Bear-market survivor no longer a long-term investor

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Suraj K. Gupta

Occupation

MBA student at Columbia Business School

Portfolio

Stocks in the technology and financial-services sectors, including Apple Inc., Royal Bank of Canada and Bank of Nova Scotia; short-term trades in stock options.

The investor

Before entering Columbia Business School, Suraj Gupta earned a bachelor degree from the Schulich School of Business and spent four years working at Royal Bank of Canada. He was featured in Me and My Money in December, 2008, near the bottom of the last bear market.

How he invests

In late 2008, Mr. Gupta was a value investor looking for companies trading below their net-asset values. Such investments would "bear a lot of fruit in the long run" if one could cope with "the normal losses in the short term."

This was the right frame of mind. But the market fluctuations took their toll emotionally. Although Mr. Gupta had some big winners, he "ended up exiting most positions within two years due to the huge levels of volatility. …" What were supposed to be long-term investments morphed into momentum and cyclical plays.

Now, his portfolio has two prongs. The first focuses on short-term trading of call and put options when they are "mispriced" by volatility. See the 'Best move' section below for an example.

The second deals with "medium-term investments." These are shares in companies that "are valuable, usually with some type of decent dividend yield and moderate growth potential." Selling calls on his stocks and other strategies have helped this part of the portfolio "outperform the S&P 500 by 4.6 per cent annually for the past five years."

Best move

In 2012, Mr. Gupta shorted Tesla Motors Inc. stock while "purchasing a call and selling a put at the same strike price." This allowed him to short Tesla stock and ensure he could buy it back "at a slightly lower price," guaranteeing a profit. This arbitrage opportunity existed because the options were mispriced due to the "huge volatility" triggered by a "massive upswing in price."

Worst move

He bought Yellow Pages Ltd. when the dividend yielded 20 per cent. The plan was to collect it for no more than 6 months, then sell. Despite management's stated commitment, it was cut sooner – knocking the stock down even more.

Advice

As it "can be easy to react emotionally when one's wealth is fluctuating on a day-to-day basis," Mr. Gupta recommends automating buy and sell decisions by placing standing orders to buy or sell whenever a stock reaches a certain price within a given time period.

Want to be in Me and My Money? Contact Larry MacDonald at mccolumn@yahoo.com or his website