Chat Transcript for 8/24/2011

You said recently its not about the day to day trade its the idea we are investing for the next few decades. Do you feel this bear market (being called one by your fellow columnist Rev Shark) we are in will affect your stocks in a materially negative way short term from this S&P 1120 level?

We technically enter “bear market” territory when the markets are down an arbitrary amount like 10% or 20%, which we are now. My old friend Rev Shark is a good short-term directional trader, but he would have had you out of Apple at $30 when it turned down from $36 on its way to $400. You know?

Why did you choose $25 strikes for the RVBD calls you bought this week, as opposed to say, something closer to the money? Do you expect to buy more out of the money call and/or common as well?

I bought calls with strike prices “up to” $25 in Riverbed this week. That was an aggressive tranche of Riverbed purchasing, and I did it that way on purpose because the stock is now trading at about a 13 p/e (ex-cash) and should grow 50% this year and next.

I am a new subscriber, thanks for a great service.I thought you initiated a position in ADSK last week (long commons and calls)? If so, what is the rank of that position in your list of positions. From your posts I read that you are at about 30% cash, would you mind telling us how short you are now. 20% of your long position? Thanks

I don’t disclose my cash positions (because I have more in the bank and more income that I’ll be adding anyway so that would skew any meaningful disclosure of cash that I’d make. I just looked and saw I messed up and didn’t add ADSK into my list of positions. It’s a relatively small one as it’s brand new. I’ll update the positions later today or tomorrow. Thanks for catching that.

Hi Cody, there’s been a lot of coverage of Bernanke’s upcoming speech this Friday. I was wondering what your thoughts are on the overall direction of the market if the Fed announces there’ll be only a modest stimulus, or no stimulus. Would you still feel we’re starting to build a base for a bull market?

Two thoughts on the Bernanke announcement — 1. We’re still at 0% interest rates and trillions of dollars of covert bank/corporate bailouts are ongoing, so in the mid- to long-term any formal “QE” announcements from Bernanke are rounding errors. 2. The markets want a new “QE” and are paying attention to it, so if Ben disapoints, the markets will likely sell off for a day or maybe two.

Cody, is this right time to short tivo cause of coming earnings after the bell?any ideas

The right time to short tivo or any stock is when you think Wall Street is overly optimistic for whatever reason. If you think Tivo’s going to report crappy numbers tonight (I have no idea, I haven’t done the work on Tivo) and if you think Wall St expects that report to be good, then it’s probably a great short opportunity. If you don’t have a feel for what the report will look like or what the Street is “expecting” then, I’d stay away.

Quick suggestion: when you initiate selling of a position would you mind giving us a rough percentage as to the size of the move? this would help us in determining how aggressive we should be if we’re thinking similarly. thx

I do try to give you some idea of how aggressive I’m being whenever I make a trade. I usually do pretty steady “tranche” trading though, in which I scale into a position using various common and option strategies slowly but surely over a few weeks’ and months’ time.

Ok I get the apple and bear connection your making. You say you are looking for a 10-20% rise in the markets. Is your service which resembles your trading to buy and sell your positions regularly as your writings indicate quite outsized gains your are looking for for certain stocks even this year (stocks that should double in 2011) and 3-4 X in stock like apple and google?

I didn’t quite understand your question, can you rephrase it? I will answer it for now like this: I didn’t just own Apple common stock as it ran from $7 to $160 when I sold it to take the TV show on Fox, but I also owned calls and sometimes puts in the name, as I tried to maximize my profits over the years that I was overall net long Apple.

Stocks your are very positive on like a Cy apple and google, do you mean to constantly trade common stock or hold a larger core position going forward especially in light of the 15-30% declines in some stocks?

I plan to do what I’ve been doing — buying common that I’ll probably hold for years in these names and supplementing those common positions with some call options when the stocks get crushed. In the last week while they’ve been down so big, I’ve bought some Apple and Google calls in addition to the common I already owned, for example.

Cody, do you think goog is playing support(440-450)and resistance (625-645) areas.or u think goog found its support around 500area?

I like Google a lot down here around $500. I didn’t think I’d get a chance to buy it back at these levels after that blowout report last quarter took numbers higher around the street and Google+ rolled out…I want to buy more Google, but am going to be disciplined in my approach.

Any thoughts on salesforce? im an IT consultant and all my clients – including a fortune 1000 software company – are moving to it (or have already) aggressively and uniformly love it. i think it’s great ‘cloud’ play but still seems pricey to me. with their recent moves into social networking (and file collaboration) their story seems to just keep getting better. is this pullback a good time to scale into a position or do you think it’s too hyped?

I love CRM and respect the company, but that stock…it’s always so damn pricey. I just have never been able to get comfortable with the valuation and that keeps me from ever having traded it either long or short over the years. Most great traders have at least some stocks that they just consider untouchable. This CRM is one of mine.

Why when you know that there will be a test of the low levels in the market, not sell all your positions to buy back at lower prices rather than continue with these positions?

I assume by “knowing” you are referring to my having been “cautious and worried that we could retest the lows” after the markets first dropped and then popped before they did eventually retest those lows. I didn’t “know”. I never “know” what the market will do in the very near-term. Or in the long-term for that matter. But I do trust my analysis and directional bets on both the economy and the stocks I own, so I try to use whatever short-term expectations I’ve got with the market along with that more fundamental analysis. Which right now means I try to buy weakness and will use some more calls than I would otherwise because I think we’re finally bottoming near 11,000. But I don’t “know” the future. I wish I could just show up everyday and make the directional market bet of the day and make millions with my ability to see the future. Alas…not so much.

Does the very weak economy in your opinion (is a 2nd recession if you believe one is coming) affect your short term outlook on your stocks?

I’m not sure this is a “very weak economy”. It’s not great and it sucks for middle America, but corporate America is still hitting record profits right now and I think a “recession” is likely what the markets already priced in on this recent crash. And if there’s not a recession (at least not one that affects corporate profits in the way that they have in the past sometimes) then this market could really take off, even in the near-term.

Cody, I did not like the GOOG deal buying MMI. Do you think this is just about the patent portfolio? If so, Google is play defense here. Not good, IMO.

I’d probably agree with you that I wouldn’t like the Goog-ola deal if it were truly just a defensive play. But I think Google’s got people focusing on the patent portfolio reasons for the MMI purchase in large part to throw their competitors off the scent. They’re really going to go hard into the living room with this purchase too. The handset business will likely be spun out within the next two years, I’d expect.

Hi Cody, 2 questions: how large could be the effect of less government spending on to the revenues of tech companies, specifically the ones you bet long term but play short term swings like Riverbed, ex:riverbed sales US and Europe combine is large. Second question: i see many commentators and invetors in the media very negative on tech, in fact shorting any time they see them going up at certain levels, maybe only supporting strong brands like aapl and googl, but not high beta (no matter how strong is the growth in smartphones, the cloud, etc,etc)

That’s a great question about the impact of government spending. And yes, the impact of a major reduction in direct government purchases of technology would impact this cycle. I do think that’s likely already largely discounted in these current stock prices, but it is a concern of mine. And as far as others hating tech, that’s what I love to hear. Contrarianism is a full-time commitment.

Do u have or like to give year end targets for stocks or the averages? do you give your performance YTD?

I don’t really have year-end targets for all my stocks, but sometimes I’ll give one out. For example, I’d expect Apple to get to $450 by year end and for Google to get back over $600. But I’d rather not lock my thinking into YE prices and what not. I don’t give my performance numbers out partly because they can be so misleading too. When I’d first started this service, I’d hardly sent in any money and the stocks happened to have taken off and my performance would have looked insanely good off that little base. Likewise, I have continued to add money to the portfolio since the markets crashed and gave us these pitches. I’m just going to do the very best to continue to blow away the markets as frankly you yourself, as a long-time reader whose name I recognize, have seen me do over the years.

What do U do to unwind after miserable days like the past few weeks?   I know I have been very VERY tense at times.

I turn off the computer, go out to the beautiful acreage I’ve bought here in NM where I’m building my first house customized to my specs. And chainsaw trees. And go flyfishing with my dad. Anything you enjoy — do it!