Small Time Blog

Diversification, Diversification, Diversification

by Bradley Voight on 11/24/13

The first three rules of investing. It is a lot easier to diversify through ETF's and mutual funds, but for the stock picker 5 companies are enough if they are well diversified. This is a Cramer axiom but like him or not he is right on this one. The Smalltime Model Portfolio is going to be made up of 5 companies to keep it simple. Stay tuned as we build the portfolio and transform our site over the next few months.

A word on trading. I have proven thus far to be an erratic trader, but I have been quite successful at several trades or I would have lost everything. Trades MUST be well planned and executed, but accept the fact that they might go awry. It is kind of like being in a kayak and approaching the rapids. you need to be prepared for the unexpected. Trading hasn't lost me money, my largest losses have come from non diversification by chasing the marijuana stocks. That error is well documented here learn from it and you won't be sorry. The only good that came out of my reefer madness was a $3000 tax loss for 2013...could be a blessing in disguise.

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Model Portfolio Addition

by Bradley Voight on 11/23/13

I have deposited $100 additional into the Tradeking account. This gives me a total of $250 invested in the account. I still own 30 shares of FTR and will continue to hold these shares and collect the dividends, trading around the position selling 10 shares on peaks and buying back 12-15 on dips.

The Smalltime Model Portfolio is being built on the backside of all the mistakes I've made in my personal trading account. I keep written journal of all the mistakes I've made and the correct processes to avoid those mistakes when similar situations arise. I have been the enemy of my own profits because I have identified many, many, many opportunities and even owned several of them only to jump out like a grasshopper with a small profit or loss, or be forcefully shaken out by the big boys. I will explain in full detail in a later post how to avoid being shaken out of positions when nothing bad has actually happened to the company, but the shares suddenly drop 15%.

I currently have another $150 to $200 worth of scrap at today's metal prices. By stockpiling metal and taking it in a little at a time instead of all at once, I am holding a long cash position in my metals. I happen to be bullish long term on the base metals. My metals can actually make me money just by me having them. Turns out it is just like shares in fast growing companies, if you don't own them and hold them, you don't participate in their appreciation in price. Of course my metals could decline in value too at which point I'll continue to stockpile and not sell. I can at any time ramp up my collection of scrap. Right now I only spend at the very most 4 hours a week collecting and I am passing up tons of cardboard because I do not have a place to store it.

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Portfolio Updates to Resume 12/1/2013

by Bradley Voight on 11/18/13

I will begin updating the Smalltime Model Portfolio and resume updating my personal portfolio on December 1st. I have made some changes to the personal portfolio partly because I wanted to, but mostly because my knee jerk response had me selling when I really wanted to hold. I have the same level of excitement about every company I research, I don't have the funds to buy them all and that is part of the reason I have sold companies that I did not want to sell. There are sooooo many opportunities they will make your head spin. With 15,000 plus public companies, it is a daunting task to try to pick even one stock, let alone a diversified portfolio of 4 or 5. I will write a post in the coming days outlining how and where I find potential companies. Peter Lynch put companies in 5 categories; Fast growers, Slow growers, Stalwarts, Asset plays, and Turnarounds. Just knowing these 5 categories is a tremendous help in picking stocks.

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Emotions: The Greatest Enemy of Investing

by Bradley Voight on 11/08/13

I am here to learn along side of my readers, not to instruct them. I happen to be an emotional person by nature and that has been the biggest roadblock to my success as an investor. I have formulated an approach to picking companies, I have learned how to interpret charts, I know how to value a company based on the numeric fundamentals, I know how to look for good entry points and I know how to trade if need be. Those things are all easy to learn, so easy ANYONE with a 5th grade education can learn them. Becoming the master of my own emotions is the one challenge that I have failed at over and over again in this game. Over the last couple days my emotional responses have cost me not only money, but also positions in companies that I still love. I was shaken out of STKL, even after having just bought 45 shares the day before @$10.70. A ho-hum earnings report for the third was met with a 16% sell off of which I blindly joined by selling all 275 shares @$9.25. Then I went looking for trouble and I found it. RVLT dropped to $2.60 I whacked it. SIRI-whacked as well. I was headed for more and luckily all my penny stocks were un-tradeable due to a glitch on the over-the-counter markets. So there you have it an emotional train wreck that ultimately left me out of RVLT's 20% rise after this mornings earnings call.

How did I respond to the mayhem I just brought on myself? I regrouped, swallowed some losses in $'s and shares, and I re-entered all three companies along with two more that I have had on watch, Kior (KIOR), a biofuels company, and Fabrinet (FN) an optical laser and scanner business. I made a pact with my wife to not watch the the Scottrader all day, a pact that I myself see as nearly impossible to live up to.

Peter Lynch said in one of his great books, all of which I will be re-reading, that just because the price of a stock drops right after you bought it, that does NOT make it a bad investment. STKL is not a bad investment, yet it fell hard right after I bought it and nothing the company did caused that fall. People who owned the stock for two years were sitting on a 220% gain as of two days ago and they probably took some, if not all of their shares of the table for a nice gain. The company made record revenue of $303 million in the 3rd quarter but business expansion costs cut into that revenue and earnings per share came in at 7 cents instead of the 10 cents analysts expected. The company maintained it's future outlook adding that these expansion costs will be an ongoing drag on earnings for at least 2 more quarters.

I know that all the online brokerage platforms have trade in their names. Scottrade, TD Ameritrade, E-TRADE, Trade King, Trade Monster. This insinuates that you must trade, but the people who own stocks are called shareholders. If the company is solid and the story is good, then hold the shares until things change, a lesson I'd do well to heed. A great example, the first 2 companies I looked at when I started my online account were Brookdale Senior Living (BKD) and Mueller Water (MWA). At that time I had $11,000 in my Scottrade account (I eventually withdrew $3000, to buy a truck). What if I split that equally between these two companies and walked away from the computer screen on November 8th, 2011 only to return today November 8th, 2013 here is the heartbreaking math:

BKD 11/8/2011 price: $16.63 per share. $5500 would have bought 329 shares after commissions. 329 shares x today's price as of noon of $28.50 would be $9376.50 a gain of $3876.50

MWA 11/8/2011 price: $2.45 per share. $5500 would have bought 2242 shares after commissions. 2242 shares x today's price as of noon of $8.48 would be $19,012.16 a gain of $13,512

GRAND TOTAL 2 YEARS LATER $28,388.66 a gain of $17,388.

I WAS ABLE TO IDENTIFY AT LEAST 50 OTHER COMPANIES THAT MOVED THIS WAY OR EVEN GREATER!!!!

IT PAYS TO BE A SHAREHOLDER, NOT A TRADER!!!!

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Change of Plans; Frontier Communications is First Purchase, Not Twitter

by Bradley Voight on 11/01/13

I want to build a portfolio so I have decided against the Twitter IPO. I bought 30 shares of Frontier Communications FTR @ $4.45 per share for a total of $138.45 after commissions of $4.95. This will be one of our core positions, meaning that we will not close out all 30 shares but we will sell 10 on peaks and buy back 12-15 on dips. This is very boring stuff but it is the best way to build a position from almost scratch. I hope to do the updates for the Smalltime Model Portfolio as a video blog soon so as to make it easier to follow.

So just like that I am a shareholder and I am entitled to a 10 cent per share dividend every 3 months. Remember, we are starting small so we can learn with limited risk. You will be able to see how rich people make their money on a small scale and as you build a few positions you will begin to understand why they talk about stocks on the news all the time.

Why Frontier Communications? This is a company that I have owned before and that I have kept on a watch list for over a year. Watch lists are critical in stock investing. Your watch list is like a bull pin of ready pitchers to be called upon at a moments notice. These are companies that you stay up on the story of, but you don't own any shares of. My watch list is where I turned when I left the greed driven marijuana stocks. I keep about 100 companies on my list. I can't follow all 100 closely but I can know a few things about each company's story. Remember every company has a story that is already mostly written. All you have to do is get caught up on what has transpired to date and then follow all the quarterly conference calls and you can know almost everything there is to know without being an insider or an analyst!

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