James,
Again, thanks for the compliments. But sage, I am not, I assure you (judging from my investment results...recently). So, back to our topics...
1. I am not wealthy (although, most likely, the size of my account is above average), nor well diversified. My portfolio consists of about 10 positions which I have been running for years (some for as long as 10 years). However, 5 of those positions now account for 75% of my portfolio (MSFT, INTC, NXTL, CPQ and FORE). I try to focus on either industry leaders, or ones with potential to become one. My portfolio, unfortunately, is heavily loaded with high tech stocks for the same reasoning as you. My style is not to day-trade (I can't since I have a full-time job and I need to clear my trades!!! with my boss), but, instead, to carry long-term positions and add or substract to the core positions based on market opportunities. I also buy smaller positions with the view towards building larger ones (MER, JPM recently, and I am looking into CSCO). I do not turn around the portfolio a lot, and I like to trim losers and let winners run (hence MSFT which has been a 10-bagger). I got into FORE very early on, run with it and its splits, doubled up last year around $13/14, took some out around $22, was planning to unload more at $25 (but did not), and now doubled up again at around $11. FORE, in my view falls, in the category of those companies that still have some focused advantage (ATM technology). You have been saying, and I agree with you, that management screwed up big time and have not played out their advantage. I am still hopeful!!! that is why I am adding.
Options allow me to leverage without incurring margin. For example, I am fully invested - no more cash - and want to buy another 10,000 shares of FORE. If I get them on margin, I will end up with roughly $100,000 margin balance accruing at least a 7.5% minimum margin rate. Instead, I can do the following (or a combination thereoff):
- I sell 50 long-term puts (say strike price of 20) at about 11, collecting about $55,000
- I buy 50 long-term calls (say strike price of 10) at about 3.5, costing me about $18,000
I end up with additional cash in my account of $37,000, and a long position in FORE which can be as high as 10,000 shares (between $10 and $20 price range) and 5,000 for prices below $5 or above $20.
Now take this example and play around with strike prices and expirations. No margin and extra cash. Sounds like a free lunch? Well no, because your account must have the buying power to buy 5,000 shares of FORE, if you are exercised the puts, so you commit/use the buying power of your account. I hope that now you start appreciating the word leverage and derivatives (options is one of those)...
2. As to the other companies you mentioned. I know some of them, but I have not researched them. Again, however, the same theme applies; are they leaders in their respective industries, or do they have a chance of becoming one? Also, how many of these bets are you willing to make, and are all in the same industry?
I hope the above provide food for thought or provoke some feedback...
Regards
Tavros (who has spent an usually long time in the internet this weekend, but it is a 3-day weekend)! |
