More readers’ questions regarding my Intel Stock Put Selling trades. One of the emails I received was about Warren Buffettt dumping Intel Stock. Should I now be worried, the reader asks me in his e-mail. My answer is no. Warren Buffettt buys and sells stocks. I trade options. While I like Buffettt’s investing philosophy, the fact that he dumped Intel Stock does not reflect on my Put Selling. If anything it may increase volatility in Intel Stock which would help drive up option premiums.
Intel Stock Sold By Buffettt
I look upon Warren Buffettt as a normal investor. He buys stocks like Intel Stock that he feels are undervalued and sells them when he believes they have reached their potential. Perhaps Buffettt paid around $20 a share for Intel Stock and sold for $28 which would be a 40% gain. Perhaps Warren Buffettt has other trades he needs the capital for and with Intel Stock up against resistance Buffettt may have felt that Intel stock is going to languish here for some time. Whatever the reasons for Buffettt selling his Intel Stock, I do put selling and would rather see Intel stock in a trading range which suits Put Selling very well.
So short answer is I love Buffettt’s style of investing, but when he sells a stock like Intel Stock or recently Johnson and Johnson stock, I take notice but my strategy works well in a stagnant stock so even if the upside in Intel Stock is limited for some time, my Put Selling will earn very good premiums and that is what matters the most to my portfolio.
Put Selling is a strategy that takes advantage of time erosion. Since options are a wasting asset (they eventually must be rolled, expire, assigned or closed) the concern of what Buffettt does with his stock does not have the same impact that it might have if I was trading the same stock he was selling.
Reader Question: Aren’t You Breaking Investment Rules By Having More Capital In One Trade Than In Others
The concept of having your capital equally spread among stocks, sectors or ETFs, is I believe wrong. Instead I follow a focused investment approach which is obvious looking at my Intel Stock and Yum Stock Put Selling trades. This is the same advice from Warren Buffettt, Peter Lynch and William O’Neil to mention just a few. When I invest I am not just buying or selling a stock, I am buying and selling a business. I believe the best way to invest is to focus my portfolio on those stocks like Intel Stock that I think will provide the best returns for the trade or strategy I am currently employing.
Problems With Put Selling ETFs
This is yet another reason I only trade a handful of ETFs. ETFs are a basket of stocks. Often that basket of stocks is weighted heavier to one stock or a sector than to others. For example the NASDAQ index is presently overweight Apple Stock.
Another good example is the XFN ishares ETF. Below are the top ten holdings of that ETF. It is obvious that this Canadian Financial ETF is not weighted equally among stocks.
ETF’s are not balanced equally among stocks or sectors
Below is the IWM ETF. IWM follows 2000 small to medium cap stocks. Yet looking at the sector diversification chart for IWM below, I can see that the weighting varies within the different sectors of the economy.
My strategy of Put Selling is based upon technical timing tools and charting support and resistance levels in specific stocks such as Intel Stock. Both of these strategies are difficult to consistently apply to ETFs as they are a basket of stocks and sectors. A handful of stocks or sectors within an ETF that fails to perform can alter the timing tools as well as support and resistance levels.
This though is not the case with specific stocks like Intel Stock. Technical timing tools and support and resistance charting works quite well with specific stocks like Intel Stock. Since I use both technical timing tools and support and resistance levels to plot my Put Selling strategy as per my 4 steps to Put Selling success articles, I can focus my capital on specific stocks like Intel Stock or Yum Stock or if I feel a specific sector is going to do well, I do not hesitate to apply more of my cash to stocks within that specific sector and can reduce the amounts invested in other stocks or sectors.
IWM ETF Sector Weighting shows an imbalance exists.
While many investors believe that 5% or 10% to a trade is the golden rule for investing in stocks or ETFs, I have actually found that this method of investing particularly through option trades produces poorer results than a focused approach. I have often wondered if the concept of 5% or 10% to each trade is based on the investor not doing his homework on the stock he is investing in. Buffettt, Lynch, O’Neil and many others caution that the key to successfully investing is investing in areas that an investor understands fully. The company they invest in must have transparent balance sheets, be growing, have solid earnings and have the shareholders value at the core of their business. By doing a bit of reading and understanding the stock being considered for investment, an investor can go a long way to profit from the growth of that company. This has been my approach for all my stocks including Intel Stock.
Warren Buffettt’s Focused Approach To Investing
Buffettt believes he is buying a business when he purchases the stock of a company. In his focused method of investing Buffettt does not believe in the template driven method of investing where a percentage is used per position and then rebalance accordingly. In 1985 for example he had half of Berkshire’s portfolio in Geico Stock. In 1987 he held only 3 stocks and 49 percent of his entire portfolio was in Capital Cities/ABC. In 1990 40 percent of his portfolio was in Coca Cola Stock. In 2001 33 percent of his portfolio was in Coca Cola Stock and 19 percent was in American Express.
Focusing Capital On Put Selling Intel Stock
I take the same approach with put selling. If I believe a specific stock is going to perform better than the rest I will focus more capital on that position. Presently I have more capital at work in YUM Stock and Intel Stock than any of my other stocks. This may easily change next month if another of my stocks exhibits the potential for superior returns. I do not believe in percentages particularly for options whether Put Selling, covered calls, spreads, iron condors or whatever. I believe solidly in focusing your capital in whatever stock, or sector is going to perform the best, Intel Stock or otherwise.