Creating Rolling Gains

Proper portfolio management is just as much an art as it is a science. If reading a book filled with complex mathematical formulae or reading the latest Harvard Review on money management were keys to mastering the dynamics of building a well balanced basket of stocks and commodities, all those able to read at a high school level would be producing triple digit gains, year after year.  The all elusive goal of portfolio managers is to gradually and stealthily build a collection of financial instruments that accomplishes two things:

Goal 1: The basket must, in part, deliver gains in all market environments, good and bad;

Goal 2: The basket must be built and balanced in a way that limits downside risk, even in the worst environments.

Most fail to achieve this all-elusive perfect mix, but so far The Velez Opportunity Report has done a stellar job at creating this near perfect basket. From our stock plays to our commodity positions, to our options and ETF hedging strategies, there has rarely been a week during which something in our little mix was not delivering gains, and in some cases, eye-popping gains. In a relatively short period of time, we've managed to build a portfolio that responds well to strong up moves in the market and also delivers gains in down markets, while it limits the downside risk in the entire basket at the same time. This is far from easy to accomplish and demands the time of some of the financial industry's brightest minds. From quantum physicists to high level mathematicians to neural network experts, those who focus on this special area of portfolio management demand and get the highest fees and pay from all the major institutions throughout the world.

"Rolling Gains." That's what a well balanced portfolio produces. It always has something delivering gains, no matter what is going on in the markets and/or the world.  While something is taking a rest, something else takes the lead.  That which is resting can be built-up, while that which takes the lead can be sold off to lock in gains. Then, we repeat. Ah! What a nice system we have.

The Update

The below update glaringly shows the results of such a nice mix. In the heals of eye-popping gains that came from shorting the market before its crack to the downed last Thursday, three of the below gems in our portfolio took the lead with strong moves to the upside. We seem to always have things in our portfolio battling for the spotlight and part of the below update showcases them. The later four items show plays that are now poised to be built in anticipation of their future push to the head of the pack. Always pulling money out of the leaders, while putting it back into those poised to be the future leaders is what leads to sustainable wealth. You don't know how to do this? Not to worry. I will lead you, as I always have. Let's take a look.

The Last Issue: A Fair well

As mentioned in the last issue, this will be the last public update as The Velez Opportunity Report will be privatized to its paying subscribers. Information regarding subscription and program rates will be forthcoming later this week. It has been a very profitable ride together with many 100% plus winners (PACR, EK, GCA, BAC, DGP, RIMM, AAPL, etc.), major commodity runs (Gold, U.S. Dollar, Crude Oil, Cotton, Live Cattle, etc. and even a few monster winners like MNKD up nearly 1,000%. We are only just beginning and I look forward to continuing the journey with you all. Onward and upward!

The Shot Heard Round The World

Yesterday was a huge day for me, not because my shorts on the market exploded to incredible one day gains (see Wednesday's issue entitled, A Time to Reverse); not even because my longs on the VIX (wow) and my hefty position in gold soared to amazing new highs. No. It was a monumental day for me because for the very first time, my 12-year old son showed more interest in what was going on in the stock market than in how many enemies were wounded by Gunny Sergeant Jones, his alter ego in Call of Duty, a popular video game.

Moments after the close, Oliver, Jr. burst through the front door ahead of his mom, flung his book bag up the staircase, deftly landing it on top of the 14th step, just inches from his bedroom door. He's so accurate with that thing. He then turned 90 degrees right, dashed into my office, out of breath looking very concerned. "Dad! Dad! Are you short???" At that very moment, a rush of different thoughts and feelings battled for dominance in my mind. I knew this was one of those Kodak Moments, a moment that would be remembered by him most of his market life, like the time I remembered when my dad was long gold when it soared to 800 in the early 80s.

"Of course I'm short, Ollie." After I said it, I realized the words came out with that tiny touch of fatherly superiority which most dad's know so well. "See, I told you he was short," said his mother who had finally caught up. Wrapped in silence, he turned to look at his mom, then turned back to me, broke into one of the biggest smiles I've seen from him in a long time, and bolted out of the door at the speed of light, undoubtedly headed for his trading tool, the Mighty Xbox. It was worth infinitely more than all the profits gained from being right on my Wednesday market timing call. That moment represented the only true wealth that matters. It was gold...on steroids.

The Shot Heard Round the World

My bold market reversal on Tuesday (reported in Wednesday's issue) could not have been better timed. Not only did it perfectly hedge my long portfolio, it turned what could have been a very painful event into an occasion to rejoice. The gains derived from the shorts far outweighed the effects of the setbacks in my longs, and that's not always easy to accomplish. Let's take a look at them now. But before we do, let me inform you that this environment is perfect for stepping up one's accumulation efforts on the long side. Please don't naively assume that market trouble is a time to flee the buy side. In fact its just the reverse. It's more the time to dig in and increase one's appetite for longs. Think Warren Buffet. Not Warren Beatty. A full play update will be forthcoming this weekend. Please don't miss this all important last public issue. 

The Winning Short Plays

This weekend will mark the very last public issue of The Velez Opportunity Report (VOR). It has been a wonderfully profitable ride, with numerous 200% plus winners, along with a slew of 100% doubles. While some of our most recently initiated open plays are in their infant accumulation phase, I'm proud to report that the VOR has booked and closed out gains on 100% of its plays since inception. While we still have our work cut out for us, that is a feat rarely accomplished in this industry. And it's just the beginning. The Wealth Game is starkly different from the short-term trading game. It requires a different mind-set and at times a radically different approach. The laws of wealth accumulation, if adhered to, can lead to a level of power and independence that most people who walk this planet can only dream of, much less experience. 

I trust that many of you will continue to take this journey with me. Stay tuned for information on how to continue our lifelong pursuit of WEALTH, always the crowning jewel of a remarkable life in the markets.

Another Kodak Moment

It's time for another Kodak Moment, and Eastman Kodak (EK) moment that is. This stock has been very kind to us, with nearly a 200% gain from our lowest buy point. After taking profits, which could not have been better timed, EK dropped on good earnings and has once again wet my appetite to begin my institutional style accumulation once again. Yesterday brought about the newest action in EK and the below video clearly explains why. Sit back, list and learn what's next on the agenda. It's far from over. As I mentioned months ago, when EK was in the mid 3s, this little gem is a mid teen stock at the very least in my view. We can more then double from these levels. Just watch.

Another Kodak Moment

A Time To Reverse

Yesterday was a pivotal day in my opinion, both for the market and for The Velez Opportunity Report. After a very long, extremely profitable bull run, yesterday's market downturn helped to trigger the two positions I normally use to go short the market (see the last issue entitled "How to Hedge a Long Portfolio"), finally establishing the first change in my directional bias in quite some time. 

Trading For Wealth

As a life-long accumulator of wealth, I tend to be largely biased on the long side. In fact, I'd venture to say that more than 85% of the time, I'm looking to ease into a long position, even during very troublesome market environments, because hefty downturns often help an astute market speculator find the "diamonds in the rough" with greater ease. They stand out more. So it's a very noteworthy day or week when a consummate buyer of stocks, futures and commodities decides to reverse gears. 

Now, I must admit that my long-term record of short selling on the wealth side is not as stellar as my long-term record of going long, and last year's results will clearly show this. Out of 37 long-term wealth plays in 2009, only 1 loser was experienced. This stellar record lead to me being granted the 2009 International Trader of the Year award in Germany. Guess what the single loser was? That's right...the only short stance I took the entire year. Had it not been for that one short stance, I would have met my ambitious goal of producing 100% winning plays for the entire year. Despite this single loss, the portfolio was up over 300%, but that is besides the point. On the wealth side, my accuracy drops a bit when going short. So what does this mean? You've been warned. That's what. (smile).

Trading For income

Oddly enough, when I trade for income (micro, intra-day trading), this drop in accuracy does not exist on the short side. In fact, I'd go as far as saying that my accuracy on the short side is slightly higher than my accuracy on the long side. What's more, my short positions usually make far more money than my long positions in the short-term arena. In a way, this makes sense. Stocks and other financial instruments usually fall harder and faster than they rise, which confirms the fact that fear is a more powerfully abrupt emotion than greed. They both have equal power in the end; however, one takes its time, while the other typically runs and completes its race in a shorter period of time. In essence, Greed is a jogger and Fear is a sprinter. This should largely explain why the wealth trader should be largely biased on the long side, since one's plays are geared toward the jogging pace, while a healthy short bias intra-day rewards quickly and handsomely, at least a higher percentage of the time. 

The Shorts

With that being said, let's take a look at the three new short positions that were initiated yesterday. I'd also like to introduce a fourth one that cold trigger as early as today. Click on the two links below, sit back, listen and learn when and why I entered these positions, why I like them so much and what I'm looking to do next with them. Let's go!

Short Plays - Part 1 (click here)
Short Plays - Part 2 (click here)

How to Hedge a Large Portfolio of Longs

Hedging is a very integral part of portfolio management and is used virtually everyday by mutual funds, money management firms and hedge funds of all sizes.  It is defined as "protecting oneself from losing or failing by a counterbalancing action." Today's issue deals with two plays whose primary function is to hedge my rather large long portfolio. In other words, these plays are designed to counterbalance the longs with short positions. However, thanks to some of the newly designed reverse ETFs, I'm going to go short the market, by actually going long. Here's how.

Ultra Short S&P 500 ProShares (SDS) seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the S&P500 index. In other words, if the S&P500 index were to drop by 5%, SDS would rise by 10%, before fees and expenses. In the real world, you don't exactly get 2 to 1, but anything better than a 1 to 1 ratio is workable. So, by buying SDS, you are actually putting on a double short of the S&P 500, which is largely the market as a whole.

The Ultra Short Dow 30 ProShares (DXD) works the same way. It seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the Dow Jones Industrial Index. A buy on DXD is effectively like going short the Dow 30 Index twice.

While these items are not the best long-term vehicles, meaning they are not appropriate as wealth plays, they are essential tools when hedging is needed. If my portfolio drops by a factor of 1, but my hedges go up by a factor close to 2, than I'm partly protected. Add my strategy of selling calls on the long positions at the same time, and it is possible to turn market down turns into big money generating events too. Imagine that. Imagine making money when the market goes up and also raking it in when the market goes down. 

Once The Velez Opportunity Report is privatized, I intend to delve deeply into all the strategies that have been making some of the wealthiest families, foundations and firms even wealthier decade, after decade, after decade. There are laws that govern wealth accumulation, and there are strategies that help one use those laws to ones's advantage. My wealth traders will know those laws and the strategies that back them intimately. For now, let's get to the hedge plays. My intended actions are detailed on the two charts below. Enjoy.

The Hedges

A Time to Remember

Time: The Greatest of All Commodities

Time, the most valuable commodity of all, has become scarcer, despite the many advances in technology with which we've been blessed. Many fail to realize this, but the purpose of most technologies is to save time, which is suppose to add to the quality of the human experience. Not many decades ago, the world was largely agriculturally based. The work day for most farming families started long before sunrise and ended at sunset. After a little dinner and perhaps 30-minutes of story telling, the lights went out in the household to rest up for the entire cycle to begin again. I know this cycle all too well because I lived it each summer during visits to my grandparents' home.  

Technological advancements over the years have managed to shorten our work day, adding more leisure time to our lives, which we have in turn crammed and cluttered up with a myriad of useless things. Only those who have greatly resisted life's tendency to eat away at our most precious commodity (free time) have managed to preserve a portion of it free and clear of the madness. For me, this protected and preserved "me" time occurs each day at the gift of dawn. It is a time when silence is profound, a time of innocence and soft thoughts. Simply put, it is the childhood of the day.

I don't exactly know why, but the dawn brings about deep reflection for me. It always brings about a gentle remembering. As I walk to my large picture window to greet the day, I often find my mind wandering back to the tender days of my childhood, milking my grandparents' cows, feeding the chickens and playing with the livestock. I believe that my deep affection for trading commodities today stems from this gleeful period in my life when nothing else mattered but the playfulness of the heart. 

With the memory of my grandparents alive in my heart, I take my morning cup of coffee in both hands and lift it ever so slightly toward the dawn. I am alone; there is no one to see. This is my private gesture - my acknowledgement, my offering, my moment of thankfulness for the gift of this awakening day. With this simple gesture, I raise this common act from routine to ritual, and invest my day with a attitude of praise. I am blessed. I am blessed. I am blessed.

The Other Commodities

I'm not sure if you've noticed, but in the little treatise above, many of the commodities I am interested in or have trades in were mentioned. Milk, Live Cattle and Coffee, all of which appear below. I have found that many have forgotten the calls I made on these, largely because some readers appear to be only equity traders, and therefore nix the commodity mentions. This is a very big mistake, because it negates the biggest value one can derive from The Velez Opportunity Report, namely Education and Knowledge, which is the truest form of wealth. 

There is absolutely no doubt that the plays I've chosen for The Velez Opportunity Report have been enormously profitable, and I see no reason why the same level of profitability will not continue in the future. But profits, after all, are fleeting. Once they are had, they are gone and in a sense cease to exist.  However, the knowledge that produced those profits is priceless and lasts a lifetime. The hen that lays golden eggs is far more valuable than the eggs which it lays. In the same fashion, the knowledge that produced the profits in EK, MNKD, BAC, GCA, PACR, TOL, CLRT, DGP, Gold, Cotton, Crude Oil, Live Cattle, the U.S. Dollar, etc, just to name a few, is far more valuable then all the gains from these combined. Knowledge is power and while profits can dissipate, knowledge is yours forever, and it rewards forever. Do not forget. It's always a time to remember. 

With that being said, below you will find updates on a few of the commodity positions taken a while back. Try to glean the little nuggets of wisdom and the lessons inherent in each. Go back to the original mention to flesh out the reasoning behind some of them. This practice is likely to reward you handsomely during your membership to The Velez Opportunity Report. Enjoy!

The Commodity Updates 

     

An Open Play Weekly Update - Equities

Last week was another very profitable week for the Velez Opportunity Report, as many of the plays we've been carefully building and nurturing over the past few months continued to roar. Eastman Kodak (EK), now up over 125% from my lowest buy point, tipped above $8 to reach a 52-week high. Pacer International (PACR) another 100% plus gainer began to reward again and Toll Brothers (TOL) exploded out of the box right after my second add. Even my beloved MannKind (MNKD) began to show us some love again. I'm determined to demonstrate that MNKD will deliver total gains for the Velez Opportunity Report in excess of 1,000%. We've already captured 900% or thereabouts. Another double brings us to that much coveted goal. It will be had. 

Gold and silver performed well last week and as a result so did our DGP, CEF and SLV holdings. I remain elated about the future prospects for these two metals and will not let them go. Stay tuned for renewed futures plays in this all-imprtant sector. The metals will not die, much to the chagrin of the monetary scientist who regard it as the enemy of their fiat currencies. I will continue to make this area the cornerstone of my wealth building activity for the foreseeable future.

Amidst all the good, the week was not without its challenges, however. Qualcomm (QCOM) gapped down several points after an initial 1 lot buy initiated days before. It's been a long while since such a challenge has emerged, and I for one say, it's about time. Admittedly, gaps against my position never feel good, but as long as they occur above key support and remain controlled, in the long run they often prove to be gifts in disguise. Watch how I masterfully work this play over time. You're going to be amazed, if you have not seen me methodically work a scenario like this for huge profits. 

The Updates

The below video updates reveal some of the actions taken intra-week along with some of my thoughts about what's next for these positions. Sit back, listen and learn as I delve into the inner workings of professional wealth accumulation.

The second buy into Toll Brothers (TOL) early in the week could not have been more timely. In fact, the move was so vertical, it ignited a quick profit taking sell action, which I explain in detail in the below video. Listen carefully. Toll Brothers Update (click here)

Abbott Labs (ABT) brought about two buy actions last week, which is rather rare. The accumulation phase has gotten off to a busy start, revealing that this is likely to be an active, exciting play as it develops. Listen to what is likely next in the video below. Abbott Labs Update (click here)

MannKind (MNKD) looks to be in play once again, after its monster gap down from the mid $10 area last month. Listen to my brief explanation of how this play is going to be worked for another double.
MNKD Update (click here)

Qualcomm Inc. (QCOM) caused a bit of a ruckus last Thursday as it gapped down just two days after we nibbled on the shares. But over time, I believe this will prove to be a gift in disguise. Sit back and listen to how I plan to not only salvage this play, but turn it into an even bigger winner.
Qualcomm Update (QCOM)


In the next issue of the Velez Opportunity Report, I will be updating the commodities/futures part of my portfolio. Many interesting things have happened with Coffee, Oil, Gold and Natural Gas, and they warrant a through update. Stay tuned.

The Life and Times of The New York Times

The Publishing - Newspapers sector has literally been on fire as of late. I actually believe that this rather antiquated business model is finally beginning to find new outlets of exposure and new was to generate revenue in the new internet-based world. Gadgets such as Amazon's Kindle and Apple Inc.'s new iPad are breathing new life into this old medium and the nearly unbelievable rallies in the sector's first and second tier stocks prove this. Take a look at WPO, NWS, JRN, MNI and LEE, just to name a few. These symbols show the sudden interest by big monied institutions and it's just the beginning.

The New York Times (NYT) is my pick amongst these for a variety of reasons. The main one stems from the fact that NYT recently broke above key price resistance. Every initial breakout begs the question, "Is it real or just an anomaly, a fluke?" Initial breakouts are proven to be real if they are rather quickly followed by a secondary showing of strength, and that just happened to materialize yesterday. Fifteen-minutes before the close (a period during which most institutions sneak into their positions in an undetected way), The Velez Opportunity Report took an initial position, adding it to its winning portfolio. I'm looking for a rather easy double from current levels over time and will be using pullbacks to add to this position. At the current moment, I'll be operating with no set protective stop, but that is likely to change in the near future, once I see more. 

The $64,000 Question

Let us not forget that the $64,000 question on Wall Street is, "When is a pullback an opportunity to add more, and when is it a reason to run for the hills, to get out?" Wealth belongs to anyone who can answer that question correctly with a great degree of regularity. The recent action in NYT tells me that the institutional interest in the stock is so strong that dips will only be viewed by them as chances to gobble up more shares at a more favorable price. Remember, the big boys can't buy all at once. They must ease into their positions over time, and do so artfully enough not to tip their hand too much. My incremental accumulation approach is a throwback from my institutional trading days, and as the many 100% winners in The Velez Opportunity Report show, it works. So, in short, I will be right there, panting, even salivating, at every dip, every pullback, ready to pounce. Stay tuned and get ready for the ride. It's going to be an exciting one.