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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: BSGrinder who wrote (54703)	4/5/1999 6:02:00 PM
From: Knighty Tin	Read Replies (1) \| Respond to of 132070

Kit, There is not currently any two year notes in my 90/10 portfolio. There have been in the past, especially when I was long a bunch of Leaps, but they are rare visitors to the portfolio. I define "common sense" as my view on the market or a security/contract, which may seem a bit parochial. O.K., maybe more than a bit. <g> Here is the concept of reloading. I have 90% of my money in the 90/10 at no risk whatsoever and kicking out interest at a regular rate. I buy options with the other 10%, though I am rarely at the full 10% level. I have had many cycles where I have been slaughtered on the long option part of the portfolio because the herd kept bidding up garbage like Presstek or Micron or Citicorp. However, even in those periods where I have been clobbered, I was not without winners. But let us say I had 8% in options and, net, net, lost half of it, or 4% of the total. That is about as bad as I've ever done, though some day I expect to get wacked for the full 10%. O.K., I have lost 4% and I'm sad, angry, and in need of a hug from a well-endowed exotic dancer of the female persuasion. But, assuming the fundamentals have not changed on the crap I hate, in the case of puts, or love, in the case of calls, I am most in need of cash with which to reload my guns and take another shot. I still have 6% of the original 10% plus the interest I have earned on the 90% cash horde over the period. I fold my arms, stick my chin out like Mussolini, and reload and shoot at the same or different targets again. If I am wrong again, I will still have some winners, the interest on the 90% and some ability to reload again. The trick is, when I am wrong, there is no way I can lose more than 10%. When I am right, I make huge percentages. In the last four years, my returns on the full 90/10, calendar year and marked to market, have been 1995-142%, 1996-128%, 1997-27%, and 1998-79%. In nearly every case, it was a handful of huge winners that made the return. Though I was right on a majority of the stocks on which I held puts, I was not right enough for my out of the money, swing for the fences approach to work on them. And, of course, I was flat out wrong on some. I contend those are mighty returns buying mostly puts (though I had some major league long call winners, like ERTS and ASND) in what turned out to be a manic bull market. One of my PM friends told me, "just think what you could have done if you'd been bullish." <g> He was right and wrong at the same time. I couldn't go bullish because I trust my valuation model and it told me most stocks were overvalued. Many of them have become more overvalued. But I will always bet against overvalued even if the herd is likely to push them up. The stocks that fall from grace fall far enough for me to make a lot of money and still be on the side of the angels. <g> I hope this clears up the confusion. Hope it doesn't cause more. <g>