Prepare to Lose 20%

When analyzing risk, it’s important to think about the worst case scenario. A 20% decline in a portfolio is doable, especially when buying at the top of a range and/or not being broadly diversified.

As I am positioned now, I am prepared to endure a 20% dip.

Let me paint a vivid picture for you, by way of rudimentary math.

If Joey Bag O’ Losses has $1mill in the market, with $400,000 of the millsky in a money market, how much will Joey lose on a 20% decline?

Answer: $120,000

In a nut shell, I am prepared to see my positions down 20% from current levels, due to my 40% cash position. Because of it, my losses are minimized, as well as gains. However, I am looking for a minor correction in the market. Therefore, I am exercising my large brain, represented by my 155 IQ, in order to make a market call.

If the market fucks me to the tune of 20%, my year to date gains will be shaved down to a paltry 63% (give or take a point).

Now ask yourself: Are you prepared to endure a 20% drop from current levels? If so, do you have a buyback strategy, by way of a well stocked watch list? Now is not the time to gawk at the screen, praying for someone to help you. You must act now, before your dick is stuck in the proverbial “cock-cutting escalator.”

If not, soon enough, you’re going to be shining my shoes.

Back in the old days, when I was young and delusional, I tried to time all tops and bottoms. Being gifted with the ability to pick winners, I felt invincible, as if I could do no wrong. Much to my chagrin, I learned, via staggering capital losses, that no matter how smart I was, the market would rape me—every once in awhile. Believe me, it took a long time for me to understand— and accept— the fact that the market does not dance to my jungle drums. As a point in fact, the market is King Kong and the rest of us are just bananas.

It’s liberating, it truly is. Give into the fact that you are a peanut and Goldman Ballsacks is an elephant.

So, whenever I start to feel cocky, whenever I start roaming my office dressed in a white robe and sandals, burning incense for the Gods, I do the opposite of what I really want to do. For example: for the past 2 weeks, while the market climbed, I felt as if my positions were all going through the roof and into the ever so ominous VAN ALLEN BELT aka a place where NO HUMAN has ever traveled. Instead of buying more, I sold and raised cash. Praise the snake God for that.

I digress.

Here is the lesson, if I might be so bold:

After this leg down is complete, I will begin allocating my 40% cash position.

Top pick: [[ENTR]]

[youtube:http://www.youtube.com/watch?v=ROwQOHJ8P5M 616 500]

The quarter ended with all sorts of weird fuckery. My gut tells me, it is a warning shot of volatility to come.

At any rate, I held my powder today, not giving into early day optimism. Instead, I’ve been busy raising new money and selling off bullshit underperformers, like Spartech Corporation [[SEH]] .

All in all, the quarter was fantastic. Luckily, I was blessed with the internal fortitude and stubbornness to capitalize on the rally. In all honesty, I do not chide anyone who lost money, over the past 3 months. The logical trade was to bet on Armageddon—it just didn’t happen. That’s why, and this is a fact, scholars make shitty investment managers (think LTCM).

My investment success has more to do with experience, coupled with balls, than anything else. I can burn the midnight oil all I want, analyzing the balance sheets of ABC to XYZ. But if I didn’t have the gumption to risk my capital and go against the crowd, I’d be eating fish sticks for dinner and not 2 1/2 inch rib eyes.

For those of you who nailed the rally: congrats. We are coming down the home stretch now and the market will not be as easy, due to the fact that earnings matter. While it’s true, year over year comparisons will help Wall Street’s dumbest firms; it’s also true, if employment does not pick up ASAP, CIO’s may put investment projects on the back burner, effectively raping all new longs—at current levels.

Nonetheless, “The Fly” has faith in the friendly philanderers at Goldman. When sitting down for dinner this evening, during grace, just prior to digging into that heavily salted (lightly peppered) rib eye, be sure to mention the Godly citizens at Goldman in your prayers—for they did the work of God (or space alien magicians), saving this ridiculous nation from assured peril, by way of clever robotic stock buying machines.

Indeud.

Amen.

That was fast. I go out for an incognito run to Dunkin’ Donuts, disguised with fake mustache and ivy hat, and the market gets gobbled up like brains in a town filled with zombies.

Much to my displeasure, I have not been able to buy in cheap. I want to own Aixtron AG (ADR) [[AIXG]] and Veeco Instruments Inc. [[VECO]] , based upon the expansion of LED technology into the television and lamp fixture market. At the present, LED’s make up 2% of the lamp fixture market. That number is expected to increase to 50% by 2015 and 90% by 2020, according to Phillips electronics.

My point: the LED market is not to be ignored. Embrace it, like a French whore in Papua New Guinea.

Other LED related names include Cree, Inc. [[CREE]] , Honeywell International Inc. [[HON]] , Ultratech, Inc. [[UTEK]] , LSI Industries, Inc. [[LYTS]] and Universal Display Corporation [[PANL]] .

In short, the technology revolution is around us; it’s everywhere. Are you man enough to play it? Are you smart enough to mint coin from it?

Aside from that, my General Cable Corporation [[BGC]] , Flotek Industries, Inc. [[FTK]] , [[ENTR]] , Corning Incorporated [[GLW]] , Barnes & Noble, Inc. [[BKS]] and ADTRAN, Inc. [[ADTN]] positions look great.

Thank heavens, the market is down today, because some of you assholes think bad news is bad news. Well, I got news for you, pal: bad news is good news and good news is better news and better news is Dow 10,500. Don’t quote PE ratios or debt to equity levels, while the economy expands, for they are meaningless.

Ladies, the market is due for a mild correction. However, we are still 1,000 points cheap, at a minimum. Watch, six months from now, when U.S. gdp is hitting 2% again, you will be shining my shoes.

Despite today’s dip, my positions are holding up well. Regrettably, I blew out of my TerreStar Corporation [[TSTR]] position a little early. My only consolation, certain distinguished gentlemen of The PPT made a killing. In my estimation, the market should decline by another 3%, prior to a resumption of the uptrend. So, with that in mind, I will be watching over my watchlists very closely, while limiting my exposure to retarded stocks—a difficult task indeed.

In short, don’t lever yourself to this dip, for it could be the beginning. Pace yourself, find a hobby. When the time is right, “The Fly” will step in, like a fucking deranged T-Rex in a San Fransicko nightclub.

[youtube:http://www.youtube.com/watch?v=y27tTpInj8U 616 500]

You lost barrels of coin, while seeing your dick shrink several sizes down to a squirt gun. I’ll have you know, “The Fly” is pleased with today’s dip, as it is giving me an opportunity to delve in at lower prices. With a cash position at around 40%, I am begging for lower prices.

For the day, I enjoyed a minor pullback, as some of my more prominent positions bled out, such as Flotek Industries, Inc. [[FTK]] and TEKELEC [[TKLC]] . However, for the most part, it was a non-event.

If and when the market dips, you will see me get aggressive, like a motherfucker inside a mother factory, whatever that means.

I bought 5,000 DryShips Inc. [[DRYS]] @ $6.90.

Disclaimer: If you buy DRYS because of this post, you will fall victim to a “midnight mugging.” And, you may lose money.

My DryShips Inc. [[DRYS]] is melting higher. I know the company is a piece of shit. However, if we are going to have some “good old fashioned Weimar Republic style inflation,” the shippers should catch fire, on the coattails of egregious commodity prices.

Without a doubt, the quality of like in America is about to take an oddball turn for the worse. Forget about such luxuries like health care and a military. We are going to be eating each other’s young, soon enough.

Taking a gander at the market, I am very much interested in the business software sector, due to m&a activity. “The Fly” is into that sort of thing, so have at it.

Within the sector, the following names interest me, based upon valuation:

Patni Computer Systems Limited (ADR) [[PTI]] , Cognizant Technology Solutions Corp. [[CTSH]] , ArcSight Inc. [[ARST]] , Amdocs Limited [[DOX]] , Tibco Software Inc. [[TIBX]] , CSG Systems International, Inc. [[CSGS]] , Sapient Corporation [[SAPE]] and Cogent, Inc. [[COGT]] .

With my cash position, as you know, I am waiting to buy into a slew, mind you, of foreign stocks. At the very top of my list is Aixtron AG (ADR) [[AIXG]] ; but the corn on the cocks will not come down.

All in all, I am having a grande [sic] day, despite dealing with people who think “The Fly” is a backwards rube.

Top picks: [[MWW]] , ADTRAN, Inc. [[ADTN]] , DryShips Inc. [[DRYS]] and Flotek Industries, Inc. [[FTK]]