My Process – Long $SMCI

Last week I bought some $SMCI at $20.00. Here’s a quick post on what got me there.

1) How $SMCI made it to my watch list: I find investment ideas two ways – screens in finviz and following a select group of people on Stocktwits (investingsocial, you know?). This idea came to me from the latter. My strategy can be defined as trend following or momentum investing and my timeframe is ideally months – years. I ride winners for as long as possible. A great source for ideas in that strategy is the Social Leverage 50 list (formerly Stocktwits 50). I do not pay for that service, but I capitalize on the free information that Ivan puts out on Stocktwits. This is pretty simple – I follow the @SL50 stream and if a stock is mentioned there that seems like a potentially good idea I add it to my watch list. My watch list is a google spreadsheet and I have a column where I keep track of the source of the idea (what screen it showed up on or who posted about it on ST). After looking back at this idea I thought I’d check out the new Stocktwits search function to see what actually caused me to put it on watch (the search function is pretty cool – put in two terms $SMCI and @SL50 and found the exact post I was looking for):

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I have followed Ivan and the Stocktwits 50/ Social Leverage 50 list long enough to know that they are trusted and smart sources that follow a similar strategy that I do. So when I see a name that is on that list I pay attention.

2) From Watch List to ‘Ready List’ – I have 3 lists that I try to add to and prune as much as possible – watch, ready, and action. Watch has about 200-300 names, ready has around 50 names and action has 0-10 names typically. One post by a source that I trust is enough to get a stock on my watch. I scan charts of the watch list every week to see what looks good technically. I keep this simple – weekly charts with minimal noise and monthly charts with price and volume only:

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Looks good, right? On to the ‘ready list’. (not sure why I call it the ready list – should probably be the ‘getting closer’ list. whatever.)

3) Ready to ‘Action’ – this is where a bit more analysis goes in. Researching company, looking at growth numbers, checking when earnings are, checking what trend the stock may or may not be involved in and what potential catalysts may be. I’d like to elaborate more on this specific stock but the truth is that it was mostly a technical decision for me. And a post earnings play. I understand what the company does, but I’d be lying if I said I knew much more. And that’s okay with me because I know how to manage risk. This stock got earnings out of the way and gave some very clear levels to watch and pay attention to.

Main thing I noticed: 4 year breakout with major volume, a retest of the breakout and then a major bounce off those levels with volume.

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Then I look shorter term:
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Ugly bar on earnings day, but support between 19-20 is obvious. So then I set up a trade using a simple spreadsheet I created (example using a 100k portfolio).

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Some things to note: .33% risk is less than what I usually risk. However, overall market is not favorable for my strategy so I make changes to reduce risk (and stress). Another strategy is to relax and sit in cash until the overall market looks stronger. But I have missed some nice setups in the past because of that strategy. So I reduced position size but still made a move on $SMCI.
Another note: $18.75 is a fairly tight stop for someone who claims to hold stocks for ‘months to years’. But, just like the risk %, I don’t like the overall market action much right now so I tighten things up. If the market turns up things could work out well. If the market goes south, I take my small loss and learn from it.

That’s about it. Thanks for reading and please ask questions or give feedback.

My Process: Long $VRNT

On 12/6/13 I bought some VRNT. Here’s the quick process of what got me to that decision (the charts and numbers will reflect today, but you’ll get the point).

I found this stock by using my screens in Finviz. I usually look at these screens at least once a week. I start by creating screens or using my saved screens and then scanning through the MONTHLY charts of the results. I like to start with monthly charts because it gives me a good perspective of the long term picture and it filters out a lot of the short term BS that people get caught up in when investing. I also think the best setups are ones that line up on many timeframes and monthly is a good place to start. Stocks that show up on the screens and have a good monthly look go on a list for further research. Check the monthly charts below. If you don’t see why this made the list of further research you shouldn’t be using charts. Uptrend, breakout, volume, ect – all good to me. Check.

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After that list is created I look through weekly charts and look into what industries the companies fall in (are they in ‘hot’ sectors?). If a stock passes on both, it moves on for further research. for VRNT:

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When I was researching this stock that breakout bar at the beginning of December had just taken place. Weekly chart: good (great). Check.

Sector: Business Software and Services. Tons of good companies and strong performers in this sector recently. Numbers for VRNT already confirmed as good because of my initial screen. Check.

Next step – research specific company. I usually visit the company’s website, scan through the last month or so of the Stocktwits stream for the company, and read any articles that seem relevant. This is just to give me a feel for the company and to find out if there are any important events that have happened or will be happening. I don’t remember what I specifically read, but I remember two things that kept my interest going: 1) very few followers on Stocktwits. I have no proof that this matters, but I like trying to find potentially strong companies before they become ‘hot’. 2) The company falls into a few trends that I think are strong right now: software, big data, and (not sure exactly what to call this one) ‘security’? – NSA, tracking, fear… So everything was good here. Check.

Next step: research setup and potential entry. First I look at a shorter term chart (daily for this one) to see what a logical entry and stop price would be. This was early December and soon after the breakout above $38. I decided 37.45 was a good stop price for this scenario.

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Then I set up a trade like any trader would: amount of portfolio I risk, buy price, stop price, ect. I use a simple spreadsheet for this:

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Then it’s time to pull the trigger and see if the work pays off. So far the stock has acted very well. Held it’s breakout, never got below $40, and moved up with volume on a big day for the overall market (12/20).

So that’s a look into what I do before I buy a stock. Let me know what you think.

 

My Open Positions and How They Came To Be

For my first blog post and first ever review of open positions I will take a look at what I currently own and what led me to enter each of the stocks. This is mostly for me – to rehash my previous moves and look for points of improvement, but I hope any readers can benefit from it as well. I follow trends so you’ll notice I hold stocks for as long as they allow. The ones I have held the longest are often the biggest winners and I like it that way. Another thing: as the name of this blog suggests I use the social web, almost exclusively, for my investing ideas. I run my own screens as well, but I find that following the work of smart people reduces my time and also teaches me an enormous amount about investing that I would otherwise not have access to if it weren’t for Stocktwits and bloggers. So along with my commentary on each stock I own I will also cite my source for the idea. Thanks for reading.

V – long 2/8/2012 +77%

I was interested in this company for a long time and actually entered after MA announced earnings and V rose in reaction to that strength. Not one of my most prudent entries but the trend was up at the time, I hopped on and it has stayed in an uptrend ever since. This has been one of the easier stocks to own. Doing nothing until the trendline is breached. 20 week is also good long term trendline to watch.

Source for Idea: Warren Buffett… It’s funny looking back at old ideas. I have been investing for a short amount of time and have nailed down a process and strategy in the last year or so. Before that I guess I was all over the board. A little Buffett, a little trend following. Ha…

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PRLB – long 8/8/12 +74%

Patience after my entry in this stock has been rewarded and has been a serious winner since breaking out to all time highs early this year. Again, not the best entry. Or more importantly, not the best hold as it did drop more after my entry than anything I would allow now. Got lucky though. Volume shows that big players still want to get in this and I will stick with it until it tells me otherwise.

Source for Idea: Stocktwit post by Joe Fahmy… Again, my process and strategy were not defined back at this point. I knew I could learn a lot from Fahmy’s posts and tweets, but I would never enter a stock based on the post of someone else anymore. I guess this is why looking back to past decisions is helpful…

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ASGN – long 8/16/12 +78%

This entry shows what is probably my favorite technical setup for a long entry. The stock had a strong move up on good volume from around $14 to around $20. It then consolidated and formed a nice round base that never dipped far below any major averages. I bought it in anticipation of another move higher and have been rewarded nicely. Last week it broke above a long term resistance trendline. We’ll see what happens from here, but so far so good.

Source for Idea: Leigh Drogen favorite trends for the year… looks like I was finally pulling it together around this time last year. I had read Drogen’s post at the beginning of the year and added his ideas to my watchlist. I then kept track of it but only made a move when it matched up with my personal style and strategy. This is a perfect example of ‘investing social’ – I used the social web to find a good idea and I combined it with my personal style to create a quality investment.

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GOOG – long 12/13/12 +30%

Like V, this was a company I had an interest in owning and was stalking for a while for a good entry point. The stock broke above long term resistance in August ’12 and then retested that breakout. It never dipped below the $650ish previous resistance which led me to believe it was likely now going to be a support level. I entered shortly after and the stock has not looked back.

Source for idea: Google, everyone… There wasn’t a specific person or source that turned me on to this as an investment. Who doesn’t know about Google?

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KORS – long 1/9/2013 +19%

Similar to the ASGN setup, this had a big move and then consolidated in a bit of a round base. After it found support above the 10 and 20 week moving averages I got long. Another notable aspect of this entry for me is the weekly MACD moving positive. I am a big fan of this. This proved to be a good entry for me, but the stock has required patience. I am fine with being patient here because it looks like the stock has a good chance of moving higher. We will see.

Source for idea: Most trend followers on the social web… This name is widely followed and talked about by a lot of people, but also by people I enjoy following and respect. The name had been on my watch list for a while and a setup I like came along so I took it..

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INVN – long 2/12/2013 +3%

Not my type of entry (daily breakout buy, basically bought the top in the stock when I entered), didn’t stick to rules (held on to a loser for far too long), and got damn lucky that my confidence in the story and company looks to be paying off. I have learned a lot from this and have vowed to never hold a loser too long ever since. The crappy thing is that I have been interested in the company for a while and have watched it closely for a while. If I would have cut my losses after this entry I think it is likely I would have re-entered around 12.50, after the earnings strength and support above major moving averages. Instead I am up just a few percent now. But, I got lucky and I have since to buy a daily breakout or hold a loser too long. Hopefully I can keep it up. Also, this stock looks really good now.

Source for Idea: Chris Perruna favorite ideas for 2013… Perruna, like Drogen, puts together a list of stocks that often match up with what I look for in investments. The ideas go on my watchlist and if I like what I see I look for an entry. Sometimes I am wrong about the entry. Not his fault. Mine…

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HHC – long 3/8/2013 +44%

This one makes me look smart. I had been watching this stock after reading a few smart people saying that it was very undervalued. I don’t dive into that kind of stuff, but when the story matches up with technicals it gives me more confidence in the entry. This consolidated for a long time just below all time highs. It then broke out on major volume and I hopped on. Looking good and feels like it will keep going.

Source for Idea: 2/14/13 post by Todd Sullivan (valueplays), reposted by Howard Lindzon on Stocktwits (I didn’t follow Sullivan until after this). Another great example of leveraging the social web for investing – I let smart people (howard) read a bunch of stuff and curate it for me. He reposts good ideas and I read. I then add to my watchlist and make a move when it matches with my personal style.

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SPSC – long 3/8/2013 +47%

Another example of my favorite setup and what I am now constantly on the lookout for in new stocks. Big move, smooth consolidation, weekly MACD turning positive, close to all time high breakout. I entered in anticipation of a move higher as the stock looked to find support above major moving averages. It has since broke out a couple times and looks really strong right now.

Source for idea: Stocktwits post by @TwentyOne… This is an example of finding a Stocktwits user that has a very similar style as me. I regularly go through the stream of this user and add his ideas to my watch list. This was a good one…

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FEIC – long 5/1/2013 +18%

This was a bit of a breakout buy for me but it was coming out of a nice base so I didn’t consider it to be a chase or emotional buy (like INVN). It is also a stock I had been watching for a little while and believed in the story and strength of the company.

Source for idea: again, Leigh Drogen’s favorite trends for the year. The guy puts together a good list. The stock also made the ST 50 after I was watching it. It then setup and that was all I needed to make an entry…

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TEAR – long 5/14/2013 +38%

This was an abnormal entry for me, but controlled and well prepared none the less. I actually stayed home from work one day (I invest retirement money and trade a little bit on the side) and decided it would be fun to do a little short term trading. I had my eyes on this stock for a while and was really interested in the company. They reported earnings the night before my entry. I read the earnings call transcript and calculated a 5:1 daytrade the next morning. Since then I have applied my trend following rules and will hold as long as it stays as strong as it has been. (I know, don’t turn a trade into an investment. This was a stock I wanted as an investment for a while. It was just how I treated the entry that was a trade).

Source for Idea: Investment research firm I follow that posts their monthly research universe. I look at their ‘strong buys’ and watch any that interest me.

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LNDC – long 6/7/2013 +5%

I haven’t held this too long so I have less commentary. The volume on this stock was very enticing when I came across it and it gave a nice entry point with the 10 week and previous breakout point acting as potential support. We will see what happens, but it looks like it could move up.

Source for idea: same investment firm I mentioned for TEAR. I usually wouldn’t follow sell side recommendations, but I know people at the firm and I know what type of stocks they look for. I also only use them for ideas and buy only when it matches my criteria.

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LNKD – long 7/5/2013 +5%

A widely followed stock by trend followers that gave me my favorite type of setup. Big move, smooth consolidation, weekly MACD turning positive, support above 10 and 20 week MAs. This is new but looks good so far. We’ll see.

Source for idea: most trend followers… Kind of like GOOG, I can’t put this idea on one person or source. It’s been on my watchlist for a long time and finally gave me the setup I wanted.

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So there you have it. My first post. A look into how I come up with ideas. And luckily for me, they are all winners right now. I have found my style and that style is trend following. Just so happens that that is a nice style to have in the recent market. I will stick with it until my positions tell me to get out.

I don’t know who the hell will read this, but if you made it this far I hope you enjoyed. Feel free to reach out with any questions/suggestions/ect.

And do your own work. This is mostly for me, not advice.