Normally I try to have my lead story be something about the big picture. Whether that be the Tailwinds’ portfolio, micro-caps in general, or the overall market, the idea is to develop a top-down piece that can add additional insight into the individual stock trading process.
Right now, however, it appears that the big picture is dominated by Trump and his trade policies. The latest tariff-related conflagration, along with his most recent tweets, makes up the bulk of the macro picture. And, I’m very tired of it all.
To which one might say, “who cares? You’re not paid to be interested, just to interpret.” This is completely accurate, but, in my defense, I would suggest that the market is equally tired of it. Every day new dictations come from the White House, each greeted with a more muted reaction than the previous one. It appears that Trump is becoming the boy who cried wolf and investors just don’t listen to him much anymore.
So, with volumes down and the market seemingly content to slowly climb higher until there is a real exogenous event, I thought I’d amuse myself (and hopefully my readers) by trying to bring some insight into the thoughts that have been bouncing around inside my head while I watch the paint dry.
- The Tour De France bears a strange resemblance to my thoughts about my portfolio. Let’s face it, the Tour is boring. We all know Team Sky will win. They dominate every day as they have by far the strongest group of riders. This is how I’d like my portfolio to behave. There’s a large pool of stocks (the peloton) and I can’t own them all. But, if I can assemble a group of strong winners, and avoid disasters, I’ll be looking good.Boring is good in a portfolio. Too much volatility can shake you out of stocks. When they go down, you question everything you know about the Company. Questioning in and of itself isn’t bad, but second guessing yourself can lead to bad decisions. Give me a portfolio full of companies that execute, and whose shares don’t collapse for no reason, and I’m happy. But, damn, I’d love to see some excitement back in the Tour!
- Stocks aren’t reacting to news immediately. At least it appears that way to me. A great example is MTBC, which spiked on their acquisition, but then retreated. It should have gone straight up, but it really seems like micro-cap investors are on the beach. There was more selling on the news than buying. Now it’s trading higher and I think this trend will play itself out into a great gain. But, the point I’m making is you didn’t need to get in front of the news. You could buy after the fact and not have missed much if anything.Another example of this is ITUS. Phenomenal news about accelerating their CAR T program, yet the stock gave back all its gains and then some. Now, it’s starting to uptick, however, and I expect that trend to continue.
Or, how about SGBX. The press release early in the week basically said that numbers are going to have to go up and that their pipeline is full. The stock popped, but then retreated back to its starting levels. I’ve no idea who is selling, but they’ll likely regret it as the story unfolds.
I don’t know about you, but I like buying stocks that have things headed in the right direction, have clearly indicated this to the market, yet are trading lower than before.
- Returns can be boosted with stock loan…and I mean BOOSTED! By being in micro-cap, you’re swimming with sharks. Many of these stocks are controversial and attract short sellers in droves. You can certainly make good money when you own a heavily shorted stock and have the fundamentals correct. It’s even better, however, when the shorts pay you to borrow your shares.MTBC was paying me 70% for a while. I have some investor friends who are lending out shares of that along with several others. It’s a great game when you’re making greater than 20% annualized returns on your portfolio before you even factor in trading gains. If you’re not holding your shares at a broker where they can lend them out for you, consider it.
- I’m becoming a believer in the short conspiracy theory. With people paying huge rates to borrow shares, you have to wonder who it is? In general I’m not a believer in conspiracies of any kind. However, I’m buying into the thesis that is championed by Overstock and others that there is a massive naked short position in the market.The rumor I’ve heard is that Citadel, who owns a broker and can therefore naked short, has an investment philosophy of shorting all micro-caps. They don’t take a fundamental bet on the companies, rather on the group. Similar to 90% of gold mining companies never actually mining any gold, they supposedly believe that a majority of micro-caps can be driven to near extinction, or at least to heavy dilution, by just simply sitting on the stocks and shorting them forever. If any firm has the financial ability to do so, it would be them, right?
This theory is making more sense to me daily. I’ve seen too many stocks go down on good news and trade at obscenely low valuations. In my opinion, there are games being played and us small investors are the tail being wagged by the dog.
- Management is the key. Duh, right? Everyone knows this. Yet, it can’t be said enough. If you invest in companies with great management, you’ll likely do well. If you took my portfolio and ranked the teams in terms of both quality and depth of managements, it would bear a strong resemblance to the portfolio ranked by percentage weightings.
- Not every stock is a potential 10-20X return…but here are the ones I own that have that potential. When I started Tailwinds, the idea was to buy stocks that I would own forever. Or, at least for 3-5 years. Not shooting for doubles, but shooting for the moon.I’ve moved away from that a little, as it’s tough to pass up easy doubles and triples like FSNN was and MTBC appears to be. Neither of those will put up biotech returns, but they felt like easy money when entering the positions.
However, we all want The Next Big Thing. So, without further ado, I’ll wrap up this chain of random thoughts with my picks that have the potential to make me very, very happy, and what it will take to make that happen.
In alphabetical order:
Atomera. If they get one license, could become ubiquitous very quickly.
Bioasis. Curing cancer always has big returns.
Catasys. Just starting down the path to potentially multi-billions in revenue.
ITUS. See previous comments about curing cancer.
Patriot One. If the product works as advertised, could be huge.
SG Blocks. So cheap, highly scalable platform.
Thanks for reading. If you’re still reading, I guess that means you found it entertaining enough to make it to the end. Which, I’m hoping happens with the Tour De France…Sky is pretty much guaranteed a win, but if Froome and Thomas actually battle for first, there could be a reason to stick around that for a while, too.Tailwinds' Disclaimers & Disclosures: For a full list of disclaimers and disclosures, please visit http://