Tuesday, October 25, 2005


VTEK reports; traders yawn

Up about $1100 today. VTEK, one of my favorite holdings, reported another solid quarter. The stock didn't do much in afterhours. Predicting how a microcap stock will react to an earnings report is never easy. Sometimes the company will announce stellar results and the stock will do nothing. Other times, the company will release good but not great results and the stock will surge 40 percent.

My philosophy is that you can't predict how traders will react. However, that doesn't mean that your reaction to their reaction should be arbitrary. As most of you have noticed, I am a firm believer that one should sell into strength and buy into weakness. In the case of microcaps, that is a particularly profitable strategy because you're actually performing a valuable social function: you're providing liquidity when people are desperate to sell and you're absorbing liquidity when people are desperate to buy. In essence, you're doing what market markers are supposed to do and hence, it stands to reason that you should be compensated for your efforts in the form of higher expected returns.

Totally agree with your statement regarding a reward for similar to market maker activity. Truth.
Can't agree more with regard to "buy into weakness" for small cap stock.

The only thing that prevent me from making more money is not having enough courage following this rule.

My best performing account is the one that execute this strategy, which up more than 2000% for the past three years.
At what percentage gains do you start triming your position in a stock?
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