Let's Go Splunking - Splunk Inc (NASDAQ: SPLK)

I finally get to write about a stock in my line of work -- CYBERSECURITY! So awhile back, I was tracking the DMs of a few friends in my Mansa Musa Network. I don't recall which ones, but it may have been my guys from the A-Billi squad: Mario Gabelli (Gamco Investors) or Jeffrey Smith (Starboard). But long story short is SPLUNK had been underperforming in the stock world. In the regular world it's like the person that has been single for too long and is finally looking for someone to "Put a Ring on It". So, like the horrible reality TV shows of today, they announced they were looking to hook up in a very public way. I saw my buddies mentioning the value in SPLUNK, but I didn't pull the trigger early on. I was tardy and finally decided to pick up some shares ONLY when they finally announced they had found a partner. This partner was the deep pocketed company, called CISCO. They are well known for their enterprise networking and routing equipment. If you don't know what I'm talking about, it's the device most people attach to their home network for internet that allows you to have wireless or WIFI service.

Definitely do not quote me because it has been a while, but I believe the buyout price was set at $157.50. So, what I did was use a well-known trading strategy on wall street. You've heard me refer to it before at the arbitrage approach. This means if I have high confidence that the deal (or hook up) is going to get done, an investor like me can benefit from the "spread" or difference between the price of when the deal is announced and what the final buyout or hook up price is. The risk becomes IF the deal does not get done (if the bride is left at the altar), this situation becomes a train wreck. Is this possible? Yes, it is --- see my posts on Tegna. This deal was thought to be all but certain and then the FTC stepped in and said the deal was harmful for customers across the country. So, you saw a stock go from $17 to nearly $22+ and come all the way back down because the deal was under investigation and ultimately canceled.

Now back to SPLUNK. I wanted to show you all what corporate governance looks like and what ownership looks like from an investor's standpoint. I got an email telling me it's time to vote on whether I think the merger should occur. I've pasted that screenshot here. I hope and believe this means we are one step closer to closing the deal. This is a great example of how hookups can help your portfolio.

What I'm Watching - Elon Musk + Twitter Acquisition

 Many that know me will attest that I'm a matter-of-fact person who is stubborn when I feel like I've done my research and feel confident about a point that I'm making. When I'm making a point, I try to come up with my thesis first and then I look for evidence supporting or denying my position. I guess this would be similar to a poker player attempting to determine what hand their opponent has prior to making a betting decision. While human nature lends me (and us all) to usually sticking to our point of view, I tend to seek out articles, videos, and also feedback from my inner circle and my Mansa Musa network to pressure test my point of view. Like traveling through a car wash, pressure testing my thoughts involves me finding viewpoints that may differ from mine and cleaning up my thesis.

Thesis on Twitter

Twitter has been one of those few "investments" you've seen me write about recently. There is nothing magical about my trade except for the fact that I believe Twitter was a valuable position once Elon declared he was interested in purchasing the company. I gained more confidence as I learned about the terms of the investment and how the requests for data were provided to Elon. 

So, let's fast forward to last week as I finally got the news I had originally expected. Last week, Elon Musk's lawyers reached out to Twitter requesting the trail be put on hold and that his investment in the company would proceed as previously communicated. In basic terms, Elon either saw or was advised that the outcome may not be leaning in his favor. I'll keep an eye on Twitter and Elon news as I look forward to Elon finalizing the acquisition. 

Full Disclosure: I own Twitter in both my personal and retirement account portfolios and picked up this position AFTER Elon discussed his interest in purchasing the company. I've traded TWTR before and those positions were small but profitable (but I'll do some research to confirm how profitable). This is a simple arbitrage play. Elon says he was going to purchase the company, so I built a small position banking on closure of this deal. 

#arbitrage #Urbanomics #Twitter #ElonMusk

The Stock Market is Falling - Will I Be Gone 'til November??

Every time I make a run

Girl, you turn around and cry

I ask myself why, oh why

See, you must understand, I can't work a 9 to 5

So I'll be gone 'til November

Said I'll be gone 'til November, I'll be gone 'til November

Yo, tell my girl, yo, I'll be gone 'til November

I'll be gone 'til November, I'll be gone 'til November

Yo, tell my girl, yo, I'll be gone 'til November

January, February, March, April, May

I see you cryin', but girl, I can't stay

I'll be gone 'til November, I'll be gone 'til November

And give a kiss to my mother

Lyrics by Wyclef Jean

Gone 'til November

Many investors are finally learning that stock markets do not go straight up. I've blogged that when the market was at its hottest, I was getting calls and text messages all day. Everyone was right and every stock they bought went straight up. I just hope that you took some of those profits off the table. Remember, we are building wealth and for some of us generational wealth for the first time and our goal is not to gamble. I learned the hard way many years ago that big gains should be pocketed or banked when you can and I use a crude but simple formula for selling some shares. If I've purchased a stock and it's gone up well, what's wrong with taking my initial investment OUT, then taking another 20% out, and finally letting the rest ride. Example:

Investment: $10,000

Say this Investment Goes up to 30% and you have $13,000 in your account

Sell $12,000 ($10K Initial Investment and $2K Profit Banked)

$1,000 - Let it Ride

I appreciate the calls when you get it right but I also want to hear about how you stacked your chips at the top. 

How did this work out for me? Well, I had help last year and a little bit of luck this year. Some of my largest positions were bought out. Again, a stock getting bought out is like a sports player getting a maximum salary offer from their team or being traded in free agency for a higher salary! So for me, I was luckily able to bank most of my gains. I somewhat listened to my own book because if you recall from a recent article, I showed some discipline and in October 2021 I moved 75% of my retirement account into safety. A few months ago, I moved the remaining 25% to safety as well. I know you want to know exactly what I moved them into. Well I surprisingly found out I have an Inflation Protection investment in my retirement account. If you're wondering whether this helped or hurt, it turns out that from the highs of Q3 2021, my stock portfolio was down roughly 10%...not great but less than what the market fell. That is about as much as I can ask for. In my personal portfolio, I learned that it was built in a barbell fashion and this was great when I wanted to take risk and not so great when the market turned down. I basically had half of my portfolio in what you may call value based safer stocks and roughly the other half were in the high flyer technology stocks.

Positive Positions:

Tegna - is being bought out so even while the market is down this position has not moved materially and should not until the acquisition is made in Q2 2022. I've actually played the ARBITRAGE and added to this position in a down market. This means I buy the stock as there is still a difference between the current price and the acquisition price. I monitor this stock closely but my last update was 87% of the shareholders just approved the merger so I think investment which I own in my personal and retirement account has a high likelihood of closing. 

Negative Positions:

ROKU - I'm glad I traded options against Roku because it was a very hot high flyer and as it went higher I made income trading against my position. Now as the market has dropped, that income trading is all I have to show for it, because Roku has fallen big time. 

Spotify - Spotify has fallen as well and the losses have been big.

When times get tough, I begin to move back to the basics. I look for trends that should work during these times and in my riskier personal portfolio this is where I consider buying stocks. Sometimes I simply do nothing at all. But here is what I'm doing:

1) Watching Warren Buffett - When the market is falling and people are scared, he has been cautious and now entering back in. But what is he buying or adding too, see this summary below:

a) I find it interesting; he is jumping into Paramount a stock I recently indicated had jumped on my radar because it was trading at a discount: Feb 2022 - Paramount Post

b) My Breakdown of Warren's Q1 Buys / Additions:

2) I am trading aggressively and trying to actively get out of any stocks that will not make up a core part of my portfolio. 

3) I've been more active than I've been in a long time. I've been trading:

Oil: Occidental Petroleum, Devon Energy

Arbitrage Plays: Twitter

Stocks that Benefit from Hard Times: Treehouse (maker of store brand products)

I copied Buffett and targeted Oil plays and want to build larger positions here as a hedge and I see he copied me by focusing on Arbitrage plays. I continue to buy Tegna until they get bought out and even purchased Twitter which hope Elon Musk will stop his shenanigans and agree to the original buyout of roughly $54. But is looking at Activision Blizzard, the video game maker, because he too is trying to identify high probability trades that will likely get bought out. I don't want high risk trades at this point and this could be why we both are looking at Arb plays. VMware may be one here shortly as Broadcom has been supposedly slidin' into it's DM and there are a few others bubbling out there.

I've spent way too much time on this post and have to get back at it, but a quick brain dump of what I'm thinking at the moment. Enjoy, trade safely, and #getthebag

RADISYS - Still Room Before the Buyout

Radisys (NASDAQ:RSYS) -- This is a stock that I've followed and blogged about for many years and for FULL DISCLOSURE: I OWN SHARES OF RSYS

If ya don't know now ya know: Radisys is getting purchased by the largest cell phone provider in India, Reliance Jio.  

I quickly knew something was brewing because my portfolio was up sharply that day and my brother even called and asked if I had heard the good news.  While he was talking about RSYS, I was thinking about the fact that he had actually been listening and occasionally reading stocks I track and blog about.  Most investors LOVE an acquisition...and I'm no different.  Oddly, because I've owned RSYS for awhile I have a little HATER in me because I've bought in at higher prices in the past so I will have a loss on some older positions in my portfolio. 

Breaking Down the RadiSys Arbitrage

Arbitrage...I know technical trading language. So to keep things simple, playing the Arbitrage is like betting on whether the top college football player will get drafted with the 1st pick in the NFL draft.  We all know that it likely to happen BUT every now and then...it doesn't happen. 

RSYS is the like the top draft pick and they are being purchased for $1.72 in cash as stated in new releases and in the latest earnings conference call by the CEO.  The stock traded today at the $1.48 level EVEN THOUGH we all know they will be purchased (drafted with the top pick) for $1.72.  Buying the stock now is like getting in on a poorly kept secret -- "The Arbitrage".  But before I pull the trigger on a 16% gain, I have to weigh the risks (ughh sounds like I'm still working):

Geopolitical (Country) Risk: Believe it or not, I had to consider whether either company's government may get involved in nixing the deal. RSYS (American), Reliance Jio (Indian) - I think it's unlikely to get nixed but it should be considered as the proposed deal of NXP Semi & Qualcomm got the backhand from China likely due to their beef with the Trump Admin over tariffs (their deal never got approved).

Financial Risk: I see limited risk here, as it's a very small deal ($74M) and it's all CASH. Reliance being the largest cell provider in India seems to be able to easily close this deal.

Timing Risk: It was announced the deal will close in Q4 2018. It's August, so 1 quarter is not too lengthy in the corporate world for an acquisition.

Upsides: Another buyer could cause a bidding war but this scenario seems unlikely as no one else has come forward. Surprisingly, the latest earning report was very positive so you wonder if the deal could be sweetened.  It's unlikely as RSYS was a penny stock prior to the acquisition.

It's hard to call the last indicator Upside risk but I did want to point out that the CFO bought a large share of stock a few months back which was a very bullish sign.  It's what caused me to follow this stock closely over the last months but sadly I had analysis paralysis and didn't follow my gut which was telling me to load up after that recent indicator.  My final thoughts are this all cash deal will go through and a 16% spread is an opportunity for a moderate gain with limited risk.