As the saying goes hindsight is 2020, so are we all great to see 2020 in the hindsight! The first two weeks of 2021, however, do not seem any different from what the bygone year looked like! Covid-19 is on tear unabated, the economy is still suffering, infact, the non-farm payroll entered into negative territory for the first time since April of last year, and the markets have continued their relentless march upwards! Add to all that, in the first week of 2021, we saw political turmoil with the unprecedented (almost a cliche word at this point in time) attack on the Capitol!

The money printing by the Feds has continued into 2021 with the 900 Billion dollar stimulus signed by then President Donald Trump is now followed by yet another announcement of a stimulus bill on the order of 1.9 Trillion Dollars by the in-coming president Mr Biden! The impact of all this cheap money and the surprising lack of observable-inflation has lead the markets on tear and the signs are everywhere!

With debt being cheap and no prospect of inflation in sight, money has flooded stocks with future prospect of earnings at the behest of high-quality stocks that are actually cash-flow positive today. Ed Harrison of Real Vision put it perfectly in a recent Real Vision Podcast, its DCF stupid!

Will inflation ever rear its head again? I sure believe so. For starters, it is in the interest of Governments and central banks all over the world, more so in a consumerist society such as the USA. For starters, inflation promotes spending and thus a healthy consumer economy. If I know my dollar bill be worth less tomorrow, I would rather spend it today. Another reason being, inflation helps eliminate debt! This is because, debt is fixed in nominal terms, rising inflation, which leads to increase in price of goods as well as wages makes debt less so in real terms.

While being fully aware that making portfolio decisions based on estimates of future macro environment is probably not a good idea, it just so happens that valuations are still relatively cheap on inflation trades and I have managed to add a few buys into my active portfolio.

Before I discuss my recent trades, I have to update on my Tesla short trade! Back in Nov of 2020, I put on a short position in Tesla, when it was trading at ~$500. My rationale for the short trade was that the two big markets events surrounding the Tesla story, i.e., inclusion in S&P 500 and the stock split had already been priced into the stock and that there were several other speculative positions vying for retail money! It did not take too long for me to be proven wrong and I am totally out of my position, down 50 % on the trade!

Suffice to say, I am not alone! Michael Burry of the Big Short fame, put out the following tweet recently:

“Well, my last Big Short got bigger and Bigger and BIGGER too….$TSLA $60 billion increase in market cap today alone…1 GM, 2 Hersheys, 3 Etsys, 4 Dominos, 10 Vornados…enjoy it while it lasts”

My bearish thesis on Tesla remains unchanged however. Unfortunately for me in the short term the trade has moved beyond my expected loss threshold and there is no saying how far the stock may trade up before it eventually collapses! May be in the future rather than pure short trade, I should consider a bearish put (or a bearish call) spread, which would atleast keep the losses finite, should the trade go against me.

Getting back to my newly added long positions, I added to my position in Gold by buying two gold mining firms, Barrick Gold (ticker: GOLD) and Kirkland Lake Gold Ltd. (ticker: KL).

Barrick Gold: Back in August, the news hit the wire when Berkshire released its second quarter 13F filings, which showed that Warren Buffet purchased about 20.92 million shares of Barrick Gold.  The trade seems very much not-Buffet, given the fact that Buffet has for a very long time harped on the lack of utility for gold as an asset producing entity. The third quarter 13F filing by Berkshire showed that the firm has reduced its position in Gold by about 42 %, suggestive of the fact that may be it was never a Buffet trade, but rather a short term speculative trade by one of Buffet lieutenants.   Regardless, once I made the decision that I would like to have an exposure to gold upto 10 % of my investment portfolio, buying Barrick Gold miner of all the miners out there was some what of a no brainer decision, especially after the significant correction that we witnessed in later Nov of 2020.  I purchased 1000 shares of GOLD at an average purchase price of $22.5 per stock.

Kirkland Lake Gold Ltd: KL has been a contrarian value play for me in the space of Gold miners. KL has been one of the worst performing stocks in this space for the past year, being 5 % down for the year (2020) relative to a 24 % gain in gold miner index ETF, GDX. Unlike some of the other mining operators (eg. EAF), KL operates in jurisdiction with strong governance, i.e., Fosterville Mine located in the state of Victoria in Australia and the Macassa Mine located in the municipality of Kirkland Lake in Ontario, Canada. Share dilution resulting from KL purchase of Detour Gold coupled with the fact that KL would be scaling back annual gold production at Fosterville Mine has resulted in the stock trading almost 30 % below its recent highs!  However as the 4th quarter numbers show, KL has managed to increase overall gold production for the year by over 41 %, thanks to its recent purchase of Detour Gold.  KL has extremely strong balance sheet with numbers on ROIC (23.1 % vs. 9.1 % for GOLD), gross-margin of 73.7 % relative to 38.1 % for GOLD and is trading at a relatively cheap EV/EBIT multiple of 8.3X (vs 9.9X for GOLD).

Another point worth noting for my KL purchase was that the trade  happened through a covered put sale on the stock, which went in the money on the expiry date! I sold 10 put option contracts at strike price of $40 for an expiry date of 01/15/2021, to collect premium of $1.85 per contract. As noted above, the stock went in the money on 01/15/2021, and my put contract was exercised resulting in me purchasing 1000 KL stocks for an effective price of $38.15 ($40-$1.85) per stock.

Twitter: The last buy trade for my portfolio was Twitter. I have only recently become aware of the power of Twitter (I know, Mr Trump has been using Twitter as a forum to reach out to his audience for the entirety of his presidency), when I heard of the bullish case on Twitter by Elliot Turner on the Aquirers podcast. It just so happened that earlier in the year I heard of another very strong bullish thesis on Twitter by Aaron Edlheit on Guy Spier’s podcast, Cappuccino and Coversation with Guy Spier. Twitter has been on my radar since that interview and I have also personally started to actively follow the FinTwit thread on twitter and am more than convinced of Twitters value proposition.

Last week on the news of Trump ban on Twitter, the stock took a massive drawdown and I could not resist to put on a small position in the stock. I ended up purchase 200 stocks at an average price of $48.46 per share. I will try to average down into this position, expecting eventually to settle at about 3 % of my portfolio.

Video/Book/Article/Audio for the Week

• Books: Jack Schwagger released his new market wizards book, The Unknown Market Wizards.
• Article: For personal finance (FIRE) nerds, the safe withdrawal rate is the holy grail to deciding when to quit. I came across a recent article, that should provide quite a bit of encouragement to all the folks pursuing the path of FIRE and early retirement.
• Video: Excellent Cliff Assness (of AQR capital management) interview on Bloomberg
• Video: Yet another cannot miss Mohnish Pabrai interview with Prof Tanos Santos on Value Investing with Legends Podcast.