Samwise Model Portfolios
The portfolios below are separated by launch dates. Each portfolio is entirely independent and has no bearing on any other model portfolio. We launch entirely new portfolios during each market correction as an illustrative tool for new subscribers who weren't present during...
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the rally has continued for several weeks and accelerated since the elections seems to me to be an abnormal euphoric configuration… this smells like a significant pullback or even a mini crash because the overheating and the flows are there…
Maybe. Though it’s probably not best to be bears. I will say, that there will always be an opportunity to buy on correction. The QQQ has now rallied about 21% from its lows in August and 15.2% from its lows in September. So while there’s more upside ahead, we will see a 10% correction soon (within the next 3-months) and there will always be an opportunity to buy during those corrections.
Nvidia will see a huge correction as we’ve seen several times in the past. Nvidia corrected from $970 down to $750 (22.68%) from $141 down to $90 (36%) and again in September from $130 down to $101 (24%). So there will be opportunities. When this rallies ends, Nviida will sustain another major correction opening up another opporutnity to buy.
Thanks Sam.
normally this drop should occur before the publication on November 20 or just after as was the case previously and as you rightly point out before exceeding $150-$160. You do not seem to see this and at the same time you mention a future and necessary correction. Given the number of bullish sessions since the decline in September and early October, the sharp decline is close, right? that is to say before the end of the month if I count the number of bullish sessions correctly.
Hey Karl. So take a look at the time cycle. The QQQ is up 68 days since August 5 and 45 days since the September lows. That’s still on the shorter side of the time-line.
Last year, we saw TWO rallies where the QQQ rallied for nearly 100 days. And technically speaking, the QQQ had a correction in September. So we may be looking at this from a 45-day point of view.
I updated the Rally-Correction table that goes back to 2010. This table shows EVFERY SINGLE rally and EVERY correction going back to 2010. I sorted for you by “duration.” This current rally that started in September is right in the middle. It’s not too long yet and not at the beginning either. See for yourself.
Notice by 2023-2024 standards, this rally is still very short. We had a lot of long rallies these past two years.
But I will say this. This one is very usual. That’s becuase the QQQ began its rally on August 5 when the QQQ hit $423. It’s just that the QQQ sustained another correction relatively soon after that first rally began. We went from $423 on August 5 to $485 near the ned of August to $447 in early September to where we are now.
If the QQQ had not pulled back 8% from $485.50 down to $447, this rally would now be 22%. That’s about how large and long the April rally went for. That’s bout the same size and duration as the rally in April that lead into the July-August correction.
So it’s very possible that we could be setting up for a correction sooner this time around.
Though I should warn that Presidential elections have had a very positive and lasting impact on the market. last time Trump was election, the market skyrocketed for several weeks on end before seeing any sort of a pull-back.
The stock market just broke out of a long consideration range too. When taken together, the bias is to the upside right now.
Since you are starting new portfolios in every correction, there hasn’t been much opportunity that I’ve seen to discuss exiting positions (outside of the covered calls discussions). Assuming that most investors would have a defined bankroll and not an endless supply of capital, how would you handle the portfolios?
Would you exit your positions at the presumed peak, as to allow re-entry at the correction in order to take profits and maximize gains?
Or under your method, do you feel that a well established position should run its course, adhering to the two year rule?
If it’s the latter, it may be beneficial to speak to this in the context of the 5k to 1M challenge, where exiting positions for re-entry are necessary in the strategy itself. At what point would you liquidate to cash and how might you go about it? I would love to understand your point of view on this.
Hi C G — thanks for the comment and questions and these are good questions.
So let’s talk about the portfolios and their purpose. One way we could have run the newsletter is to just have one portfolio and that’s that. But I quickly realized early on that doing it that way wouldn’t have been very helpful for anyone who wasn’t around when we made the initial purchases in those portfolios.
By running multiple portfolios, we’re able the demonstrate entire process assuming different entires into the market. Say someone comes into $100k cash today. When should they buy? How long should they hold? How do they hedge and manage? These are all questions that would be answered in the formation of a new portfolio. That’s because entries and cost-basis matter a lot.
For us, we believe the best time to enter the market with new capital is during corrections. So from a pragmatic point of view, it makes sense for us to start new portfolios at each correction and then manage those portfolio entirely separately as if the others don’t exist. The portfolios have nothing at all to do with one another and our plan is to manage them entirely operate for as long as we run the newsletter.
For some people, following the progress of the Lannister portfolio may matter while the Arryn and Tarly portfolios might be entirely useless. So that’s the general purpose behind the portfolios and our how we plan to sort of manage them in the future.
Now let’s talk about this other question:
So here’s our general thought process regarding exiting positions in the portfolio. We have no planned exit and that was the entire point we made in Part IV of Chapter 1 of Investing Basics. Read this part here from Chapter I, Part IV.
Here’s our strategy. Our strategy is to hold onto ultra long-term positions and slowly return our capital back to us through the sale of covered calls.
For example, we bought Nvidia at around $100 a share in a few portfolios. If we sell covered calls for $10.00 per contract on 10 different occasions, we’ll have paid for our entire Nviida position right? We’ll gotten back all of our money over time and essentially own a free long-term Nvidia position. We could then use that capital toward new investments in that portfolio.
If there’s a reason to sell the position due to it become overvalued or due to a bubble scenario, then we’ll do so. Like if Nviida ran to $250 a share, we’d cash out. Maybe not by selling the shares, but we might DITM long-dated options that are roughly that much money. We’d put on a massive hedge such that we’d return most our capital back allowing us to essentially profit without realizing our gains.
But strategically, we want to hold our positions for as long as possible due to those five paragraphs you read above. Ultra long-term is where you want to be. Think about where the QQQ was just 5-6 years ago and look at the price of various stocks. Go back 10-years. Notice the wealth generation.
Thank you for your reply and honestly, all of your insight. I do remember reading that in Chapter 1 and I greatly appreciate you expanding on that here. I am curious, though, how that works for the riskier strategies with the options, as I’ve found myself doing well with these leveraged positions.
It might simplify things if I just speak within the context of the challenge. How would it work when you intend to go to cash, as you mentioned in the 5K to 1M post, in order to prepare for a repositioning? Do you try and time the peak as best you can, or do you lean more towards riding out the options until their expiration, a certain DTE range, or a certain percentage of profit? If you were expecting a correction, I assume you might consider timing the peak with a profit that you’re happy with so you can be ready to go all in again when a new bottom reveals itself? If you have a moment to give your thoughts on how you’d approach that, I would be grateful. Thanks.
Oh shoot. I forgot to answer that part of the question. So with the challenge, we are going to employ a very specific strategy that does involve timing.
So let’s consider the trade we almost put a week or so ago when the QQQ was oversold and trading down near $484. We were so incredibly close to pulling the trigger and had we done so, we’d be up a good amount. Let’s go back and look.
I was looking to buy the January $135-$145 Nvidia Call-spread at $4.00 per contract. See the October 31 Daily Briefing. We wanted to buy 5 contracts in the $135-$145 call-spread at $4.00 and then hedge that by purchasing the Nvidia November 15 $130-$115 put-spread at $3.00 x 1 contract ($300.00).
So we wanted to spend around $2,300 for the entire position leaving $2,700 in cash. Let’s think about how that might have played out now.
The November $130-$115 put-spread is now worthless as it should be. It’s a short-term hedge designed to protect us if Nvidia had immediately rolled over and it would have paid off big-time had Nvidia fallen under $130 a share. That’s a $300 straight loss.
Now let’s take a look at the $135-$145 January call-spread. That position is now trading at $6.30. We’d be up about $850 overall right now with the loss in our hedge. That position is currently worth $3,150. We invested $2,300 (with the hedge). That’s a 37% gain.
Here’s what we might do given what we know today. We could either buy another hedge that protects our position from here at $147.63 that expires in a few weeks or we could have sold our position.
Chances are, we’d probably add a new hedge and then hold that spread into earnings. Once Nviida reached earnings, we’d probably sell the position hopefully near $7-$8. It would really depend on where Nvidia was trading going into earnings and the cost of protection.
Now this is just a small trade. We were focused on trying to make a small amount of money to bump our portfolio higher. An $800 gain gives us $5,800 to work with on the first “real” trade.
Let’s discuss that. In a real spread trade, we’d be buying on a full blown correction. That’s with Nvidia having fallen 20-30% and with the NASDAQ-100 having fallen 10-12%. In that scenario, we’d buy and hold the spread to as close to expiration as possible; or until we reached 100% returns. Here’s how we get to 100%.
Suppose we launched that strategy back in September when Nvidia had reached $101-$103 a share. I really wish we would have because we would have already nailed the first trade no question about it.
If we went back to September and opted to buy the December 20 $115-$125 call-spread at $2.80 a contract x 14 contracts, that position would be trading at $9.50 today ($13,300.00).
Had we bought $4,000 in the spread (as intended with the 80/20 strategy) and $1,000 in a hedge, our overall position would be wroth $13,300 right now. we would have probably sold at $10k a few week ago as we would have already reached our 1st goal.
But that’s how we plan to execute the spread-trade. the trades are going to be ultra short-term in nature. we’re capitalize on that snap-back rally after a correction. Buying a $10 spread roughly $15 out of the peony would cost us anywhere from $2.50 to $2.80 per contract. At $20.00 out of the money, we pay $2.00-$2.25 depending on time to expiration. I generally go after that $2.25-$3.00 price range because we double our money at $7.00-$8.00 which quickly happens when the spread goes $10 or so into the money.
That’s the general strategy.
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In terms of our options positions in general, our plan is to either use DITM covered calls to essentially “close out” the position and then use the capital to roll to future expiration or we might just sell the leaps altogether. We’re not at that point. But there are various stagey we plan to deploy for closing out our LEAPS in teh leaps portfolios.
Thank you. I greatly appreciate it.
Sam, why is your predicted path for QQQ going up to around $525 (for simplicity), down a 2% pullback, and then back up to $525, rather than going up to $550 after that pullback?
Hi Eric — I could probably be a lot more clear and I’ll update the Outlook to be crystal clear on this.
So we have different time-frames going on here. I’ve posted the “Intermediate-term rally” table several times here on site. What we’ve shown is that there’s a tendency for the QQQ to rally 20-30% over an average period of 70-100 days. This has been going on since like 2010 at least. It probably goes back further. That is the general cycle — even within bear markets. The sell-offs are just bigger in bear markets.
Intermediate-term
So in terms of the “intermediate-term outlook” we believe the QQQ will peak at somewhere in the $540-$550 area. That would represent a 23-30% rally depending on where we’re counting from. There are arguments to be made to count from $423 and arguments to be made to count from $447. So that’s where the believe the QQQ is ultimately headed before it finally sustains a $50 correction back down to $500. That makes sense. $50/$550 is around 10%. And the $500 is major support, so that makes sense all around.
Short-Term
On a short-term time-frame, there’s also a trend that we’ve shown. The “segmented rally” trend. I call it segmented rally because the QQQ (and SPY) tend to complete thier longer intermediate-term rally of (20-30%) in segments. Generally speaking, we see 2-4 segments that each run roughly 8-10%. These segments typically unfold over a peered of 10-15 days on average and when they end, we tend to see a 3-4% pull-back over a period of roughly 5-days. That trend has been happening quite consistently since the lows of the 2022 bear market. We’ve seen something like 15-20 of these rallies.
For the short-term, the QQQ bottomed at $483.75. At $525 a share, the QQQ will have rallied 8.75% over 10-days. At $525, we start to get really close to that 3-4% pull-back level.
We also showed that the QQQ has a tendency to continue moving higher on heavy momentum. Imagine a car hitting a huge jump on a cliff. It’s going to continue rising until the upward momentum slows right? We get the same sort of things with stocks. I think that’s a perfect analogy actually. Think of a car going 200 mph. It has to slow down before it can come to a compete stop. The complete stop is the peak. The high RSI chart we posted today indicates that the momentum is still moving forward. That means we should see a little more upside, a small pull-back, a retest or more highs ahead and then a short-term peak (3-4% pull-back). Getting the precise numbers isn’t easy. What we can say with confidence is that the QQQ likely sees more upside after a small blip (0.5-1%) followed by a larger pull-back (3-4%) and that we’ll probably see something like $522-$527 range at the peak ahead of the 3-4% pull-back. The high RSI means higher prices, small blip (1%), higher high and finally larger pul-back (3-4%). That’s the process.
That larger (3-4%) pull-back leads to the next segmented rally that takes us up to $550 perhaps. So for example, we may go from $525 down to $505 followed by a $45 rally up to $550. That $505 to $550 is a separate segmented rally lasting 10-15 days and 8-10%.
That makes sense, thank you very much for your detailed explanation.
I need to come up with better terminology for smaller segmented rallies (10-15 days +10%) and longer intermediate-term rallies (70-100 days and +20-30%). That’s where the confusion often lies and it’s generally my fault for not fully elaborating
Both TSLA and PLTR have been on a ridiculous tear. I’m assuming these are way too speculative to be touching at the moment?
So I can only really comment on what we would do. For us, we’re more interested in buying opportunities. I generally don’t trade momentum. I try to get in well ahead of the momentum and then capitalize that way.
Momentum trading has its merits to be sure. Some people do it really well. We’re more contrarian buy opportunistically in corrections and wait for the market to rally/recover to capitalize. August/September is where we thrive
We wanted in Tesla badly. That one was ripe to blow up. PLTR is too speculative. Generally speaking, we can generate the same amount of money without having to worry about the fundamentals at all. Like Tesla is a good example of that. Using leverage, we can generate the same returns that PLTR generates but without having to worry about whether the company will meet expectations or become an SMCI ($122 down to $20).
Without having a full and near perfect understanding of the fundamentals — and even with that understanding — there are a lot of risks that come with investing in PLTR (and companies like it).
I’ve stuck to leveraging mega caps and index ETFS. There is far more visibility in these enterprises than there is in the small and mid-cap space.
Hey Sam,
I have two questions:
1. I would do the challenge with 2500$, would it be easy to „convert“ your trades to that amount?
2. What was your threshold for ASML to become interesting again? It got as low as 650$ last week.
Thank you
(1) that’s hard to say ahead of time but it should be okay. It depends on the cost of the spreads relative to the cost of the hedge. Sometimes it could result in odd dollar figures. But since $2500 is half of $5k, it should work
(2) I was watching ASML last week, but it hasn’t really pushed into oversold territory yet. I’d like to see a low point on oversold conditions followed by a retest of the lows.
Is it just me, or is this market going full FOMO mode?