Tailwinds Select Portfolio, October Recap…

It’s very fitting that Halloween is the last day of October, because, for us micro-cap investors, it sure was a scary month. Scary in that, despite a strong rally in the S&P 500, many stocks, especially the smaller ones, took it on the chin.

It was also a scary foreshadowing of the future in that, going into year end, it looks like momentum trading is going to be a larger trend than usual. Typically, in the last months of the year, portfolio managers like to pad their holdings in winners and dump losers. This is done as a means of showing investors how “smart” they were in their stock picking, even if they’re late to the party.

With the large dichotomy in the market between the “haves” and the “have nots”, and potential tax cuts coming in 2018, we are facing a potential scenario that has the year-to-date winners dramatically outperforming for the rest of the year. Meanwhile the losers, with which micro-cap is littered, could see major tax loss selling and remain under pressure. From Tailwinds’ perspective, this translates roughly into “UGH!”

Check out the 3-month chart of the Russell 2000 versus the S&P 500. We had been playing catch up in a big way until October (the red area on the graph). At that time, downward pressure began for the unloved small companies, while continued upwards movement of the largest stocks ruled the day.

In terms of the impact on the Tailwinds Select Portfolio, as one might think we suffered some losses in October. For the month, we had 9 stocks trade lower and only 5 trading higher. That’s the bad news.

The good news, for Tailwinds, is that one of our 5 winners on the month was a really big winner. Patriot One (PTOTF) was up 97% for the month and, except for a slide in the last two days, almost single-handedly pulled the Portfolio to a profit.

As it turned out, the Tailwinds Select Portfolio traded lower on the month by 2%. This brought our year-to-date return down to 16% and our return since inception to 37%.

While the portfolio had its share of losers, it should be duly noted that Aqua Metals was a very big loser. Continuing a string of down months, and pushed back guidance, AQMS was off by 42%. I believe this is the result of 3 things: shareholders giving up on management, continued short selling attacks, and tax-loss selling.

Regardless of the reason for it being down, I believe that Aqua Metals will revolutionize the lead-acid battery recycling business soon enough and I am sticking with my holding. Call me stubborn, but a three month delay is not going to scare me out. I’m still convinced in the technology, having seen it with my own two eyes.

We are setting up for a possibly rough year end, in terms of the market dynamics for micro-caps. Our portfolio is filled with unique names, however, that have amazing opportunities in front of them; two new ones added in early November, ITUS and MARK, will be highlighted in coming articles.

While short term pain may arise, when you see stocks like PTOTF double in a month, you know that, through the market’s ups and downs, there is a light at the end of the tunnel for each of these companies. Sometimes it might be a train (I can’t get them all right), but frequently it’s a pile of gold.

Disclaimers & Disclosures: For a full list of disclaimers and disclosures, please visit: www.tailwindsresearch.com/disclaimer/

2 COMMENTS

  1. Hi Daniel….would like to know your interpretation of the big drop in CYRX after what I thought was a really good earnings report. This one has really struggled in recent weeks after a strong run up. How does it stack up to BLFS, which is being touted by several people on ST recently? Thx….

    • Hi Bret, CYRX doesn’t compete really with BLFS, who makes a biopreservation solution used to store products for transportation. They supposedly have a transportation option as well, but it’s not really competitive in terms of functionality and, therefore, hasn’t gotten any real traction. Basically both companies supply to the same industry, but not directly against each other in my opinion.

      I think the stock is just suffering from being expensive on current numbers and the big run up it had this year. Numbers will start beating street forecasts soon, I think, and next year will be a big year for analysts to be taking estimates higher as they have more clients get through Phase III.

      That being said, I’ve been selling into strength and am down to 1/4 of my original position in the Tailwinds Select Portfolio. I will likely sell the balance if/when it gets back over $10.

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