Session 03/09/2007

[David Randolph]

Lol I wish, im to negative or neutral most of the time. Im more of a pesimist which causes me to miss out on trades and oppertunities.

No, you don't wish, you need that, because Cramer has been underperforming the S&P 500 for years. Anyway, that happens to 80 to 90% of fund managers. I guess that is because they diversify too much. Cramer for example holds something like 100 different stocks in his portfolio, how can he beat the market? He owns the market !

Anyway, I love hearing what he says when I get a chance.

You know I'm always thinking stock market, it just doesn't get out of my head easily. Over the afternoon I thought: "the richest man in the world only holds 1 stock"

[BigSully1]

David, thanks much for your analysis and opinion on AMK. You brought up some valid concerns. They do have a history of uneven Q'ly ER's and restructuring initiatives hurt earnings last Q. Management said orders in Jan have been "robust", but who really knows. The limited trade volume also a concern for anything more than a small position.

I will just continue to watch it for now and to look for better prospects. THNX again.

[David Randolph]

This short term/long term dichotomy is so hard to surpass. I created the 3 Stocks on Fire Portfolio to be a short term portfolio, but I'm having trouble to accomplish that, because, honestly, I "know" short term trading isn't the best way to trade/invest in the stock market. I've been a short term trader for most of my life, and I didn't make as much as I ought to make, considering how right I was in some stocks/trends.

So, a long term investor that makes 30% a year over a 30 years life span is a genius, even better than Buffet (who made a 24% average annual return). Now go say a man with a $15,000 account that he will make 30% for the next 5 years, and that in the end he will have $55,693. He'll say: "that's less than one year's pay at my job, I can't have that type of strategy. I would make a lot more money if I just worked a bit more".

And this is where the problem lies ... 30% a year is great for a $150,000 - $300,000 account, but seems so insufficient for a small account. So small traders look to be smarter than geniuses, risk too much or trade too much and almost all fail and lose money.

My pursuit with this board/portfolio is to get a strategy that, because of using little capital, can be very flexible, move quickly, and perhaps achieve a much higher return, impossible for a large account.

So, what are the advantages of being small? How can we use them for our benefit?

Food for thought for the weekend

[David Randolph]

So, what are the advantages of being small? How can we use them for our benefit?

I guess it was Quasi that once wrote something like: "if many people follow 3 SOF Portfolio trades, they will become a self fulfilling prophecy".

And that was the catalyst for me to change the initial strategy and take a more longer term approach (Quasi, you're the guilty one, lol, just kidding), because winning because I could move stocks with my recommendations wouldn't be a proven or useful strategy at all.

[David Randolph]

I'm glad the weekend is here so I can think about these strategic issues. I received a private message requesting to leave the board open throughout the weekend because that is the best time for people to write more in depth analysis, so I'll leave this thread open, just in case ...

Have a great weekend

[David Randolph]

If I buy a very small cap for the short term, some people that subscribe that "Trades" thread will receive the e-mail and the stock would rise 5 to 10% as they buy if it is an illiquid penny stock. I could sell it right away and book a 10% profit.

Not a sound strategy.

Or, if it isn't a penny stock, but say a Nasdaq small cap with $200 M plus market cap, if the stock was on fire and gapped up the next day, I could book a 5% profit there, but people that bought a bit later and sold a bit later would just make 1% or even lose. 

Hence, having a longer term approach is the only way out for this portfolio. My kid is here, wants to have dinner at McDonadls ... see ya

[eggman11]

David,

I agree with your new strategy. How about making 3SOF portfolio a "best of" the main portfolio. Containing your 3 top picks and updating them regularly. If you find just one 10-bagger that would turn $7,000 (33% of the Portfolio into $70,000 that would bring us a lot closer to $150,000.) I know your against using options, but with options your don't have to worry about how your picks will effect the price. With options you won't be limited to just small caps, you can earn huge returns from any stock and as long as you agree to sell at least 1 month before the expiration date, they won't be to stressful. You average holding time for a stock in 3SOF is about 2 weeks or so maybe less. So, buying options 2-3 months out will not be to much of risk. Please reconsider using options as a possible strategy.

Thanks

[WallStreetnBio]

Dave what if we only pick one stock for the portfolio? We could pick the best posibility for a 10 bagger such as SILC and put all our capital into it. All of our capital combined would surely lift the stock. Its not like were pumping because its our best hope for a 10 bagger. If were right about it being a 10 bagger then we could keep reinvesting our gains in it as long as its still growing. If the industry is supposed to grow 10 fold through 2008 then why not put all our capital into SILC?

[Se7en]

Dave what if we only pick one stock for the portfolio? We could pick the best posibility for a 10 bagger such as SILC and put all our capital into it. All of our capital combined would surely lift the stock. Its not like were pumping because its our best hope for a 10 bagger. If were right about it being a 10 bagger then we could keep reinvesting our gains in it as long as its still growing. If the industry is supposed to grow 10 fold through 2008 then why not put all our capital into SILC?

David already said it a million times, don't put all your eggs into 1 basket, much toooooo risky!

[WallStreetnBio]

no risk no reward

[Se7en]

no risk no reward

No offense but I think the 3SOF gains over the years prove you wrong!

There's a limit in risk,  if you had 100.000$ to invest and you would put it all in 1 stock, I wonder if you still would sleep well, I know I wouldn't, no matter how high the reward can be... 

[rickjust]

Dave what if we only pick one stock for the portfolio? We could pick the best posibility for a 10 bagger such as SILC and put all our capital into it. All of our capital combined would surely lift the stock.

hi,
i have done this to my own detrerment. i have made big gains and bigger losses.
lost a lot of sleep as well.
while the gambler n me says " yes it's a sure thing" the balnced mind says no . what ever we say about the fundamentals or technicals the market can turn on a dime.
no amount of optimism and confidence in a management or a technical strategy will always translate to the market place. (but i still like the idea! )
maxi

[TraderStar]

Hence, having a longer term approach is the only way out for this portfolio. My kid is here, wants to have dinner at McDonadls ... see ya

McDonalds?? In Portugal?  Oh dear Lord the world as we know it is about to end....    I know, I know .. they are in Italy, in Japan ... but ... I was hoping some corners of the earth were stilll safe.

As to 3SoF ... it was NOT broke, so why are we trying to 'fix' it   Let's go back to Plan A and if the market pulls back, just take profits, watch for new stocks with relative strength and continue as before.  Sooner or later this strategy should lead us to 3 major winners.  Bet on it

[lancefur]

Hence, having a longer term approach is the only way out for this portfolio. My kid is here, wants to have dinner at McDonadls ... see ya

McDonalds?? In Portugal?  Oh dear Lord the world as we know it is about to end....    I know, I know .. they are in Italy, in Japan ... but ... I was hoping some corners of the earth were stilll safe.

As to 3SoF ... it was NOT broke, so why are we trying to 'fix' it   Let's go back to Plan A and if the market pulls back, just take profits, watch for new stocks with relative strength and continue as before.  Sooner or later this strategy should lead us to 3 major winners.  Bet on it

I agree with this sentiment. Even in a market correction or bearish market, one can still find longs and make just as good of money as one can in a bull market. Why has the faith been lost. I am extremely guiltly of this and have lost way too much this year now and am actually in the red making too risky picks to try and make my losses back and have ended up losing more as a result.

I am so depressed over this but will still stick with 3SOF assuming we can go back to where we were.

[Quasi]

So, what are the advantages of being small? How can we use them for our benefit?

I guess it was Quasi that once wrote something like: "if many people follow 3 SOF Portfolio trades, they will become a self fulfilling prophecy".

And that was the catalyst for me to change the initial strategy and take a more longer term approach (Quasi, you're the guilty one, lol, just kidding), because winning because I could move stocks with my recommendations wouldn't be a proven or useful strategy at all.

Hi David and all

Wow with respect to all the speed reading you must do I'm amazed you can remember it all with that sort of detail.  It was just an observation then and it still applies today.  If just 100 of us jumped in with $1k that's $100K, enough to make a pretty good up tick on most of the stocks discussed.  Now more than likely it could easily be 500 of us at $1K or 100 at $10K, now were talking $500K or a $1M, definitely a significant impact on the daily tape.

Now as far as the performance objective of $15K to $150K in say a year or so, I think the target was set way to high and you were doomed to failure from the start.  Or maybe you were smoking from the afterhours pack when you picked that target out of the air.  In my old days I always negotiated lower but impressive targets, that way it was much easier to get those dotcom options every year.  No I didn't become rich, remember what happened to Nortel in the crash, well the options became mostly worthless too.

So I think the original shorter term / swing trade style was fine, just drop the 15K to 150K objective, as it is swaying the decision making process.  Now there is a mathematical probability for every thing, that one was just very very small.  I think it could be done basically daytrading (stocks or options or futures), in and out several times during the day and probably never holding overnight.  And you would also have to be in the top 5% of all the people doing it, the other 25% manage to make small gains, with the remaining 70% at market levels and most loosing money.  This isn't a site for aggressive intra day trading nor do I think we want to get everyone involved in that, most don't have tools, or the time during the day, it's a full time job.  I don't want to do it and most that have done it are broke and burned out in a short time.

The original objective was for very focused TA and fundamentals on a shorter time frame for higher gains, but noting this would require significantly more work in stock scanning, quick analysis and only holding for the best part of the quick burst.  Now many stocks go up 5-10-20% in a year, but this often happens in a couple of quick burst once or twice a year and lasting only a few weeks.  Some will also go up 100% in a year but it is seldom linear and we don't want those ones anyway, (7-8% a month boring).  We want the ones that go up 50 or 100% in a burst, get in get out and find the next one all in just a few weeks.  You know the saying the easy money has already been made and the traders have moved on.  Well this is it, get that 100% in two weeks move on and forget about that next 50% move that took 6 months.  Now realistically you might turnover each 1/3 of the portfolio say 5-10 times, if you were really lucky, not 26 times on a two week cycle.  In between there would be dead time where the set ups just aren't quite right and you can't push it, other wise you'll bring down the average and introduce more losers.  There would be time on the sidelines and we'd have to figure out what to do with cash during those times, right now I just park it at my broker and get 3%, a lot better than loosing money and its available at the push of a button.

When I site back and think about this its still a very aggressive target, say 8 turnovers per year on 15K at 10% gain per turn,  $15K * 1.10 ^ 8  = $ 32, 153.  Over 100% per year ! !, I think the 10% seems realistic but the 8 turns is not, as there are usually a couple of months of correction pullback per year so lets say 5 turns,  $15K * 1.10 ^ 5  = $ 24,157  OK 60% still very aggressive but I think achievable on a group basis.  Now this wouldn't be achievable if you were doing it all yourself, maybe you'll get lucky one year but not year after year.

Also for this portfolio lets get rid of the day trading style of following momentum out of the open and buying intra day.  Most of the stock competitions allow you to put in a market buy or sell at the open the next day.  The old stock picking contests here used to work that way.  I think it would help to get us back into more of a swing trade style and reduce the tendency to be ticker watchers intra day.  Now I wouldn't recommend an unconditional market order for the open the next day, I usually put in a limit order.  I would also set a minimum stock price say $1, no Pinks or OTC and 50 day MA minimum liquidity value.

Now the liquidity minimum could be a bit of a problem, I usually scan for stocks with a minimum 50MA liquidity of  > $500K.  That way I can easily meet my rule of never owning more than 5% of the average daily traded dollars.  Now for this 3SOF portfolio, as I said above, I think we could easily generate $500K as a group and more if this portfolio starts heading for that 60% per year level.  Thus the limit may have to be higher, but as we move higher the price moves will not be as large and will happen more slowly.

With respect to the shorts and puts I still think we should consider them, but at this time only for conservative plays during corrections, or the other option is to practice "sitting on hands" and loading up the potential list of future longs.  However I find this group seems to have a real problem holding cash, for me cash is a position and sometimes the best position to have in times of sloppy markets, otherwise you start pushing it and day trading.

JMHO for the consideration by the group.

I'll end with an investment story that happened back in the late 90's.  That was a time when brokers were allowed to make cold calls to try and sell stocks / investments.  This was before my stock days so I didn't get involved but a co-worker did.  He got talked into making a very small trial investment and he did well and re-invested with a little more money, after 6 months back and forth he had put in $10K and had a 75% gain.  On the next monthly phone call he asked the broker if he should sell or at least take out some profits.  The broker said that was a very good idea, the only bad part was the broker wasn't sure who he would sell the shares to, as my co-worker was the only investor in this particular company.

have a great weekend, talk to you later
Quasi