2014 was a year of awakening on my part. I found myself evolving from active trading to “buy & hold” for fundamental growth. While this change will subject me to the mercy of an overall general market direction, I’m making a bet based on coming catalysts for the selective stocks I’ve position in. In other words, I’m not taking part in a buy & hold for stable blue-chip stocks, I’m shifting my attention to the buy & hold of high beta stocks with coming catalysts that have the potential to launch the price of my selective stocks to multiple-baggers position.
How did I come to evolve into this high stake positioning?
A review on one of my 2014 win may provide clue to my metamorphosis.
The year kicked off with my big win in $KNDI when price spiked up to $20.75 in the beginning of March. I was fully loaded on $KNDI and it weighted heavily in my portfolio. My conviction was strong and I was fearless riding the price to the $20ish mark. However, I began to entertain doubt on $KNDI’s ability to hold on to $20ish level without a major correction before the 1st quarter earning release. By that time, I began to question $KNDI’s ability to build 40+ “vending machine” type of car rental garages they had proclaimed in late 2013. By March 2014, all I knew was that there were only three vending machine type rental garages in place. I feared a disappointing 1st quarter earnings number so I took the opportunity to unload my position at $18ish level when price retraced there to lock in profit. It was a phenomenal gain on my part since I had started buying $KNDI at the $5 price level. [Sidebar: my gain on $KNDI allowed me to recoup my previous large losses such as $AMRN.]
After the 1st quarter earning surprise which spiked price up to $22ish level, I was still dumbfounded that $KNDI could sell 4,000+ EVs to the car rental company when they only have three working rental garages. Not believing the numbers, I decided to stay away from the stock. My conviction with $KNDI made a 180 degree turn-around and I lost faith in it. Thus, after walking away with my big win, I only ventured back for some occasional small time short-term trading. Despite the fact that price spiked back up later to the $20+ dollars from low of $11 without me, I didn’t care much for the stock.
Nevertheless, the big win from $KNDI has convinced me that the only way to make consistent large gain is to make big bet on winning stocks. But this beg the big question, “How do you define what is a winning stock to make the big bet on?”
Believe it or not, the answer to this question is entirely depended on the investor him/herself.
What I believe to be a winning bet may not be what you believed it to be.
To improve my odds, I only focus on stocks that have the following characteristics:
- 1) Technology that has yet to be discovered.
- 2) Have coming catalysts (aka binary events) that could validate their technology and business model
- 3) Small cap status. This allow for a much bigger run/gain if the technology proves to be viable.
- 4) Have strong technical support on the chart
During 2014, my selective positions have reduced from about six to current four stocks. There were some hits and misses but the eventual technical breakdown of the some stocks forced me to liquidate them. $HYGS was an example. I rode $HYGS from an average price of $17 to high of $26 in mid-year but gave back most gain when price broke down technically in the chart. Despite my conviction at the time, I hated even more to see such a big gain turns into losses; so I sold at near breakeven. It was a good thing I sold since price could not recover and had traded even lower than my entry point. This tell me that my conviction is only as good as price can be supported in the market place. In other words, price can only be heading higher (or stabilize without falling apart) due to enough investors/traders out there believing what you are believing. You want to have conviction among many ’cause a stock with only a few investors with conviction cannot maintain any price level.
Over the year, my selection narrowed down to only four stocks: $LRAD, $DMRC, $ORBC, and $AMRN which represents 100% of my main portfolio. They are all heavy bets on small cap positions.
$LRAD- LRAD Corporation. LRAD is the acronym for Long Range Acoustic Device.
- 1) Technology: LRAD focus it sound like a laser beam that will allow long range (miles) communication with potential aggressors from faraway. At close range, it can also be used as a deterring weapon by emitting sound that could hurt your.ears. Recently, it has introduced the mass notification system that can reach far and wide with clearer speech than the current crops of siren-based bull-horn. I believe this mass notification system will add significant revenue stream to the company.
- 2) The immediate coming catalysts are the potential sales of mass notification systems to two large Middle-East cities with one project worth up to $10 million dollars. Considering their previous quarterly revenues, $10 million win is a significant increase in revenues if they can win the project. Other future catalysts are:
- -the potential U.S. Army purchase of their LRAD devices when the defense budget is approved and released
- -Order from the U.S. Coast Guard which $LRAD has recently gotten their attention.
- -More sales of mass notification system to U.S. Army bases and their international customers.
- 3) Small Cap status: $LRAD currently has a market cap of only $89.74 million at of December 31st closing price of $2.70 per Yahoo Finance. This leave a lot of room for price to run up to catch up with potential future large orders.
- 4) Technical speaking:
- The weekly chart above is still very bullish despite recent correction. Price is bouncing off the lower band of the Andrew PitchFork uptrend line and if the company can win the mass notification sales to the Middle-East cities, price will likely take out recent high of $3.88 quickly.
$DMRC- Digimarc Corporation
- 1) Technology- Digimarc has a family of IP portfolio on digital watermark that will allow an image scanner to see a hidden barcode that our eyes cannot see. This hidden barcode significantly speed up check-out lines at the retailers’ store because any part of the box or printed materials can now be scanned by the scanner gun instead of wasting time to align the conventional barcode to the scanner gun, . The hidden embedded message encompasses not just physical image but on visual and audio signals as well. Thus, it allows the Digimarc App (that can be downloaded to your mobile phone) to recognize the hidden physical (printed format), visual, and audio messages and immediately takes you to the webpage with add’l information or for you to purchase what you’ve just seen, heard, or read. In a world proliferates with smart phones, I believe Digimarc is as the forefront of taking the mobile phone functionality to the next level. On top of the embedded digital watermarket technology, $DMRC also has a mobile payment system that is build to adapt to other 3rd parties mobile payment system. In other words, it can be an add-on functionality to enhance mobile payment process.
- 2) The coming catalysts are the announcement of the retailers that are adopting the Digmarc embedded barcode system to be used. If the adopting retailers are nationwide brand, that would mean thousand of suppliers will be knocking on $DMRC door to have their packaging artwork design zapped with the hidden Digimarc barcode before going to the packaging companies. Recent partnership with Shazam also opens door for possible monetizing of the technology.
- 3) DMRC current market cap is $195.34 millions based on Yahoo Finance at December 31st closing price of $27.15. If the Digimarc barcode system is adopted by large nationwide retailers and private labels, the potential growth is significant. The relative small cap also allows large cap companies to contemplate on a take-over possibility.
- 4) Technical speaking:
- Price is trading at mid-point of previous high and low. The deciding factor will be the coming January trade show and $DMRC updating investors at the 17th Annual Needham Growth Conference on Jan. 15th.
$ORBC- Orbcomm, Inc.
- 1) Technology- From Yahoo Finance Profile: ORBCOMM Inc., a wireless data communications company, provides machine-to-machine communication solutions primarily in the United States, Japan, and the Middle East. It offers solutions, including network connectivity, devices, and Web reporting applications that enable businesses and government agencies to track, monitor, and control and communicate with fixed mobile assets. The company operates a two-way wireless data messaging system for narrowband data communication, as well as provides technology to monitor, manage, and remotely control refrigerated transportation and other mobile assets. It also provides Automatic Identification System (AIS) data services for vessel tracking and to improve maritime safety to government and commercial customers. It offers these services using various network platforms, including its own constellation of 25 low-Earth orbit satellites, two AIS microsatellites, and accompanying ground infrastructure. In addition, the company provides complementary satellite services through reseller agreements with mobile satellite providers, as well as offers terrestrial-based cellular communication services. ORBCOMM Inc. markets and sells its products and services directly to original equipment manufacturers, government customers, and end-users, as well as indirectly through value-added resellers, international value-added resellers, international licensees, and country representatives. It has a strategic alliance with Inmarsat plc. The company was founded in 2001 and is headquartered in Rochelle Park, New Jersey.
- The above did not mention the recent launch of six state-of-the-art M2M satellites that already added significant traffic to the infrastructure. In first quarter of 2015, eleven more state-of-the-art M2M satellites would be launched as well. On top of these new satellites, $ORBC is also finalizing the acquisition of SkyWave Mobile Communications which allows the company to have satellites on global coverage.
- 2) The coming catalysts are the launching of the eleven state-of-the-art satellites and the closing of the SkyWave Mobile Communications acquisition. It is currently waiting for governmental approval.
- 3) $ORBC has a market cap of $361.44 million per Yahoo Finance at closing price of $6.54 @ December 31st. If the growth of Internet of Things is for real, $ORBC can easily become a billion dollar company when more companies come onboard with M2M tracking.
- 4) Technical speaking:
- As you can see from the weekly chart above, the overall trend is up. Coming catalysts may take price out of current consolidation in the mid-$6 range to the $7+ range.
$AMRN- Amarin Corporation plc
- 1) Technology- From Yahoo Finance Profile: Amarin Corporation plc, a biopharmaceutical company, focuses on the development and commercialization therapeutic products for the treatment for cardiovascular diseases in the United States. It develops products in the areas of lipid science and therapeutic benefits of polyunsaturated fatty acids. The company markets Vascepa, a prescription-only omega-3 fatty acid capsule, used as an adjunct to diet to reduce triglyceride levels in adult patients with severe hypertriglyceridemia. It is also developing Vascepa for the treatment of patients with high triglyceride levels who are also on statin therapy for elevated low-density lipoprotein cholesterol levels. The company was formerly known as Ethical Holdings plc. Amarin Corporation plc was founded in 1989 and is based in Dublin, Ireland.
- I’ve been taking Vascepa for almost two years and I’m feeling great so far. There are far more benefits from this pure EPA fish oil than what is allowed to be stated per FDA approval. While I lost money on $AMRN, I’ve not given up hope just yet. With price at $1 and weekly prescription number crossed over to 10,000, I’m feeling bullish on this stock. I believe the eventual word-of-mouth promotion from satisfied patients will increase prescription number even more.
- 2) Coming catalyst is the interim result of the massive Reduce-It trial that will be available in 2016-2017. If Vascepa can prove that it helps reduce cardio-event for people taking Vascepa with Statin, this stock will go banana. With a $1 average price at this level, it will be a significant win that will more than offset my past losses.
- 3) Market cap is $171.05 million per Yahoo Finance at closing price of $0.98 on December 31st. If Reduce-it trial is a success, market cap will be in the billions mark.
- 4) Technical support:
- As you can see from the weekly chart, $AMRN has the weakest chart of the four stocks I’m holding. Since my re-entry price is around a buck, I’m inclined to give this one a bit more room to bottom out here. The weekly support at recent low of $0.78 is the support for now. Let’s see if there is a bounce from here to kick off the Wave 3 to the upside on this weekly chart. In other words, I’m betting on bottom-fishing on this stock.
Thanks to $LRAD spike up on December 31st, my port is able to close the year with a double-digit gain of 10.9% for the year.
If the catalysts for the above four stocks come into favorable conditions, I expect to see much higher percentage growth in 2015 for my portfolio.
Have a prosperous New Year to all readers of my blog.
My 2 cents.
Categories: Daily trading Journal