Opportunity Cost & A Trade Update

The Logic Behind Adding Calumet To The Portfolio & Trades I Made This Week

I said last week that I didn’t think I would be making any major changes to the portfolio soon. That was before I spent the last week diving into a new opportunity, Calumet Specialty Products Partners CLMT 0.00%↑. I think it is very cheap today, and there are several catalysts on the horizon that should be very positive for the stock. I discuss the trade below, but I’ll be doing a full writeup on the company next week.

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A quick side note: Calumet is an MLP (for now), so buying units will require a K-1 tax form.

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Opportunity Cost

One of the main ways to evaluate a portfolio is through the lens of opportunity cost. Would I rather own X, or would I rather own Y? I talked last week about why I run a concentrated portfolio and having a longer time horizon, but one of the things that I’m always looking at is the opportunity cost of what is in the portfolio. Most of the time I’m not doing anything, because I like to think the risk/reward on what I already own is very attractive, but sometimes I find new opportunities in stocks outside of the portfolio that look more attractive than stocks that are in the portfolio. I talked about this briefly when I discussed cutting my losses on one of the stocks that was in the portfolio in the trade update last week.

Why would I hold this stock if I think the risk/reward is better on another stock? In that case, it was the Valaris VAL 0.00%↑ warrants. This week, it was Calumet. I’m always looking for new opportunities, and most of the time, there are things that keep me away from investing in a new idea, or I don’t think they are as attractive as what I already own. Occasionally, new opportunities like Calumet pop up and the risk/reward seems more attractive than an existing holding. I don’t like buying and selling too much, because history shows that overtrading a portfolio generally leads to worse returns, but sometimes a fat pitch shows up and you have to swing. If you don’t have a ton of dry powder, that means selling something that you already own. I find the constant search for new opportunities mentally stimulating and an important part of being an active investor.