My Positions in My (Paper) Account

I want to start making monthly posts about the state of my portfolio, why I have positions the way I do, and what I am planning going forward. This will be more of a bulleted style list of things, whereas my companies analyses are droves of paragraphs. Without further hesitation, let’s roll.

Long Positions

British Pound (GBPUSD – Forex): 10.80 : 1 Risk Reward Set – Up

When Theresa May announced the Snap Election that would take place on June 8th, it got me really thinking about the state of the British Pound, and the state of the British Economy as a whole. Technically the charts set up beautifully. Looking at the weekly charts I noticed an extended triangle / wedge pattern forming, and I was waiting for the price action to shoot through the resistance line of around 1.252. I put my Buy Limit order in right above the resistance line, it got filled, and I’ve been moving my stop up ever since. I trade started out as a 3:1 risk reward ratio (my ideal setup), but when the trade quickly went my way, I moved my stop loss up proportionally, while keeping in mind my long term thesis on it. As it sits, I’m risking only 0.11% of my capital from the previous 1% entry risk, and any movement upwards over the course of next week could put me in the breakeven / small profit category WORST CASE scenario.

From a Macro Perspective, I am taking the bet that the British economy is going to be better than most people think. Yes they will have some difficulties, and if the Scots decide to leave the EU, they will take their oil with them, which is a huge factor in the success of the British economy. However, I remain long term bullish on the Brexit situation, and I believe capitalism will help bolster the nation’s currency higher. I don’t necessarily have an initial profit target, however, if the trend goes against me, I hope I am smart enough to have my stop in place.

Ocean Rig UDW INC (ORIG) – US Equity: 26.6 : 1 Risk Reward Ratio

Betting only 0.82% of my capital on this little trade here. ORIG is about as distressed a company as one can find. With mounting debt and pressure from distressed debt collectors, ORIGs life line as a company is hanging in the balance. So why would I want to invest in something like this? I am looking for a restructuring deal to take place. ORIG has a lot of assets that it can liquidate, making it a cash play for a potential buyout or restructuring process. It received over 75% support from shareholders for its new restructuring deal, and given the value of the company ($0.25 / share), the risk reward is very asymmetrical. I put my stop in at $0.21, so anything below that would stop me out of the trade.

This might be one of my most confusing bets in terms of the company itself, however I believe that in order to achieve abnormal returns, one must be willing to look in the depths and the cobwebs of the market.

Short Positions

US Dollar (DXY – Forex): -4.61 : 1 Risk Reward Ratio

On April 10th I entered a short position in the US Dollar. After looking at the price action, I noticed that on the daily charts, DXY had crossed its 50 MA in a bearish manner. So, towards the end of the trading day, I shorted the currency risking 1% of my capital, with an initial profit target for a 3:1 risk reward. As luck would have it, the trade has gone in my favor, so much so that I am able to move my stop loss to the point where if my stop does get triggered, I walk away with 1.04% profit. That’s not bad, worst case scenario is a 1.04:1 risk reward, I like the positivity about that.

Obviously I hope the trend continues to fall in my direction, as I think it might. The last three days look like a patented pullback, and hopefully the dollar moves lower into next week. Once again, no profit targets on this trade, just hoping to move my stop loss further and further down the trade.

Netflix Inc. (NFLX – US Equity): 4.01 : 1 Risk Reward Ratio

Risking only 0.50% of my capital on this bet, I decided to short Netflix from a technical and fundamental perspective. Looking at the fundamentals, Netflix has tremendous amounts of debt, and to me, a good deal of the optimism around Netflix is already discounted in the price. Netflix also failed on international subscriber numbers, which is the metric that I care about the most with the company. What I realized about companies like Netflix and Tesla is that its not the earnings numbers themselves that move the stock, its what makes up those earnings numbers. For Tesla its the amount of cars they sell, for Netflix its the amount of subscribers. In other words, Netflix could lose tremendous amounts of money each year, but if their subscriber base kept growing, investors wouldn’t care.

Looking at the weekly charts, NFLX appears to be trading in the midst of a channel, with most recently crossing below its 50 MA. I have my stop loss set at $149, which technically would indicate the reversal of my bearish hypothesis, and I would lose 0.50% of my capital. Its a trade that is completely emotionless to me.

Apple, Inc (AAPL – US Equity): 17 : 1 Risk Reward Ratio

I know I know. Go ahead. Comment and rant about how I used to be IN LOVE with Apple from a fundamental perspective and how much I LOVE their cash position and their PE Ratios. I’ll wait, don’t worry … In all seriousness, I do love the company. Last summer when it fell below $90, I remember having the conversation with my investment partner Jacob about how we should buy AAPL at these levels, because below $90, the Margin of Safety was freaking nuts. As luck would have it, that would’ve been a nice position to get into. However, at these levels, I would like to see a pullback from the all time highs.

Don’t get me wrong, I am still long term bullish on AAPL, I just don’t think current price valuations are warranted even though the company is trading less than 20 times earnings. To me, I smell a lot of animal spirits driving up this price, and I believe that a perfect release of the latest iPhone is already discounted into the price. I am only risking 1.03% of my capital on this trade, and if AAPL ticks higher than $143, I will get stopped out for a loss.

It will be interesting to see where these positions play out. I am happy having a concentrated portfolio, and I think that I will continue to lean that way as I grow as an investor. As Stan Drunkenmiller once said, “put all your eggs in one basket, then watch that basket very carefully.”

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