Stepping Stones of Investment

 

Let me preface by saying that this is not investment advice, but this is my plan for investing in stocks.

In the simplest terms, investing is buying part of a company as shares, and then selling at a profit.  The goal is to buy at a low price and sell at a high price in the shortest amount of time to maximize your return on investment.  These are my stock investing principles for trading within an IRA.  Time for some definitions and formulas.

Return-on-Investment (ROI) is: (Share Sell Price / Share Purchase Price) – 1 = ROI %

ROI Example:  If you buy 100 shares of WINT at $1.71 and sell them at $1.82, your ROI for that trade is (1.82/1.71) – 1 = 6.43%.

Profit is:  (Shares Sold x Sell Price) – (Shares Bought x Purchase Price) = Profit ($)

Profit Example:  If you buy 100 shares of WINT at $1.71 and sell them at $1.82, your Profit for that trade is (100 x 1.82) – (100 x 1.71) = $11.00.

Now time for a little strategy via the Stepping-Stone Principle.  Let’s say the spring rains have been relentless and your yard is saturated.  You need to fetch some tools from the shed, but you do not want to get your feet wet in the standing water in the yard.  Your goal is the shed, which is 30 feet from the back door.  If there was only one stepping-stone 15 feet from the back door, you would have be a Olympic long-jumper to reach it, only to find yourself stuck on an island with no runway for your next jump.  In investing, this would be like saying you were only going to wait for large ROI’s, like 50% or up.  You will spend most of your investment career feeling like you are stuck with a stock that mostly disappoints and you seldom make money. 

If you have 3 stepping-stones spaced 7.5 feet apart, you will still be jumping pretty far from stone to stone.  This would be equivalent to 25% ROI.  You’re probably going to get your feet wet again even with three!

However, if you have 11 stepping-stones spaced 2.5 feet apart, that is a comfortable walk to the shed. 

The Investment Stepping-Stone Principle:  Long-term investment goals are more easily achieved with more frequent yet smaller ROI goals. 

If I want to double my investment, I could buy a stock and sit on it for a long time and wait for it to grow in value and then double.  That is an option, although it may take a year or two, or more.  But if I calculate that a specific stock’s average daily low is 3-5% less than its opening price, AND that the average range from previous day low to next day high is 5-7% or greater, then I have laid out the plan for my stepping-stones.  If my target stock opens at 1.73, I will create a limit purchase bid at 1.68.  If the bid is not picked up, then I try again the next day based off the next day’s opening price.  If the purchase goes through at my target price, then it is expected because that falls within the average.  Then the next day, I will set my sell price for something comfortable that falls on the low-side of the next day high average range.  I will target a 4% ROI, so I set my limit sell price at 1.75.  This is a likely outcome since it falls on the low-side of the calculated previous day low to next day high average.  When my stock sells, there is always a little regret that I did not set my sights higher, because I have seen it go up another 5% after I sold sometimes, but I have also seen it go the opposite direct, so be careful to not play at the edge of the average.  All investments have risks.  Even this strategy might fail me since averages always contain some anomalies.  When you are looking at your average ranges, you might want to throw out the anomalies and set your target price after excluding those data points.

 

In the long run, this will give me a 40% ROI per month, but really 48% compound ROI since I will also be reinvesting my profits with each subsequent purchase.  By targeting a 4% ROI with each purchase, and planning to sell the next day, it creates a path of stepping-stones that yields more than double the investment in 2 months (119.1% ROI).  Small achievable stepping-stones will empower the investor with more control and a better performance than a wait-and-see or moon-shot approach.

Overcoming Investment Fear

 

Overcoming Investment Fear

 

It’s not hard to say why I never really got into the stock market before last year.  I was afraid.  Every penny went to raising our four kids.  I saw it as success if we did not have a negative bank balance at the end of the week.  I remember the garage sales and the trips to the pawn shop just to get us back in the green.  Back in Georgia I did take $500 from a tax return and opened an account with TD Ameritrade.  That was back when you still had to pay commissions.  So I opened the account, but 2 weeks later I needed the money, so I just withdrew it all and closed the account without ever trading.

 

We were never really about the money either.  We were living paycheck to paycheck and pretty happy, but never wealthy financially.  I still find it hard to believe that for the 4.5 years when we lived in Georgia, we only had ONE vehicle between us!  Waiting outside PCC for my wife to pick me up was just a thing we had to do sometimes.  However, there was a slight fear of materialism that made me villainize the financial market and those who were better off.  In a way I had a fear of success and a fear of investing.  So what changed?

 

Last summer, when I was filing taxes, there was a deduction I could take if I contributed to an IRA.  It was the first time I felt like I had a few bucks to spend on it, so I opened my IRA and then I forgot about it.  Friends at work were telling me about their investments, and I started getting curious.  A close friend shared a link with me so that if I opened a Robinhood account, then both he and I could get a free stock.  I got 1 share of WPX.  That started me on my journey of overcoming my investment fear. 

 

Investing involves picking the right stock at the right time at the right price, and then selling said stock at the right time for the right price.  There are a lot of similarities between investing and gambling that are worth considering before investing.  Can you deal with the stress of seeing your stock price go down?  The first week I bought HGEN, I saw it lose about 25% in value!  I’m glad I did not set a stop loss or I probably would have just been discouraged so much that I would want to quit.  Instead I rode it out.  I added more money to the account and bought down my average.  In the end I saw it bottom out near a 50% loss.  So in a 3 month period, I rode out a full investment of HGEN seeing a 50% loss and then a 95% gain on my investment.  As a side note, I don’t know if I will ever use a stop-loss, just because I know they are often manipulated on low volume days.  Most people that use stop-losses, set them to trip and sell at 10-20% loss.  Some stocks hit a 10% day loss a couple times a month, so setting a stop-loss would be throwing money away in my opinion.  So my failures have been good teachers. 

 

 Picking the stock:  Predictability breeds confidence.  If I am looking for a stock to trade, I want to find one that is trading near it’s low price and with a large enough range to support a 3-5% 1-day growth rate.  I am looking for something that also has a large enough trading volume, say 500K and up.  By studying the individual stock historical data downloaded from the Wallstreet Journal, I can check the range.  By using TD Ameritrades free software, ThinkorSwim, I can find stocks that are near their all-time lows and that have traded large daily ranges.

 

Picking the right entry price:  Trade within the historical data range.  So I have picked a stock (WINT), near its low.  Now I want to set my entry point.  In the last week, the low from open (LFO) has averaged 3%, so whatever the open is, that is what I will set my limit price for.  If it opens at 1.75, I will set it for 1.70.  If it is increasing in value, then I will have to adjust to a 2.5%, so if it opens at 1.74 and it has had an increasing range of LFO at 2.6%, then I will set my limit buy price to 1.70.  I always target below the open.  If it doesn’t take, that’s okay.  When it does trade, then I have to wait a day to sell. 

 

Setting the right exit price:  So the next day I set my limit sell order for 5% above what I paid, unless the range does not support it.  The average range for WINT in the last month has been 8% from previous day low to next day high, so 4-5% is a good target. So I bought at 1.68 and sold at 1.75 this last time.  If I had set my sell price higher, I could have made 10%, but the odds of it selling the next day go down with each percent that I increase the sell price.  If I want to make 20%, it will take a long time to hit that price.  I am aiming to sell the next day, so I will trust the data and get my 4-5%.  I have done that 5 times in the last 2 weeks!

 

Conclusion:  Predictability breeds confidence and understanding how the market moves is the first step to overcoming the fear of investment.  If you trade, do your research, trust your data, and start off small.  Please do not take this as investment advice, but as me sharing my investment journey.  The market is a tool so that I can reach my financial goals.  Plain and simple.  Happy trading!

Investing the Bits and Pieces

 Investing the Bits and Pieces

 

As always, let me preface by saying that this is not investment advice, but this is my plan for investing in stocks.  Here we go.

A big part of my investment plan hinges on two things:

1.            1.  Weekly small wins of 3-5% growth

2.            2.  Exponential growth from reinvesting earnings

I would like to give a real-world example of trades I made this week that illustrate both of these hinge-points.  Since most of my investment is currently tied up in Humanigen  (HGEN), that leaves me with few investment options.  However, most accounts will end up with some cash on-hand available for trading just because it is hard to invest 100%.  I would like to show how investing the bits and pieces can grow that uninvested portion of an account.  It may not be much, but it does make a difference.

 

So I looked for a stock that was at or near its low and selling around $2-3.  I decided on Windtree Therapeutics (WINT) which I have previously traded.  The stock has been in decline since last summer when it hit around $10/share.  But it met my criteria for trading since it hit a 52-week low and would support my growth plan of 5%.  The growth support is derived by averaging the range of previous day lows to next day highs.  If that range supports a 3-5% gain, then I go ahead with the trade even if the stock is in decline. 

WINT stock recent average range will support 3-5% growth since the previous day low to next day high average is greater than 5%.  It is important to target a good leverage entry point, so if my Low-from-Open (LFO) is 5% average, I want to target an entry point that is 4-5% lower than the daily open.  So on 5/12 I entered at $1.80.  It took a big drop on 5/10 and had a low of $1.77 on 5/11, so I thought it was set up to increase.  It is like pulling on a rubber band.  There was tension in the stock price leveraging upward, so I did not want to put a bid in that would likely not be picked up.  It felt like the bottom, so I went in at $1.80 and it was right in the middle from the open.  It bottomed out at $1.78, then it took off, but since I am trading in an IRA, I couldn’t sell the same day as I bought.  But the next day I targeted my 5%.  Good thing I was not greedy!  It sold on 5/13 at $1.89 (exactly 5% growth), then the stock tanked again.  The trade cleared sooner than I thought it would, so I was able to buy again the next day at $1.67.  It closed 5/14 at $1.76, right at my next 5% growth sell price.  No point in being greedy, so I follow the plan.  This stock has some history of not gaining in a day, so I have set my sell price at $1.76 for Monday, and I have confidence I will hit it. 

 

This technique is what I will exclusively use after I sell my HGEN stock.  Waiting around for a parabolic seems to me a waste of time.  I’ve made good money doing it, but I think the low-growth strategy seems more certain and risk adverse.  I was able to make 2 trades in a week, which is twice as fast as my stock growth strategy plan.  That’s ok, but I am not a fan of rushing into things, so one positive trading cycle a week is still success.  Two is the max.  Besides, there isn’t a CD or a savings account out there that can give a 5-10% return a week.  So I’m pretty happy with this strategy. 

 

Regarding the exponential growth, since I only had enough money for 6 shares on the first trade, I then had enough for 7 shares on the 2^nd trade, thus investing a greater portion of my stagnant account.  So in 2 trades targeting 5%, I actually end up making 10.8% off of the original investment.  I am always amazed at the power of exponential growth in trading stock.

 

Thanks for taking the time to read this and, if you trade, I hope you found this encouraging. 

 

-Johnie

My Stock Investment Strategy

 

My Stock Investment Strategy

 

Let me preface by saying that this is not investment advice, but this is my plan for investing in stocks.  Follow this plan at your own risk.

 

After searching the internet I have not been able to find a stock investment strategy like the one I am using, so I am sharing it with the world since, so far, it has worked out pretty well.

 

I started by opening a traditional IRA with $426.  I didn’t even have any plans to open one, but I could get an additional credit on my tax return by opening one, so I did.  Then I forgot about it for 3 months.  I just didn’t even log in to the account.  Then when I had some time off, I thought maybe now is a good time to learn about stocks.  I had never bought or sold stocks before this, so I didn’t know what I was doing or how to go about it.  I was afraid I would mess the whole thing up and lose all my money.  I started by subscribing to the Wall Street Journal.  I thought it would be good to look at the stocks that hit 52-week lows and target them.  Lucky for me I wasn’t aiming very high.  I found a stock to target, AKUS, and then I targeted a 2% return.  I bought one day and sold the next.  Easy peasy.  I was still afraid I would lose my shirt on stocks, so I had even retargeted so that I only made 1.5%.  But I now knew how to buy and sell stocks.  Over the last 6 months, I have started with a plan, then broken away, failed, won, and now I am settling in on a new plan. 

 

My plan is simple:  Grow the $2700 I have already invested and not add any more.  Grow it 3.75% per week, and in 5 years I can make my first withdrawal of $1,000,000 and pay off all my debt.  Sure, I’ll pay 42% in tax on the million, but it will be worth it because I will still have more remaining in my account for retirement.  I also started a Roth IRA, so it will be tax free when I turn 59 ½.  That is my investment plan in a nutshell.  It involves having to pay the piper when I decide to take out the first withdrawal.  Until then, it will grow tax free, and I do not have to deal with it when filing taxes.  It’s not day trading, but a form of low growth swing trading. 

 

So how’s it working so far?  In these 6 months of learning to trade I have made 62% ROI, which is far better than I would have done in a mutual fund.  I am invested in Humanigen (HGEN) right now, which should take me over the 100% ROI very soon, since it is expecting a large increase in stock price for the EUA (Emergency Use Authorization) of it’s covid drug Lenzilumab.  Otherwise, my plan is to search for $3-5 stocks that are under-valued and near their all-time lows, and make my 4-5% growth in buying when they are down.  Then sell in the next few days when they are up.  I pick a stock based on the average range from the previous day's low to the next day's high and take into consideration the company news, and if it is near the tested low.  This I repeat once, maybe twice a week.  Since I have an IRA, I cannot buy and sell in the same day, but I can sell the very next day.  I just have to wait 2-3 days for the trade to clear before I can trade again.  Once I start dealing with larger money, I will either have to split it between stocks, or start investing in more expensive stocks.  That will be a good problem to have.  We’ll see how it goes.