At 4pm ET today, Nvidia flashed a warning sign. It might still be benign, but it’s bad enough that it is absolutely something which we want to control.
As Jesse Livermore said “as the leaders go, so goes the entire market”. Nvidia is the bellwether, it’s the stock holding this whole thing together.
And while it is not a definitive sign, of the 3 signs I’m waiting for, the first one flashed red.
This is happening while just two months into the live trading of the Babylon Burns portfolio, where members have received live trade notifications, the portfolio is up 6.9%. It’s having, by far, its best week and maybe even its best day today.
The book is starting to fall into place, with the regular rotation of early losers and names I subsequently change my mind on.
We’ve been relentless, and we will find alpha or die tryin.
Right now the energy trade is getting a lot of traction, but the portfolio is a lot more than just energy. We have idiosyncratic Healthcare picks, Long Short Industrials, a few isolated shorts, and a handful of oddball tech and payment positions.
Honestly I like the shape this thing currently has.
Currently, the portfolio is nearly entirely allocated to long exposure at close to over 95% of the net asset value, which is offset by short exposure of around 16%.
Today I will be doing this write-up to go through the portfolio, mentioning what is working well, what is not working so well, and what I expect to happen next.
Ring Central (RNG) up 6% today
Interestingly, on the day that Brent moons (and so not moon soars) and the whole energy book gets a nice little bump to it, the best performer is a stock which has absolutely nothing to do with energy.
RNG is a pick which we initiated on September 23rd, where we had identified this quarter’s earnings as a signal for an inflection.
The stock opened at $94 today, which was looking very nice, and is now looking to settle around $85, which is still 6% above when we initiated the position a month ago. This is making it a good time to add to the position as the thesis is now getting some confirmation.
The targets I gave when I was looking at Ring Central were for revenue to come in above 650 million, and it came in at 676 at the top of the guide. I wanted subscriptions to remain above 4% growth, and they continued to 6%. This has happened on the back of their native AI product now having penetrated about 15% of their revenue base.
The company has reached its debt target a quarter early, and operating margins were above the guide, with free cash flow growing 21% year over year.
The price action was particularly weird today, with this massive big wick of a candle. Quite frankly, I’m not quite equipped to tell you what to think of it and going forward, but the technical pattern that I identified (a nice recovery out of a long-term crawl) is still alive.
My only thing that I’m ashamed of is that I didn’t come across the stock earlier, because I would have loved to have bought it around $50 rather than at $79. However, as Peter Lynch would always say (and my good friend George Noble never forgets to remind me), the market does not care about the price at which you entered a position.
It cares about what is yet to happen. So far, what I see is that all of the things I wanted to see happen for Ring Central are happening. I had a target for the stock of $95 to $100. This was actually reached today, but we didn’t get to act upon it, which is fine because here, at $85, I’m happy to add some shares to the position.
You always need to give yourself a possibility to be able to add to a position when it starts working well for you. I know there’s an innate tendency of investors to lock in gains and let losers run, but superior returns really flow to the investors who are willing to add to winning positions (even when it’s a small position like this one). Cut the losers.
Nvidia’s warning sign just flashed red! Short?
The rest of this report is kept for Babylon Burns members. If you have not joined yet, now is an amazing time to join because I strongly believe that Babylon Burns is only getting started.
By Joining Babylon Burns you get:
The full archive of analysis I’ve written over the past few months
The live Babylon Burns portfolio with targets and live trade alerts
The companion web app, to see everything about the portfolio, my chart library and charting software you can use.
All the future picks which have not yet been made.
Whether you want a hands on “here’s how I build and run a portfolio” or want exposure to my research which has produced multiple winners already, At $100 a month or $399 a year, it’s as good as it gets.
I started Babylon Burns with a low ticket entry: $299 early bird, now it’s $399. Let’s be clear, I think I’m getting the short end of the deal here. Pricing so low is a way of investing into my audience as well. If you trust me early, you get a good deal. If you wait, well later the price could be higher.
As Babylon burns, we’ll light the cigars.
