Wednesday, March 08, 2006

Strategies

This can be a frustrating sport, trading stocks. PTSC dropped 20% today, after running up over 500% from when it was first discussed here on Valentines day. NNVC came through with a 10% gain, making it's run well over 1500% from it's humble beginnings here last fall.

Many of you have gotten in at much higher prices with returns much less then those described above. Thus, a day like today, where everything (except NNVC) wilts is problematic; protect equity, stand pat, add-on? I can tell you what I am doing, but look at my entries, is it really the same problem? Everyone has their own paradigm here, no one answer fits all. But understanding the basic premises under which we are playing, the strategies that underlie our holdings, may be helpful at times like this.

If you recall, our approach to Bird Flu stocks is to buy a basket of 6-8 small cap stocks that are focusing on research and development of products dealing directly or indirectly with Bird Flu. It's a lottery, we don't know which stock will hold the winning number, just hoping that with a logical, reasoned selection, we either own the winner outright or that the entire basket rises on the coming hype and fear surrounding Bird Flu.

That's also what I am doing with these other stocks, only without the common denominator of being related to Bird Flu. By assembling a basket of penny stocks, low capitalization technology stocks and/or inexpensive special situations, we are hoping that either we get a direct hit of devine providence, or, that the Wolanchuck-Dent Bull Market of Epic Proportions comes to our rescue and carries the entire basket away to the land of wealth and fame.

Going forward, it may be helpful to keep these strategies in mind and not get too discouraged by the price action of any particular stock on any particular day. I guess you can say the same thing about not getting too excited about the run-ups of any one stock on any one day. But it doesn't work like that. When stocks run-up, WE RULE. When they don't, we wax philosophic.

A

15 comments:

David M Gordon / The Deipnosophist said...

Great post, Allan!

In effect, you channel Peter Lynch's methodology, which was to buy everything. If he wanted exposure to a group, sector, and/or the market, he did not differentiate between this or that stock. Why not? Because the worst decline (100%) is easily exceeded by the potential -- 1500% for NNVC, 500% for PTSC, etc. Of course, proper money management plays a critical role. And it didn't hurt that Peter had billions with which to play... er, invest.

Because we each are human, we fall victim to the same trap: let's see how it all works out -- the stock (does it indeed rally? "Good, I will buy now") and even of you ("Does this fellow really know whereof he speaks?"). I call this ratifying your perception; once ratified, it is easy to buy. But by then, PTSC has moved to $2.00 from 25¢ -- and the game might be over, as opposed to just getting afoot.

Then again, it might not. But that difference relies upon aligning our time frames with the trends of the stock. How much certainty do we require before buying? Certainty has a price, and that price typically is measured by less reward. And when are we sufficiently satisfied that we could sell, no matter how much higher it goes from the point of departure?

Fun process, investing. Success requires we face up to the reality of our ego, its limitations, and discipline. Time and again, you prove yourself a master at this process. If your readers merely study your words and actions in the quest to discern the traits that make you successful, then the likelihood is they too could achieve success.

Allan said...

David, thanks for stopping by and thanks for "getting it" with your incivisive crafting of words.

For more of David's thoughts on the market and trading stocks, his blog offers a wealth of insights, including this classic, "Shedding more light on the darkling plain":

http://eutrapelia.blogspot.com/

Good morning, all.

A

Anonymous said...

Allan i have a general question. Do you have a screening module for your penny stock selections or do you just wait for news and evaluate it from there. thanks

Allan said...

My selection process is all over the place, from a comment on a stock forum, to a piece on briefing.com, or the results of a Google search, or the posting of a chart on someone else's blog. Every so often something smacks me in the face and I follow the sting to its ultimate conclusion, thumbs up or thumbs down.

A

Ronny said...

Hi Allan,on these penny stocks,are you looking for a recent increase in price and volume to accompany the intriquing story?
Thanks,Ron

Anonymous said...

Nanoviricides
http://www.drugdiscoverynews.com/index.php?newsarticle=549

Yash

Allan said...

are you looking for a recent increase in price and volume to accompany the intriquing story?

Yes, although not always a requirement for intial positions.

A

Anonymous said...

I have bought NVAX for birdflu. This past quarter, it got rid of all debt, and has just linked a distribution and developement deal with an Indian company. They have the fastest production method for the production of vaccines.

A new stock to look at with the interest in Fiber optics is DIGL.OB. It has been increasing in price and volume, and appears to be linked to JDSU and BWNG.

J.

Greg Reiman said...

Note to self - Beware the Euphoria Syndrome.

That feeling of euphoria is so contagious (possibly pandemic), that ego driven invincability, that golden touch. I want to buy, buy, buy!

The alarm bells are screaming in my head - DANGER DANGER DANGER!

Buying NNVC at $.10 is not the same as $2.02, buying PTSC at $.28 is not the same as at $1.80. Maybe these prices are still cheap. But as I learned the hard way in 2000, this is not Monopoly money, it is real money, my money.

Note to self - Stick to your disipline, have an exit strategy in place, protect profits and minimize risk with sell stop loss orders, buy low and sell high, beware the euphoria syndrome!

OK, I feel better now.

Greg

Anonymous said...

Allan, what percentage of your bankroll do you dedicate to these 'lottery' picks. Thanks

Eric

DEBBY said...

I learned that one has to have a strategy. I treat penny stocks different from mid or large caps. One does have to evaluate risk? How much money am I willing to lose? When will I take profits? When will I buy more? With penny stocks I tend to increase my stop loss to 40% instead of 25 % with other stocks. I've found pennies tend to be more votile and have bigger swings.

I hate to look at my account and see I've lost a 1000 dollars. I hate it. However, because I've done my homework, it doesn't get to me any more. I've had stock go to zero and that's fine because I've had some big winners. I'd love to win all the time, but that's not resonable. I also spread the risk around.

In my stock purchases only about 25 % is in penny stock. And I try (not always sucessful) to keep each stock to no more than 5% of total money available.

I let stocks run as far as possible. I have GNBT, PTSC, and EDIG. When they fall back I wait a day or two; check charts and generally buy more (that way I can cost average and lower my per share price). If a stock increase 33% or more, I buy more at that point.

I've had some good luck recently with XSUNX-a solar power play that has dropped back. I think it's going to be huge...bought some more. I'm looking at a biodiesel company with regular oil/gas properties, but haven't bought yet and still looking for other similar alternative energy plays.

I've 'talked' for too long.

Good Luck to one and all.

debby

Allan said...

Allan, what percentage of your bankroll do you dedicate to these 'lottery' picks. Thanks

Eric, I don't even think of it that way, it's more a consideration of how many names I can keep up with on a daily basis. Twenty max, Fifteen about right, Ten when I'm under the weather or otherwise distracted.

A

Allan said...

I've had some good luck recently with XSUNX-a solar power play that has dropped back.

I haven't written XSNX up, but I do hold a small position from 1.40 area; it popped before I could get it together to post about it; then got distracted with other things.

A

Anonymous said...

Happy Friday to you Allan.
You are a gem in a sea of shail.

I am wondering if you might do the Universe a favour and post one day's worth of short term Day trading results. After the fact. Just symbol,opening price, closing price. Maybe just 5 or 6 if it was a busy day of the front lines?

Blessings,
Frank

Allan said...

Frank, your wish is my command. Monday was a good day, 16 trades and my third largest gain of 2006. If you or anyone else knows how I can paste a spreadsheet in a blog without losing the formating, please let me know in the next couple of hours. Otherwise, I'll do it manually and in that case, it will take me awhile to get it postsed.

A