Bitcoin (BTC), SalesForce (CRM) and Hedging your Portfolio

Podcast Transcript

Jeffrey here with another edition of Stock Smart, the February 16^th, 2021 edition. Hope everyone is doing well, market is unwinding a bit again today as the S&P 500 oscillator measures the amount of buying in the index is overbought and so I look for a few more days for the market to unwind. I really think you need to be very careful heading out of when earning seasons ends in the next couple weeks. That could be the time for the correction that everyone is expecting, the VIX is up about 10% today. So the fear indicator, or fear gauge is moving in the wrong direction. And so that’s another indicator of people protecting their portfolios. Bitcoin hit an all-time high a 50,645 and somebody you need to watch in this is.

[00:00:46]
the Bitcoin greed index which is the fear & greed index for Bitcoin and it is at an all-time high as well. It’s at a level of 95 on the indicator chart and if you look over that in the last year a low was in early January which was 40, the indicator, they called the Fear & greed index was at 40 and now today it sits at 93 to 95. And so that’s an all-time high for the fear & greed index that’s measured by alternative which is a software company and they put together essentially an index based on emotions and sentiments from different sources and they crunch them into a number to give you an idea of what the perception or the feeling is of Bitcoin. So that’s an all-time high and you’ll see if you’re watching the news you’re hearing more and more communities,

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There was a story that Miami is considering, putting government funds into Bitcoin. And so there’s a lot of new Investments it’s going to hit. Other companies are talking about putting it in their portfolios. So Bitcoin is growing in excitement. Buffett, by the way, we talk about Buffet’s 13(f), which his fund will be releasing later today. There was some mention of a position that they’re probably trying to corner. Generally when Buffy gets into a stock they take up to 10% of it. So they have like a controlling interest of it. So there has been some rumors about a new position that they’ve taken on so we’ll look over the 13(f) tomorrow.

STOCK WATCH

Stock we want to look at today – Salesforce CRM. Yep, boring old Salesforce, but you know the chart looks great. Salesforce,

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It’s moving in the right direction, up today when the market is flat, up strongly today, about $9 or 3.74% overall over the last few months. It’s beating software in general, it’s gained about 9.5% over the last month, the chart from a technical standpoint is moving in the right direction, has a lot of support right around 211 to 212, now breaking out into at the 249 mark. Old highs were 283 but the chart moving again up in the right direction up about 10% over the last month and outpacing software in general which is only up about 7% in the same period of time. And the S&P 500 at that time period is only up about 2.37. Next earnings should be positive which earnings are coming up on the 25^th, expected to have more growth again.

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17% is the expectation over year over year, looks like it’s in a good place for a nice run here in the earnings, picking up some steam, look for it, if it takes out 264, could break out to an all-time high in the 280 range. So keep an eye on the technical, but Salesforce CRM, which is kind of a boring stock, P&E is reasonable for this type of company, which is 62 again. Their main thing is they’re going to have solid consistent growth. It’s way more compared to most technology companies, is way more of a blue chip company because they have such a heavy level of entrenchment within their software, you try to move out of a Salesforce program,

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It’s going to take months and months or if not a year or more for your company to get trained proficiently in another system. So salesforce maintains this heavy level of entrenchment and they have a great high level, their net dollar retention is excellent, so year-over-year their customers continue to add to the product as they build this Salesforce.

THE AVERAGE INVESTOR

So let’s take a look at question from Henry. He wants to know – what’s hedging in a portfolio. Coming into a market here where we would have expectations that there could be a little bit of a drawdown and definitely a correction, maybe 7 to 10%, it’s a good time to ask that question. Think about hedging as like insurance. So we all hedge by buying life insurance, meaning we want to protect our family. So insurance is a protection that we get that’s similar to hedging in the market.

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So when we buy life insurance, that’s essentially a hedge and what you want to do when you hedge your portfolio is essentially you’re going to buy puts or derivatives to secure a portion of your portfolio and the hedge has to be correct for what you’re holding. So if you hold a lot of Tech stocks, there is a triple-leveraged, very dangerous, by the way, it’s called TECL, but you could buy a put, let’s say your profile was 90% technology stocks,

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You could buy a put in TECL, very expensive put by the way, but you could buy that expecting the market to go down and as it goes down if TECL goes down with it, which it would, if technology was failing, the put would become more valuable, and hedge against your long positions, and a lot of times, people will hedge in individual portfolios where they will get assessed capital gains taxes. So instead of selling the position, they’ll hedge instead of you know, realizing the gains in the stocks they hold. So look, the all-time best hedge, because hedging is expensive if you buy the put at the wrong time, it’s going to expire worthless. The best of hedge is always the best hedge and it’s cash.

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So if you’re really uncomfortable, get out of a position or cut your positions and go into cash, but most people what they do if they’re going to do a hedge, they calculate how much exposure they have and then they buy hedge against a position they’re in so if your portfolio has mostly S&P 500 stocks, you would buy a hedge on the SPY which is the index essentially of the S&P 500 and you can buy a put there which will cover, protect you if the S&P 500 takes a downturn. So that’s it for today. Hope you had a great weekend and we’ll see you next time. We’re going to go over Buffett’s 13(f) tomorrow on Stock Smart.