Are there times when it seems as if you consistently make the wrong decision when buying stocks? It happens to all of us. We get caught up in a story and don’t follow our gut. Of course when these mistakes cost us money, it is a real issue that hurts us financially, psychologically and emotionally. Not to worry. Much like a shooter in basketball or a hitter in baseball, all we have to do is work on basics and mechanics to improve our success.
I talk a lot about how emotions drive stocks, but I almost never talk about how important our gut feeling is about equity transactions. Look, there are times when no matter what we do a stock is not going to work for us. However in general, slumps and mistakes occur when we do not follow our gut or get too caught up emotionally in a story. Slumps occur when we make the same mistake over and over in our assessment of a given situation or in listening to someone’s ideas that are routinely wrong. Remember, Albert Einstein’s definition of insanity is doing the same thing over and over and expecting different results.
Your losing streak may have been due to a change in your approach at the time. Perhaps previous successes gave you a laissez faire attitude that you could do no wrong. Or, maybe you just forged ahead like a bull in a china shop. Go back to basics. Approach your next potential trade with no preconceived notions and follow your gut and your head rather than your emotions.
Here is an example of one of my own recent screw-ups. I was confident that a certain segment of the semiconductor space was going to enjoy stock accumulation. I was torn between recommending three stocks, all of which had reached new highs recently. I could only choose one, or maybe two. All three had other similar characteristics including single-digit stock price, not much deviation from valuation, similar balance sheets, etc. All three stocks ran the gamut of market cap, however, and I while I was familiar with two of them, the third I did not know very well. I ended up selecting the stock I was most familiar with, which was also the one with the market cap in the middle of pack.
Two days later the company with which I was least familiar announced it was merging with a larger player and jumped big time. The other stock leaped 45% days later due to a business development relationship. The one I selected is up a paltry 10%. Ugh. I know you have been there.
On the surface it appears that I did nothing wrong. However, if I am true to myself, I know that even when I selected that stock, my gut wasn’t entirely sold despite the fact the recommendation was a logical one based on fundamentals. I learned my lesson. Next time, if I am torn such as in the example above, I will pause, re-think and follow my head and my gut.
Earlier this week we introduced the concept of investing in stocks that are taking advantage of the surge in marijuana and medical marijuana usage, along with the risks associated with many of these nascent companies. Instead of profiling one of the more well-known stocks in the group, let's examine a stock that is currently under the radar but could rise toward the upper echelon during the course of the year.
mCig Inc. (OTCQB – MCIG – $0.52) is a technology company focused on two long-term secular trends sweeping the globe. These trends include the decriminalization and legalization of marijuana for medicinal and/or recreational purposes and the broad adoption of electronic vaporizing cigarettes (commonly known as “eCigs”) by the world’s 1.2 billion smokers.
Despite my years as an analyst crunching numbers, I was never proficient at higher-level math. The good news is that more often than not, it is basic math that can direct you to the right stock. In the case of hopTo Inc. (OTCQB – HPTO - $0.27), the math is simple. Strong positioning plus pending catalysts equals a higher stock price in the near term.
Unless you are an iPad junkie, you probably have never heard of hopTo. The company recently introduced a free, innovative mobile productivity workspace platform that makes it easier to use Microsoft Office on tablets like iPads and marries it with the use of cloud services. hopTo creates a “personal cloud,” combining remote PC access and top cloud storage services from SkyDrive, Dropbox and others. This is married with features such as file creation, editing and sharing, including those in Microsoft Office formats. This is an inherent advantage as Microsoft has yet to make Office fully available for mobile devices on the cloud and many similar programs are not entirely compatible, creating errors.
You may not have noticed that with the stock market at all-time highs, short sellers are out in force, both in the public realm and in a clandestine fashion as well. Individual investors often do not understand short sellers since the whole exercise runs counter to their own investing strategies.
Furthermore, investors have preconceived misconceptions about these mysterious characters. Some believe that they exist as a hedging strategy only, while others believe that their motives are not aligned with ours and that they can be dangerous. I follow the latter belief, and you should as well.
The two hottest water-cooler topics early in 2014 seem to be the weather that has hammered the U.S. and the cannabis craze. I have written at length about my sentiment regarding first-quarter 2014 GDP growth and consumer stocks in recent weeks. Now that we are at the tail-end of the winter season, perhaps it is time to address the other hot topic, cannabis, given the strongly favorable trends surrounding this controversial drug. This trend is akin to the end of Prohibition and the launch of a new industry. Opportunistic investors and companies will make a fortune investing in the right industry segments and the right stocks.
This blog is the first of a two-part series that will introduce the concept and the industries. The second part will be published Wednesday, and you don’t want to miss that one, either. First, a primer.