The Stock Market Loves Me, The Stock Markets Loves Me Not

Loves Me, Loves Me Not

The last couple of weeks illustrates perfectly why you should not try to time the markets (in my humble opinion). At least not in an all-in kind of way.

Just on Thursday last week I was writing

Bad Week and Getting Worse.

Since then (Friday, Monday and Tuesday), I am up a whopping 4.2% and I am now just 1.3% below my all-time high.  Some of my recent buys that were really struggling are now looking semi-intelligent. Going into the weekend, my 2014 buys were down (with my multiplier) $25,000. Now they are up $14,000. Red to green in two days.

The First Quarter

After a quarter is complete, it is always a good time to see where we have gotten so far.  Up an extremely respectable 9.3% (note that includes yesterday which was up about a percent - I will true up the numbers over the weekend). The month of March was up about 4.1%.  (again, that probably has a point of padding). Here is a table showing stock by stock through April 1st:

Index	Stock	Last Quarter	Current	Quarterly Change	Share
1	GTAT	8.72	17.38	99.4%	9.2%
2	LMNS	12.57	11.15	-11.3%	8.4%
3	GNW	15.53	17.89	15.2%	6.1%
4	KLIC	13.30	12.62	-5.1%	5.1%
5	AOD	8.38	8.43	0.6%	4.4%
6	BBEP	20.34	19.95	-1.9%	4.3%
7	CTCM	8.98	9.47	5.5%	3.6%
8	RPXC	16.90	16.46	-2.6%	3.5%
9	CS	31.04	32.82	5.7%	3.5%
10	CALL	22.20	21.87	-1.5%	3.3%
11	ATVI	17.83	20.69	16.0%	3.1%
12	TPVG	15.55	16.47	5.9%	3.1%
13	PM	78.60	82.21	4.6%	3.1%
14	NTC	12.00	12.10	0.8%	3.0%
15	CSQ	10.89	11.23	3.1%	2.9%
16	TGONF	9.94	10.35	4.1%	2.7%
17	FGL	20.06	23.45	16.9%	2.7%
18	FSC	9.65	9.55	-1.0%	2.4%
19	CF	233.04	266.38	14.3%	2.3%
20	RIOM	2.18	2.01	-7.8%	1.9%
21	BAC-WTA	6.47	8.23	27.2%	1.9%
22	SNDK	70.20	83.12	18.4%	1.8%
23	KLAC	61.35	70.02	14.1%	1.7%
24	HIG-WT	27.75	27.05	-2.5%	1.7%
25	AGX	27.56	30.00	8.9%	1.7%
26	GA	11.24	11.60	3.2%	1.5%
27	WNR	39.80	40.11	0.8%	1.5%
28	SYNA	51.81	62.72	21.1%	1.5%
29	RDA	17.88	18.00	0.7%	1.4%
30	AVG	17.21	21.09	22.5%	1.4%
31	NVDA	16.02	18.65	16.4%	1.0%
32	FLR	80.29	77.51	0.0%	1.0%
33	OIBAX	6.08	6.11	0.5%	1.0%
34	O	37.33	40.53	8.6%	0.9%
35	CYOU	32.05	30.00	-6.4%	0.8%
36	IWM	119.28	117.87	-1.2%	0.6%

Now these amounts exclude dividends, so high yielders (like BBEP) have actually fared better. And for stocks I have bought in the 1st quarter, I show my average purchase price, not the price at 12/31/13.

Covered Call

I did place my first covered call order on Monday and Tuesday for GTAT. It did not fill either day. I have spent a lot of time thinking about covered calls and wanted to try it. Essentially, you are getting paid in advance to cap your upside in a stock, and still have unlimited downside.  You "win", when the stock goes up, but does not reach the strike price at the expiration of the option - as you have had a capital gain, you got the covered call premium and also got to keep the stock.

The order I placed was for $2.05 per share of GTAT (shares I bought just for this exercise, not my core position).  The expiration date is September 17th and the strike price was $2.05.  So if you think about the math (if my covered call order had been placed): I have 3,000 shares (with my multiplier) that I bought at $17.22.  I would get $2.05 per share (reducing my cost basis to $15.17) for selling the call.  If we reach September 17th and the stock is not at $22, nothing happens, I just have effectively lowered my basis permanently. If the stock is above $22, I get $22 per share - but lose the shares. While that is a "losing" scenario (potentially), I have made 45% (22/15.17) in the 5+ months.

Sounds great?  It certainly has its positives. But think of the negatives as well.

1. I am pretty sure that once I have sold the covered call, I cannot sell my 3,000 shares of GTAT.  So you have forgone some liquidity.
2. I am pretty sure that the entire gain will be taxed at short term rates, so Uncle Sam gets 40%. At some point, this is a strategy I would consider moving to an IRA.
3. If GTAT drops sharply, again I cannot sell - and I own the entire loss (well I guess Uncle Sam would get 40% of it).
4. If GTAT gets a buyout offer from AAPL at $35 a share (who knows), I do not capture all that upside.

So a lot to think about.  Weirdly, it seems to me that you actually are rooting for a flat outcome, as then you keep the premium and the stock and nothing has really changed.  Obviously the premium is associated with the perceived riskiness/volatility of the stock.  So a GTAT would have a higher call premium that a PG.  I decided to do it because I actually looked at the other way, would I pay $2 for the right to buy GTAT in 6 months at $22???  That would mean to "win" that GTAT would have to get to at least $24. While I love the company, that is a big move. I prefer the other side of the trade.

Early April Seasonality

One great thing about this time of year is that I believe the markets almost always go up (kind of like the Santa Claus Rally). I believe it is tax-related.  People are getting tax refunds, and some of the money finds its way into markets. Also people have until 4/15 to fund 2013 IRAs. So a good time to be long.

Market Rigged?

I have bought Michael Lewis' Flash Guys book.  I believe (but will hold final judgment until I have read) that the use of the word "rigged" is a bit strong.  It seems that people can take advantage of the current system to sweep up many small crumbs from trades using HFT. But the impact of that to a small investor buying 1,000 shares of stock is pretty small, maybe a penny a share. Unless you are a day trader, in would have a minuscule impact on your overall return. But again, I will read book before passing final judgment.