Continuous Improvement with Investing

As always, let me preface by saying that this is not investment advice, but this is about my investment strategy and journey in trading stocks. 

 

Summer vacation was nice and the Arkansas mountains were lovely.  Remember, stocks are a means to an end.  You just have to take a break to renew, relax, and refocus.  That is a little tricky when you have been in a stock position for a couple of weeks and you are riding a downhill roller coaster.  I filled my cart with Humanigen stock (HGEN) on June 25^th for 18.15/share, and then watched it take a nosedive to 15.76, but yesterday in the pre-market, woohoo, boy was I happy!  It shot up to 20.00 and I knew it was going to be a good day.

 

“I was right on top of it, and sold for a 10.2% profit before the market had even opened” is the sentence I would like to be true.  However, I believed it was going to just keep going up all day as a breakout event.  It didn’t quite work out that way.  Right when the markets opened, it went right back down to the lower 16’s and finished off just above 17.  Reality is that I missed a great opportunity and it cost me 10.2% profit and left me in the negative still on a position I have been in longer than I wanted to.  Longer than my strategy calls for, which means my growth rate is postponed…again.

 

Investing is hard work and it takes an emotional toll on you sometimes.  In manufacturing we focus a lot on continuous improvement.  No matter how good you do something, there is always a way to make a more defect-free product for less money in less time.  After I realized my mistake yesterday, I read some good advice:  Always sell during a gap up if it is in the pre-market.  I am adding this to my investment strategy.  There are few records kept of the pre-market and after-market price swings, and those do not always show up.  On the WSJ website, it shows a range of 16.57 - 18.675 for yesterday.  No mention of the 20/share price.  Since it was pre-market, it wasn’t official.  But I have bought and sold in the pre-market before and there are no extra fees, penalties, or criteria for trading in the pre-market.  Anyone can do it, but you have to set up your Ask for Extended Hours AM and PM.  In TD Ameritrade, it looks like this:  GTC+EXT.  Good till closed plus extended.  You can cancel or modify as you wish, but if you do not have extended hours selected, you will not sell or buy at a limit price during the pre-market or after-market.

 

Don’t beat yourself up for the missed opportunities.  Just by nature there will always be more missed opportunities than the one path you take.  Instead learn from them and next time you will have one more tool on the tool-belt that can help you steer clear of the investment potholes.  I am confident I will sell my Humanigen stock for a profit soon, and next time I see this set-up in the pre-market, I will be ready.

 

-Johnie

May 2021 Stock Strategy Review

 So I have started a new stock strategy during the month of May, so let's see how it has performed.  

I started May at 163% of my initial investment, and I finished at 179%, so I made 16% ROI from my initial investment.  Not too bad since I was just getting started in the new stock strategy, and since I am not planning on adding any more money to my IRA.  May was a pretty good month.

I am targeting 10 trades a month making 4% per trade.  Including the exponential growth factor, that ends up being 48% per month.  The 16% was the end of the last stock strategy I was using with Humanigen, HGEN stock.  I was heavily loaded in on HGEN, and was holding until the submitted the application for Emergency Use Authorization with the FDA.  If I would have sold the day before, I would have ended up making 40% growth for May.  I learned that HGEN has been following the principle of "buy the rumor, sell the news."  That is where the stock price increases on anticipation of a catalyst and then as soon as it happens, there is a mass sell-off.  I expect the same thing to happen again before receiving EUA in a couple of weeks.  It's not that HGEN is a bad stock.  I will probably buy more the 3rd week of June, but it depends on the price.  HGEN does meet the general qualifications of my stock strategy (see the screenshot).

June is off to a good start with ASTS.  I went all-in on 6/3 for 7.20 and sold on 6/4 for 8.20 and made 14%, but because of the exponential factor, I am now sitting at 203% ROI.  

If you have followed my previous blogs, you might be checking out WINT stock as well.  The Windtree Therapeutic stock went way up on Friday, from 1.99 to 3.40.  That would have been a good one to have, but you never know when a stock is going to go up like that.  However, I think it is strange that two stocks I have been targeting went up quite a bit this week.  That is a good sign that my strategy is picking stocks that have a lot of potential.  I have noticed that targeting 2.5-3.0% less than the open is more successful than 3.5-4.0%, and that makes sense since most stocks have about a 2.5% decline from open all the time.  Not a rule but an average.  I have yet to review the stocks completely for Monday, so I am not sure which one I am going to target.  It could be one of the ones that I have already targeted before.  Maybe HGEN since it has been in a little slump, but I see that one going down some more before EUA is granted.  Also, I am not too keen on ASTS or WINT since both of them had a big spike on Thursday and Friday.  Happy trading!

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!