So what do with SEA- a losing core stock?

Quick thoughts on how to handle a losing stock like sea.  It’s the biggest loser in our portfolio this year (almost everything else is up) and we have a good chunk of it as it’s one of the few stocks that we stock pick and own. 

Latest quarter, growth rates just mid single digits at 5.2%. Grew profits to 330m but stock plunged. reason is: 

- sea is facing competition by Lazada and possibly TikTok.  No new big game on the horizon to replace the declining free fire.

- mgmt (rightly) wants to reinvest more into growth and so the 300+m quarterly profit may reduce or even go negative. So investors get jittery.

So how to view a stock that has lost 60% of value from our buy price? We obviously believe in the mgmt otherwise we would have cut loss at 20-30%.  But we have not added much as the logic is down can go down more. Lucky for us. And we also kept to our overall limit per stock of 5% of portfolio.

Now of course sea is down to 1.5-2% of portfolio esp since rest of equities did very well beating SPY this year. 

So the question is what to do now that it looks like sea has capitulated with the huge drop to 38.

Long story short, have used options to double down. Sell put buy long dated call to an effect of doubling holding. This will put my average price down to 60ish or so. 

Main reason is conviction this mgmt knows what they are doing. Let’s see next 1-2 years if we are right. 

Side note: psychology plays a big role. 3 points

- It’s much easier doing this double down this year than adding to FB or SPY, QQQ last year oct. Reason is last year everything and overall already down. So its very hard to add in a falling market. Had to force myself and in the end skipped one major chance though caught most of it.

- Overall, sea is our biggest stock gain ever. So it’s easier to have conviction when the 60% loss is 20% of the old gain. However, I am mindful this can end up being a blindspot to be too generous in our assessment of sea. Have to remember.

- note I used far out of money long dated call options to double down. So i am also limiting my losses to the call premiums while riding most of the upside esp if sea rebounds big. But for options side of things, I will take profit if it rallies big. Then switch into actual long holdings if we want to own more sea.