About that $FMSA Trade and More

Before time moves on and I forget to post about the FMSA trade, let me explain how I knew it’d work.

FMSA is a frac sand company. This is an industry that was pistol hot a month ago, with SLCA, EMES and HCLP all hitting new highs. By the time they were ready to IPO, the expected range had been lowered to $16-17 due to market conditions. When they came public, the frac sand space was getting annihilated. It was the worst possible time for them to IPO, especially since they had no institutional backing or a solidified retail shareholder base. The result was a rout in the shares, far exceeding the declines in other sand plays.

When I bought into the stock, the sector had the appearance of bottoming out. FMSA’s losses, however, were twice that of SLCA’s. I knew that if the sector rebounded, it would move twice as fast, if not more. I was right, made 30%+ and now I am moving on, which is probably a mistake since the stock will likely trade above its IPO price of $17 in the not so distant future.

Let me tell you something about Wall St, buying and selling stocks. Anyone can do it. My best days trading occurred when I was brand spanking new in the business, early 20’s, without a care in the world. I’ve mentioned my first big trade here many times, which was $6k into AOL turning into $250k in a little less than 3 years time. I had little understanding of the market, only extending to my encyclopedia like memory of stocks, profiles and sectors. The older, more experienced, you become, the less risk you take. Age, inherently, is the ultimate arbitrar between fear and greed. When you are young and have never failed, your inhibitions are without boundaries, invincible, God amongst mortals. After you get dinged a few times, you don’t want to get dinged anymore. As such, you become careful in the manner by which you conduct yourself.

Ignorance truly is bliss.

Trust me when I tell you, the ignorant trader has a short lifespan, albeit an exciting one. The momo chasing gets old quick and before you know it, you’re starting over again.

The market is indicating down THIRTY NASDAQS right now because the plague has entered NYC by way of trojan horse masquerading as a liberal do-gooder, motherfucker,  Doctor, who took it upon himself to play with bowling balls and travel by way of uber, instead of QUARANTINING himself after treating the witch doctors of west Africa who contracted ebola.

Having said that, I want to point out to you good folks that the market has been constructive these past 5 trading days, resiliently rebounding and putting up a good fight. It’s important that you know which stocks have performed best this past week; because when the market dips again, you’re gonna want to go back to the well for another go.

Criteria: 1 week returns of greater than 10%, market caps more than $1 billion aka ‘real companies.’

Chinese burritos:

VIPS

BITA

Solar:

VSLR

SUNE

Semis:

OSIS

KLAC

SLAB

XLNX

QLGC

ISIL

Homebuilders:

KBH

PHM

DHI

Airlines:

SAVE

ALK

UAL

AAL

DAL

Paper products:

SWM

UFS

KS

FBR

Oil and Gas Equip:

FTK

HLX

RIGP

Internet Information:

TRIP

YHOO

FB

Home Furnishings:

SCSS

TPX

LEG

Foreign Regional Banks:

BFR

BMA

IRE

Drugs-Major:

CBST

PCYC

ILMN

ALXN

REGN

CELG

ABBV

AMGN

GILD

Biotech:

NLNK

LGND

BLUE

ANAC

LCI

XON

AGIO

Auto Parts:

DAN

GNTX

ORLY

Auto Dealerships:

GPI

KMX

Botton line: expand your universe of stocks. In order to cast a wider net, it’s important to dedicate yourselves as students of the market. The lessons never end and there aren’t any teachers and pupils in this game, just people in varying degrees of experience and expertise in the never-ending rat race of financial supremacy.

My TNA position from several weeks ago is basking in the glory of the Lord, as your heathenish VIX instrument products wallow in misery. You lose money, not because of poor circumstances or lack of luck, but because of an unsound mind–brought on by demons.

Brothers and Sisters of iBankCoin, I give you SEVENTY NASDAQS as bounty for your hard work, toiling amidst the arid lands of Wall. What you do with your bounty is entirely up to you.

With my money, I am purveyor of the road, the instrument of our heavenly father that unites this great country from coast to coast. I am long an abundant amount of the shares of TRN, maker of railcars–destroyer of the short seller.

Mind you and listen to me very carefully and quietly as if your lives depended on it: YOU WILL BURN IN THE FIRES OF 1,000 SUNS, betting against the road. Your coin, sooner rather than later, will become mines and your souls will be banished to the dungeons of perdition.

Good people of iBankCoin, tomorrow I will give you even more NASDAQS. We will sing songs with sweet melodies and dance about the fiery pits by which our enemies roast.

My enemies are upset, following my gallant 31% gain in FMSA. They’ve mistaken my locking in of profits as something to be scowled upon, instead of rejoiced. I’ve taken said money and applied it where I though it’d be best served.

At first, I strongly considered buying JCP. It’s a long story–but I think the stock has bottomed.

I then explored some tech plays, but the reminder of YELP soured that idea quickly.

Then I looked at crude, then the House of Saud, the crude again, and realized there was only one place to put the proceeds.

I love FANG. I like BBG. But I am CLR. We are one and the same.

If, by chance, you happened to come upon my person and called out “YO, CLR”, I’d turn around as if you had called my name. If I get the chance to create another son, I will name him Charles Lawrence Robert, or better yet ROBERTO, after my favorite robot from Futurama.

Before today’s purchase of CLR, I was down 13% in the position. Following this double down, I will be down much less than that. However, the stakes are twice as large. I have some ground to make up, so it’s either go big or go home.

I sold out of FMSA, +31% one week return.

Two major items to discuss this morning.

1. Saudi Arabia announced they’d cut production by 328,000 barrels in September to a total of 9.36 million barrels.

2. Caterpillar smashed analysts expectations.

Out of all the Dow 30 companies, an index that the venerable DAN NATHAN from Fast Money hates and despises, no company embodies the global growth narrative better than CAT. This earnings beat, this great chant, is an affirmation of the spectacular condition of global trade. Much to the amusement of myself and many others, The House of Saud has cut production, something the wild eyed conspiracy theorists said wouldn’t happen.

So let’s connect the dots, shall we?

Apple, producer of high quality premium products, annihilated estimates, solidifying the notion that money is still out there to be had, for quality products. Caterpillar crushed the skulls of those betting against the China story. Employment data is robust and US GDP is tracking 3% per annum.

But let’s talk about another important factor, something that isn’t being readily discussed.

Cheap oil.

What does it mean?

Well, if you compare today’s prices to those on July 4th, the US consumer is saving $160 million PER DAY. If prices stay at these levels for the next 12 months, it is estimated that US consumers will save an astounding $100 billion.

Now you and I both know people aren’t going to save those dollars. We can very well be setting up for the best holiday shopping season in a decade. Considering the fact that many retail stocks are in the gutter, it might be time to revisit some old names and position for grande eloquence this X-mas season.

I promise you, whenever Morgan Stanley decides to bring The Shake Shack public, I will put 20% of my net worth in it. I will buy the stock every month, after I earn my wage, and dollar cost average into the burger chain until they have 350 stores in the Unites Steaks. At the present, they own a little more than 50.

In the after hours, YELP is down a hard 10 after giving tepid guidance. This is a situation that should be monitored and action should be purposeful, for YELP, ultimately, trades much higher.

But let’s discuss the matter of valuation, shall we?

The stock is trading 17x sales, a tremendous burden for any CEO. Given the growth rate, YELP will trade 11-13x sales next year, providing the stock remains at these levels. There is a strong case to be made for 15x sales, but not 20x. I own a small position and will use any sizable decline to add to it.

The market closed at the lows and a terrorist event took place in Canada today. I’d be shocked if we didn’t trade lower tomorrow.

I sold out of my CYBR and set the proceeds to cash.

My best guess, looking at historical routs and subsequent bounces, we trade lower until Thursday of next week, then bounce the hardest.

The newly minted geniuses are now being tested. Trust in your abilities to navigate these waters and account for another leg lower.

With crude at new lows, it’s very likely that we will begin to descend back down to the lows of last week. The very idea of $70 crude frightens people. It’s funny what a decade of super expensive crude can do to the minds of normal people. We now crave higher gasoline prices, in order to rubber stamp global growth and everything being ‘okay.’

Should the market rally off the lows and momo stocks catch a bid, you should sell them. Everything runs on crude, even America.

As for me, I’ve already thought this through and understand the risks associated with holding stocks in the midst of a maelstrom. The prospective losses are acceptable, providing I am permitted to make them back. I am pleased with most of my holdings and will tweak them whenever necessary.

But it’s important to not act rashly and understand that VIX instrument products are nothing more than a gateway drug to a lifetime’s worth of agony and dishevelment.

Keep your eye on the close for confirmation.

These are guidelines, not rules. Over the years, I’ve picked up a few tricks of the trade, which might come in handy for you punk rookie bastards.

Avoid owning stocks who’ve missed earnings within the past 4 quarters. See DDD and CREE for anecdotal evidence.

If the SEC is investigating your company, it’s best to avoid it.

If your stock went up on merger news, sell it. The deal might fall apart later on. See Shire.

If you bought a stock, it went down, then the volume dried up. That might turn into a roach motel. It’s best to avoid and buy something with greater liquidity.

Avoid companies with debt/equity levels over 4, unless coming out of a recession and the underlying industry is turning the corner. If that’s the case, that debt laden company might soar in price, thus naturally lowering said ratio.

Avoid holding stocks with price/sales ratios over 15 for extended periods of time. More often than not these stocks will correct, severely, at some point.

Avoid biotech stocks with phase 1 drugs, burning through cash, years away from a revenue stream. That company will do dilutive financing at some point, in order to fund their research.

Avoid stocks who have large debt payments due. If XYZ’s bonds are coming due and they don’t have the cash, they will either restructure (with bank’s permission) or do a dilutive secondary.

This one sounds simple, but is sometimes ignored. Avoid stocks that go down all the time. The odds of you catching the bottom on a falling knife is low. Wait for the stock to base out and strengthen before buying.

Winners rarely correct–because the business is great. Sometimes it makes sense to chase growth, even if the multiples are high. Great companies will meet and exceed estimates, rarely giving dip buyers a chance to get in.

If you want out of a stock, quit playing retard games with limit orders. I can’t tell you how many idiots end up stuck in bad stocks because their limits don’t get hit. If a stock is $30×30.05 and you want out, put a limit order of $29.90 and get done. Or, if it’s a very liquid stock, do a market order. The same thing applies when buying. While limit orders can save you money, often times, I find them to be time sinks and a pain in the ass.

Avoid owning Chinese burritos that have come under scrutiny from renowned short sellers. More often than not, they are right.

Feel free to add some of your red flags.

Never panic after a big sell off.

Quit betting on crash scenarios, for they are as rare as intelligent Presidents.

Never, ever, short into the hole and do not dare buy VIX instrument ETNs after a sell off.

There are some things that never change in the the market. The seasons change and so do the players; but the rules remains intact. Ultimately, you and I are simply transferring fear and greed back to one another. One of us will be right, the other miserable. Temper your emotions and know that you know nothing (extra Jon Snow). After coming to grips with the fact that you aren’t God’s special creature placed on this planet for the sole purposes of self-aggrandizement, you will become a better investor.

We just had a very sharp oversold bounce. Euphoria is high and greed is trending. Look to raise cash tomorrow and prepare for the possibility that we might retest the lows. At the very least, we will test the hands of the newly minted geniuses to see if they are up to the task of holding during periods of duress. After the next flush out, I believe we might have a straight shot through Thanksgiving.

Look at what you’ve done. Don’t say I didn’t try to warn you.