Here’s an update on how my US share portfolio is going. Previously I was afraid that the tide was going to turn, and my 43% gain for the calendar year to September would be wiped out.
First – Apple, Microsoft and eBay.
I sold down 70% of my eBay holding the other week, as I saw too many negative events and emerging signs in the Auction monster.
First, there were signs of panic around pricing and the user experience, with extended free gallery days and strange shakeups. These are perhaps justifiable, but a note of desperation seemed to form part of the changes, making it seem to me that the management team is reacting, and not really sure how to do so.
Secondly a huge write-down of the value of Skype sent the indication that the option value of capturing the Telecomms market has dropped.
and Thirdly, the price was at a recent high – as a result of a overly strong market I felt.
It’s so nice to be right.
I sold down my shares at around $39 – just after that peak there, and even backed it up by buying a handful of puts. The shares have now subsided about 18% to $32, so that’s $7 of value in the bank (before tax) plus I realised the gain on the puts.
I still think eBay is a long term play – hence I’ve kept some shares, and I will rebuy if the price keeps dropping.
So – great market timing there.
I also sold 60% of my Apple shares, driven by the feeling that the market valuation was getting a bit too crazy, but not driven by fundamental business dynamics – as I feel Apple is on a strong path.
Not such good timing, but not too bad:
I sold them on the 15th of October, at $163.90. The ramp up continued, peaking at about $190, before subsiding back to under $160, and now it is up over $170 again.
For a while there I was feeling pretty stupid, but that sharp drop in late early Nov helped the ego.
My basic philosophy is that I buy shares of great companies, and sell short shares in lousy ones. The stock I short to counter Apple is, of course Microsoft. I’m not only short the MSFT stock, but I also have options betting on MSFT falling over time.
Not so good:
Microsoft’s earnings were well above analyst expectations when released in early November, and the price went up by well over 20%. Ouch.
So I did the only right thing, and stood behind my convictions. I bought a bunch of MSFT put options when the price was around $35 – betting that the price would fall. It didn’t, so I bet again, borrowing more MSFT shares at $37 and selling them short. $37 was at the top of the chart, so finally my timing was right.
I sold down a few of those options a week later, making 50%, and covered some of the new shorted shares at $33, making $4 per share.
Overall I remain heavily short Microsoft, and reasonably long on Apple. That is. I’m still betting that Apple shares will keep going up, and Microsoft shares will go down.
That approach is vindicated by their relative performance over the last 1 year:
More to come.