My First Short?

I have to admit to being a bit lazy when it comes to the market the past three weeks or so. Why? A number of reasons. First, I was using an old computer that would barely browse the internet, and my new, custom computer was delayed a couple of weeks because of some week long holiday in China. I was at the point where my old computer couldn’t handle having a couple of tabs open in Firefox, and keeping track of the market was a huge pain. I kept on top of my positions, but I didn’t do a whole lot more than that.

I’ve had my new computer almost a week now, and I’ll even admit to some binge PC gaming since I got it up and running. I hadn’t been able to game for a couple of years on my old PC, so who can blame me? I mean, the PC provides the ultimate gaming experience, right? But you’re not here for my controversial gaming opinions. In a slightly more market related note: I bought Office 365, and so far I’m very happy with it. My rather complex 2003 Excel file that I use to keep track of all my market related activity converted without a hitch.

So what about the market for the past few weeks? Boring, if you ask me. Some of the stocks I’ve talked about recently have come down to attractive levels, like Cal-Main Foods (NASDAQ: CALM), and The Mosaic Company (NYSE: MOS). I even started a position in Skechers U.S.A., Inc. (NYSE: SKX) last week, but I’m very cautious about the market right now. I’m hesitant to buy anything else until I buy SOMETHING on the ‘short’ side. Still, further significant weakness in any of those three names would be very hard for me to resist. Meanwhile, most of the stocks and ETF’s I’ve been keeping track of for the purposes of buying put options have gone down slightly over the past few weeks, so no excitement there.

While I don’t see anything I want to buy puts in RIGHT NOW, I am taking a very close look at KraneShares CSI China Internet ETF (NASDAQ: KWEB). What if there is a very significant market correction in the near term? China is usually pretty volatile, internet stocks can be as well. Chinese internet stocks? Sign me up on the way down.

So what’s in KWEB? Around 12% of the ETF is Alibaba Group Holding Limited (NYSE: BABA), China’s E-Commerce giant. Tencent Holdings Limited (0700.HK) takes up 10%. Trancent is an investment holding company with subsidiaries in a lot of economic sensitive sectors such as media, advertising, entertainment (including gaming), as well as mobile phone services. I’m sure there in a lot of other things as well, but I’m not getting into too much detail here. 8% of the ETF is JD.Com (NASDAQ: JD), one of Alibaba’s largest competitors in the E-commerce space. Baidu, Inc. (NASDAQ: BIDU) takes up another 8% of the ETF. Baidu is a search and web services company. Another 8% is NetEase, Inc. (NASDAQ: NTES), an internet technology company that is involved in games, advertising, and a few other things.

So those are the top 5 holdings of KWEB. They mostly scream ‘Growth, Growth, Growth!’, and I don’t have anything against these companies, but they seem to me the kind of equities that will get dumped in a market downturn. Those of you who caught my recent post on buying puts, found here, know that I’m not taking the inherent risk of options lightly. Also, I’m only planning to risk a couple of hundred dollars. As I write this, options on KWEB only go out to May of 2017. I’m watching to see when ones further out become available. I’m also watching to see if KWEB shows some strength (it’s been a little weak lately), thereby bringing down the put prices. I’m not necessarily predicting that everything falls apart in the very near term out of nowhere, so I can be somewhat patient.

I also continue to watch Mattel (NASDAQ: MAT) for an opportunity to buy puts. I like the company, and did well with it before, but I’m not sure the current price is justified, despite all of the positives of their turnaround efforts. I’m hoping that their upcoming analyst day bumps up the price even further. Hopes for the upcoming holiday season might do the same thing. Taking the other side of any significant strength might be a good opportunity.

As always, feel free to look at my portfolio and see how I’m doing. Usually I own or plan to own stock in many of the companies I write about. Specific numbers I reference may not be completely accurate; different online financial sources often have somewhat conflicting information. Verify information via multiple sources you trust. Please READ MY DISCLAIMER. Make your own decisions, do your own research, and never rely on any single source for information. I am not a financial professional; do not rely on me as such.

Thank you,
Michael, the Stock Picking Bartender,

Reno, Nevada

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