay depressed I pocket some nice premiums, if the markets rebound I lose out on the calls but the remainder of my portfolio will outperform.

 

LC, .can you walk me through one example of this.  It eats a lot of margin, non?

[Spekulatius]

Added BRKB

and also TSCO..  With people wfh, maybe more will start raising chicken!

 

I hear bats make good eating.  Taste like chicken.

 

I’d probably go for squirrels first. I do have a lot of bats flying around my house in warm summer evenings, but I think hunting them would require a shotgun with a night scope.

 

One acquaintance  from our town told me that gun and ammo are sold out. I guess Dick’s sporting is missing out on some revenues.

[LC]

Bought V,

Sold some IRM calls

Bought back some SPY calls that I sold earlier in the week.

 

I had a pretty good experience selling calls last week with such high volatility premiums. I was selling calls that would have me breakeven at equity prices seen in the early market response to COVID19 (prices at SP500 levels of 28/2900). With short tenors too, for example 3/31 expiry. I figured, if the markets stay depressed I pocket some nice premiums, if the markets rebound I lose out on the calls but the remainder of my portfolio will outperform.

 

LC, .can you walk me through one example of this.  It eats a lot of margin, non?

 

Yes, does require some margin for coverage depending on your holdings.

 

For example I was buying various SP500 companies when the index was in the 2800 range - around Feb 28. And then again as the index moved down to 2600, 2500 but let's leave those out. This brought my average cost for these stocks to a price range where the SP500 is around 3000.

 

Come March 11, 12, now the index is in the 2500s or thereabouts. And volatility is crazy high.

 

I am thinking, well damn, I averaged down too early (of course). And everything I owned prior to COVID is bombed out. So where can things go from here? Well, up down or neutral (duh).

 

In terms of selling calls:

 

-Neutral I wasn't too concerned about as (1) volatility is crazy; (2) quality information is sparse (see the COVID thread for my thoughts on that). Nobody really knows what the outcome of all this will be. And if the market remains neutral around the 2500 mark, well those calls will expire worthless anyways.

 

-If the market tanks further, well my portfolio is going to continue to crater. But that's a sunk cost, I will want more cash to buy stocks I like even cheaper, and ride it out. And again here, the calls expire worthless but at least provide some premium to buy now-lower-priced stocks.

 

-If the market rebounds, well now the majority of my portfolio is looking just fine. I bought some when the index was at 2800, bought a little more around 25, 2600. So, that's a good situation for me, but I am giving up any upside above 2800 (strike price of the calls).

 

So I sold SPY calls, 280-strike, expiring Mar 31 (only 2.5 week tenor!). I already had sold covered calls on other stocks I owned back when the index was 3000+; I closed all those positions out for next-to-nothing. So I was totally un-hedged, and then sold enough SPY calls to cover about 50% of my portfolio's notional.

 

Essentially, it was getting paid 3% premium for 3 weeks of exposure to 3.5% of upside losses.

 

I.e. I would potentially have to lock in losses for stocks initially purchased at index-weighted-average prices of 3000, but forced to sell at 2800 if called (7% total loss, but again I was only 50% exposed so 3.5% total)

[Uccmal]

thanks LC.  I was just toying with it in my US Margin account.  Uncovered Calls were costing me the Entire cost of an equal amount of stock in Margin room.  The riskiness is relatively low but the amount of margin I will eat up constrains me in other ways. 

 

I just needed the reminder of why I don’t do this.  It’s been 11.5 years.  I got caught in the Fall 2008 crash after selling uncovered puts.  I had to sit on the phone for an hour with my broker ( they loaned me the extra money for a few minutes) unwinding the puts to get me out of a margin call situation.  Obviously, everything worked out ultimately but I learned not to go uncovered. 

 

I don’t hold enough of any US stock position to make it worthwhile to try and go covered. 

 

Good strategy for the way these markets are whipsawing. 

Thanks, A

 

Addendum: All of my put positions are in significant profit positions, even today.  I bought them Friday:  V, MA, Low (poor quality proxy for HD); Goog, and FB.  And my BAm puts from three weeks ago are up 15 x - still not selling though.  Looking for 28x to 30 in the next few days on these. 

[kab60]

Ulta Beauty... And a bit of ADS (almost puked when I did that)

[LC]

Addendum: All of my out positions are in significant profit positions, even today.  I bought them Friday:  V, MA, Low (poor quality proxy for HD); Goog, and FB.  And my BAm puts from three weeks ago are up 15 x - still not selling though.  Looking for 28x to 30 in the next few days on these.

Many ways to skin a cat! Congrats :)

[longlake95]

HTL

[Kaegi2011]

Bought DNKN, SBUX, NKE, MA, GOOGL, W, ANET, CME, EYE, GOOS, MCO, MSFT, NVR, YETI. 

 

Not huge positions but so far the IRR is insane! 

[gjangal]

Buying V at a forward pe of 20. For all those who have been waiting for V , this looks like a good chance. Once the case curve flattens, economic activity should return to normal slowly. Given where rates are , this seems like an good price for a good company

 

Where are you getting the forward earnings #? Is that consensus earnings? Your estimate of future earnings?

 

Analyst estimates for 2021 before this corona virus situation. In my view next year earnings may be impaired but earning power is not. Betting this will be the first ones to recover when things go back to normal. I see this and MA as a royalty on GDP and Inflation. Terminal growth is nominal GDP + any pricing power they may want to exert

[gjangal]

And I should add very low investment need for future growth if the duopoly persists

[Stuart D]

Buying V at a forward pe of 20. For all those who have been waiting for V , this looks like a good chance. Once the case curve flattens, economic activity should return to normal slowly. Given where rates are , this seems like an good price for a good company

 

Where are you getting the forward earnings #? Is that consensus earnings? Your estimate of future earnings?

 

Analyst estimates for 2021 before this corona virus situation. In my view next year earnings may be impaired but earning power is not. Betting this will be the first ones to recover when things go back to normal. I see this and MA as a royalty on GDP and Inflation. Terminal growth is nominal GDP + any pricing power they may want to exert

 

Love the business but struggle with pe=20.

If I paid the $340b market cap today, I’d be waiting until 2040 to get my investment back in earnings. Will visa be around in 2040? and will they have averaged $17b/yr (for 20yrs) in earnings? Maybe yes, maybe no. It’s a tough one for me...

[coc]

Love the business but struggle with pe=20.

If I paid the $340b market cap today, I’d be waiting until 2040 to get my investment back in earnings. Will visa be around in 2040? and will they have averaged $17b/yr (for 20yrs) in earnings? Maybe yes, maybe no. It’s a tough one for me...

 

Can you walk us through your math there? Do you believe Visa's earnings will always be $17 billion?

[Stuart D]

Very simplistic, low-iq analysis here. Just taking the forward pe (mentioned in the other comments above) and saying if there was no decline/growth it would be a 20yr wait to get the market cap back in earnings.

 

I’m not smart enough to know if the earnings will grow, decline or flatline so V is in the too hard basket for me.

[gary17]

risk is relative

risk free government bond - 10 year at sub 1% with no earning power increase for 10 years.

Gary

[longlake95]

Very simplistic, low-iq analysis here. Just taking the forward pe (mentioned in the other comments above) and saying if there was no decline/growth it would be a 20yr wait to get the market cap back in earnings.

 

I’m not smart enough to know if the earnings will grow, decline or flatline so V is in the too hard basket for me.

 

I'm not that smart on macro, but I figure earnings have grown for 150 years or more, with occasional earnings compression every 7-10 years as the world "naturally" resets. The world is not linear. But earnings will be higher 5 years from now.

 

 

[Kaegi2011]

Very simplistic, low-iq analysis here. Just taking the forward pe (mentioned in the other comments above) and saying if there was no decline/growth it would be a 20yr wait to get the market cap back in earnings.

 

I’m not smart enough to know if the earnings will grow, decline or flatline so V is in the too hard basket for me.

 

What is in the not too hard bucket for you?

[Guest cherzeca]

everything would be in the too hard bucket for me if I had to forecast earnings.  why not find a great business (V qualifies) at a discount to recent price, and say that is good enough analysis to pull trigger? 

[nspo]

You also have to consider the compounding of reinvested earnings. The 20PE doesn't live in a vacuum. I have NO idea what the numbers actually are but if they retain 20% and earn 20% on those earnings than they're growing 4%. Then, you have to add in a portion for organic growth. Let's say you're fairly confident that V will grow at GDP. So 4%+3%, you get 7% growth.

 

What's a 20% roic and 3% organic growth worth with an extremely defensible business model? Not sure, but you get 7% for growth, and a cash yield of (20PE =5% yield) 5% yield *80% payout= 4% cash yield.

So 7% in growth, 4% in buyback and divs. 11% compounded? Not the worst

[Guest cherzeca]

You also have to consider the compounding of reinvested earnings. The 20PE doesn't live in a vacuum. I have NO idea what the numbers actually are but if they retain 20% and earn 20% on those earnings than they're growing 4%. Then, you have to add in a portion for organic growth. Let's say you're fairly confident that V will grow at GDP. So 4%+3%, you get 7% growth.

 

What's a 20% roic and 3% organic growth worth with an extremely defensible business model? Not sure, but you get 7% for growth, and a cash yield of (20PE =5% yield) 5% yield *80% payout= 4% cash yield.

So 7% in growth, 4% in buyback and divs. 11% compounded? Not the worst

 

way too many numbers.  the more numbers you use, the more wrong you can be