Last Monday, I bought AbbVie Inc (Symbol ABBV) to bring it up to 22% of my holdings so that I could write covered calls on it. (ABBV C 01NOV19 78.00 US, that is, expiry date Nov. 1, strike price $78.00)
Normally, I confine my options selling (only sell, never buy options) to 5% of my holdings unless I see favorable mispricing. Last week ABBV options looked like such a situation. At a bid/ask range of $1.18/$1.21 on a $78.00 stock, that worked out to 1.53% per week!
By expiry date, the stock was trading above the strike price and I was assigned, that is, the stock was called away and I had to sell my shares below market price. That means that had I not sold covered calls on ABBV and simply held the shares, I would have done better.
I am reminded of J.P. Morgan’s quote (also attributed to Bernard Baruch) that you see above.
The required sale of AbbVie Inc. shares now puts me at 57.90% in cash and near-cash (11.90% cash and 47% TDB166, a U.S.money market fund). My usual 50/50 asset allocation is currently 7.90% overweighted in cash.
TDB166 now yields 1.68% so I will convert all the cash to that money market fund but, otherwise, I will leave the near-cash-heavy position as it is until I see an interesting derivatives opportunity.
Recently, the market has gone up enough that investors might consider re-balancing to their personal asset allocation.
“Warren Buffett’s mountain of cash may be a warning to investors that stocks are overvalued and that a crash is around the corner.
“The investing guru’s firm, Berkshire Hathaway, held a record $122 billion in cash at the end of June.
“The conglomerate’s cash is worth nearly 60% of its portfolio of public companies, the largest proportion since before the financial crisis.
“One of Buffett’s favorite yardsticks suggests the US stock market is more overvalued than it was at the height of the dot-com bubble and just before the financial crisis.”
Monday Morning Millionaire Program (15.5% annual return since 2012) members might want to review their asset allocation and even considering adjusting it to lower the percentage of market holdings.
Please note that the Monday Morning Millionaire Program contains opinions only. It does not provide any investment advice or endorsements.