Stockcoach's Corner

Sawasdee ka :) Since it's 5 in the morning and I can't fall back asleep, why not update the blog? February turned out to be another decent month for my portfolio, which gained $18,823 (2.9 percent), outperforming the S&P 500, NASDAQ, and Russell 2000. I've outperformed the S&P 500 18 out of the last 19 months.

There haven't been too many noteworthy trades in my portfolio, though APN surged about 70 percent over the past 5 trading days (my limit order to sell half my position was filled this morning at $2.19). I also started new positions in SPPI and CBTE.

p.s. When I return to the United States, I think I'm going to launch a personal crusade to replace the unhygenic handshake with the much more graceful Thai wai (that Ronald is doing) and/or the Japanese bow.

Although up until recently it really sucked to be a Marshian. However, today the stock of Marsh Supermarkets soared after the company announced in its earnings release that a recent appraisal of its real estate holdings revealed that their estimated market value exceeds their book value by $100 to $150 million. Not bad for a $70 million company that is already trading below tangible book. Unfortunately, even with today's surge, I'm still underwater on this position, so hopefully the stock will continue to move higher in the days ahead. Largely because of Marsh, my portfolio gained 1.7 percent for the day, taking it to an all time high.

In other news, I will be travelling on business in Asia over the next 2 weeks so I won't be able to post to the blog regularly. However, I'll try to post a few entries here and there, especially if something noteworthy happens in my portfolio.

It wasn't always this way. Although the track record that I maintain in my spreadsheet and post on this blog begins in November 2000, this actually represents my second foray into the stock market. My first foray into the competitive world of investing didn't go nearly as well. Back in 1998, when I was still a university student, I put about $8000 into the market.

It takes a certain level of genius to lose money when everyone else is making money hand over first, and back then, it certainly seemed like everyone was making money in the market. And what genius I was: I don't know exactly, but I would estimate that within the course of one year, my portfolio lost about 50 percent in value. I'm still embarrassed to think about all those garbage stocks that I bought. By late 1999, I had enough. I sold almost all my remaining positions, bought a bike, and went on a cycling trip across Europe.

Yet, as many of you can relate, once you've been bitten by the investing bug, you're hooked for life. After the summer of 2000, I began working at a full-time job (not related to the stock market), and started earning a nice salary. However, now that I had some experience and knowledge about what works on Wall Street, I vowed to not repeat the same mistakes. Still, it's wasn't smooth sailing. Between November 2000 and October 2002, my portfolio went basically nowhere. That doesn't sound like an accomplishment, but you have to remember that this was in the middle of a brutal bear market. Although I wasn't making money, at least I was beating the averages.

And then something awesome happened: the market turned up and some of the stocks in my portfolio began to explode. Although I sold them all much too early, I was able to buy other stocks that also did well. And so it began: a seemingly magical cycle of buying cheap stocks, waiting for them to appreciate in value, selling them, and moving on to other cheap stocks.

What's the moral here? Clearly, the moral is that you shouldn't give up. Let your failures serve as lessons for what not to do and let your successes serve as lessons for what to do more often.

Anyway, perhaps this post would be more poignant if I could say my portfolio went up today, but alas, the truth is the truth: my portfolio was dragged down with the rest of the market, falling in value by 0.3 percent.

My portfolio declined 0.1 percent yesterday to finish the week up $3,612 (0.5 percent) to $663,406. However, all the major indices posted superior returns, with the NASDAQ rising 0.9 percent, the S&P 500 gaining 1.6 percent, and the Russell 2000 picking up 1.9 percent. A noteworthy milestone was reached this week: after deducting the $25,000 cash deposit I made last year, my portfolio is up $300,000 since my very first entry on this blog back on December 3rd, 2004.

I must admit I have a bit of a love-hate relationships with Cramer. I love the way he thinks but typically hate the stocks he picks because many of them are already up huge by the time he recommends them. As the good folks at Booyahboy Audit have thoroughly documented, a diversified portfolio of Cramer's picks on Mad Money has only outperformed the NASDAQ and the S&P 500 by about 3 percent since July 2005 and has probably broken about even against the Russell 2000. Furthermore, since almost all stocks pop up at least several percentage points after Cramer recommends them, it's usually difficult to buy the stock at the price at which it was trading on the day that Cramer mentioned it. This further decreases returns.

However, I still think there may be some profitable trading strategies based on Cramer's picks. Perhaps it makes sense to buy his picks and hold them a few days or a few weeks? I really don't know. For those of you who watch the show regularly and have some insights, please leave a comment and let us know.

Now, that's more like it: my portfolio gained 1.1 percent today to a new all-time high. I picked up 600 shares of TOA at $20.22. This stock seems to have strong support at around the $20 level. I don't expect it go to $30 any time soon, but it should be a safe play to at least $23. Despite being in the dreaded home builders group, I think the company's fundamentals are strong enough that there is little downside risk at these prices.

The markets were up about 2 percent over the past two days. My portfolio, however, went nowhere: up 0.1 percent yesterday and down 0.2 percent today. VTEK, one of my larger positions, took a nosedive this morning. I thought the market's reaction to their earnings report was completely gratuitous, ignorant, and over the top. I still think the stock will hit $8 within the next 6 months.

My portfolio was down 0.45 percent today. I picked up 50 shares of GOOG at the open this morning. I figured that the stock would recover some of its losses as analysts took out their pom-poms in order to deflate that negative Barron's article over the weekend. I figured wrong. The stock ended the day at virtually the same price at which it opened. Since I don't regard Google's valuation as attractive, I will be looking to exit this position tomorrow.

Despite a lousy Friday in which my portfolio lost ground to the broader market, I finished the week up $6,826 (1.0 percent), which still compares favorably with the S&P 500 (up 0.2 percent), the Nasdaq (down 0.1 percent), and the Russell 2000 (down 1 percent).

So suppose you've done your homework and bought a stock and then all of a sudden, the stock starts moving up. Do you sell when you think the stock is no longer worth owning based on "fundamentals" or do you let "your winners run" in the hopes of boosting your profits?

That's a really tough question, and I don't have a good answer. In the past, I would just set sell limit orders at increasingly higher levels and would wait to see if the order got filled. I didn't give much thought to how the stock reached that price point (was it on high volume, or low volume, etc.). Now, I'm trying to refine my technique by "letting the market tell me when to sell". For example, if the stock moves up on high volume, I tend to be more patient.

One way to "let the market tell you when to sell" is to use trailing stop orders, something that both Ameritrade and Scottrade (the brokers I use) allow me to do. This is a handy tool, especially for people like me who have full time jobs and can't look at their portfolios more than once or twice per day. However, the problem with trailing stops is that if you're trading microcaps, the volatility is so great that it's easy to get stopped out, even if you set the stop to give you lots of breathing space. Personally, I don't use stops. I just prefer to use my proprietary trading system: my gut.

I had a limit order in place this morning to sell 2500 shares of SMTX. Although the order came close to being filled in the AM, by the afternoon, the stock had fizzled with the rest of the market. Still, most of my biggest positions managed to stay in the plus column today, and I finished the day up $900.

I reader asks:

do you ever use stops instead of selling outright? Sure, if your guess on the direction of the stock is correct, this will result in lower profits. But if you are wrong, and the stock keeps moving in the right direction, you profit. It seems to me, with tight enough stops, this could be more profitable than just selling.

My view on stop loss orders is that you need to know when to use them. You can trade in two ways: you can trade based on technicals (price movements, volume, etc.) or you can trade based on fundamentals (earnings, asset and liability values, sales growth, etc.). If you trade based on the fundamentals (the fundies) like I do, stop loss orders make no sense. After all, my aim is to buy a stock that I regard as cheap relative to its fundamentals. If the stock goes down after I buy it, then it gets cheaper and more attractive, not less. On the other hand, if you're trading based on the technicals, you should set a stop loss at the point where you believe the stock is no longer worth owning based on its technical merits.

What type of trading you do depends on your preferences, your personality, and your circumstances. For me, I prefer to trade the fundies because I think that is where my edge is (quite frankly, I'm a lousy technical trader). Besides, when you are away from the computer for the vast majority of the day and sometimes days on end like I am, trading the fundamentals is the only viable option.

The good thing about CALL is that the ticker allows me to come up with all sorts of witty headlines for the blog (bad call, dropped call, etc). However, that's about the only good thing about this stock. And since I would rather make money than be witty, I sold all my shares this morning in the pre-market after the company released yet another sucky earnings report. Despite CALL's unwelcome antics, today turned out to be a very good day for my portfolio, which gained about $8,300. Contributing to the success:

• SMTX: I was wondering when this stock would get pumped again. Looks like today was the day. I sold a third of my shares into the pump. Hopefully the party will continue tomorrow.
  
  
• Proving that hell does indeed freeze over and pigs do fly, MARSA/B actually went up today.
  
  
• TRT: a nice move by a nice stock.
  
  
• CBTE: The company reported numbers that were not as good as I had expected. Nevertheless, thanks to a blurb from Briefing.com's InPlay service, the stock perked up in afterhours. I decided to play it safe and exit my position. Hopefully I will be able to buy back my shares at a lower price down the road.
  

Up $1,600 yesterday but down $1,400 today. The irrationial euphoria over smallcap Chinese stocks has spread west to India. Where will the dumb money move next? Central and Eastern Europe seem like plausible destinations. So in the hopes of staying one step ahead of hyperactive daytraders, I picked up 2000 shares of EWEB, traditionally a favorite target of the pump and dump crowd. Even if I am wrong, I figure the downside is limited since EWEB has decent fundamentals, and after the implending sale of their ISP business, should have $5 per share in cash on hand. Not bad for a $3.50 stock.

I've decided to retract my earlier post on IGII since I can not verify some of the information in that post. In particular, I mentioned that the CEO of the company had the same name as someone who had previously been investigated (and later exonerated) by the SEC for stock manipulation. It appears this is a coincidence. While these two individuals share the same first and last names, they are different people (In my earlier post, I said I wasn't sure if they were the same individuals, now I am sure). Thus, I no longer have any view on this stock (good or bad). However, it's no longer in my portfolio.

Okay, get your eyes off that picture; there are more important things to attend to. First, the weekly summary: it was a decent week for my portfolio. I finished up $2,917 (0.4 percent), outperforming the Nasdaq (down 1.6 percent), the S&P 500 (down 1.7 percent) and the Russell 2000 (down 1.1 percent).

I also have two new positions to disclose:

1. CBTE: Commonwealth Bio is a solid company with great prospects. They will be reporting earnings on Monday or Tuesday. I'm hoping that stock will pop on the news.

2. IGII.OB: This is either the cheapest stock on the planet, or a complete fraud. I'm not sure which, but I think the risk/reward here is good enough that I want to partake in the action. The excellent blog of the Microcap Speculator provides the pros and cons on this stock. Invest at your own peril because this one is risky.

Down about $400 today. A good sign that the market has reached a top is when daytraders starting pumping microcap stocks up 100 percent in a single day. A great sign that the market has reached a top is when daytraders start pumping microcap stocks with no earnings and barely any revenues up 100 percent in a single day. But the best sign that the market has reached a top is when these companies also have "China" in their name. A quick gander at today's top percentage gainers list on the Nasdaq says it all. Don't be tempted. As sexy as these stocks look, they'll eat you alive. Stay away.

Up about $1,700 today. I covered my 15 shares of GOOG at $389.70. Though this represents a quick $700 profit, it would have been a lot more if I had covered at $352, which is where the stock opened after being halted following yesterday's earnings announcement. However, by the time it was apparent that GOOG's miss was partly illusory (due to tax issues), it was too late; the stock had rebounded nicely. It seems that those people who are bright enough to quickly read a news release and assess whether the market's reaction is appropriate can, on average at least, make a lot of money. Unfortunately, yesterday I wasn't one of them.