bought back sold shares, $DMTK is a good stock to swing trades

We are at breakout levels for $DMTK, expecting a move towards 40+

Last week, I got the chance to interview the CEO & Founder of 7investing, Simon Erickson.

Simon is a wealth of knowledge, and I LOVE his insight into the markets and the future.

We discussed a wide range of topics included: building 7investing, semiconductors, Ad Tech, Crypto, Healthcare, Insurance, Quantum Computing, what the future holds, Ab Lincoln, and… High School Dating!?! (you’ll have to read to find out)

Some tickers discussed include: $AAPL $TTD $SNAP $CLPT $DMTK $HOOD $NNOX $AMD $BFLY $TSLA $NVDA and more…

Compared to my usual Newsletter, this one was an odyssey. Here's an excerpt...

Parrot: I understand you were very early to the crypto market. What did you see back then, and how do you feel about it going forward? Do you ever foresee 7investing recommending a cryptocurrency?

Simon: So to answer the first part of the question: there was a huge disconnect between the market’s expectations for crypto and the industry’s embrace of cryptocurrencies. So the first time I can remember talking about this was at South by Southwest. It’s a conference in Austin every year. It’s huge. It’s one of my favorite events of the year, every single year. It had just so happened that there was a breach of one of the cryptocurrency exchanges called Mount Gox. At the time, right before one of the conferences that I attended, everyone was scared of losing all of their Bitcoins and the security of digital wallets. Just a whole lot of pessimism that was plaguing this market. So the price, as you would expect when there’s excessive pessimism, plummeted.

And yet, I went to South by Southwest and sat in and saw these entire amphitheaters filled with people that wanted to learn more about this. Not just people in their basements that were buying or mining Bitcoin. Lawyers talking about what are the legal ramifications going to mean for this; business manager saying, how can we get this on our balance sheet; Techies, IT folks saying, okay, how are we going to connect the dots on integrating this with our current infrastructure that we had. There were thousands of people that were all really, really excited about this. At the same time, the market as a whole, which was really direct to consumers already at this point, was just saying they wanted nothing to do with Bitcoin. So seeing that disconnect of the excess of pessimism in the price of Bitcoin compared to really a lot of optimism by the people who were making business decisions about it, led me to say, “Okay, now’s the time to get into crypto.” And it certainly was the right time, because as you’ve seen with Bitcoin and crypto, it’s going nuts lately. A lot of the people who were laughing at me at that time, several of them are actually buying and embracing crypto themselves right now [laughs].

Another...

Parrot: You’ve been very outspoken about up and coming industries; those that we don’t fully understand yet, don’t really understand the scope of yet. Sort of trying to skate to where the puck is going, not where it’s at. Where should the average investor be looking for new opportunities?

Simon: This is probably one of my favorite topics of all time, and we could have a two beer conversation every single day about this. But just to give a couple ideas of where I think the puck is going.

The first is a more consumer facing health care approach. This isn’t just about going to the hospital and having a paper file in a manila folder that tracks your history any more. There’s a lot more availability of information about patients. There’s a lot more medical information about patients that is being provided to them. It’s turning them into true consumers rather than just patients. That’s going to impact the diagnostic market, that’s going to lead to a more proactive system of healthcare, and it’s also going to be leading to a much more personalized form of treatment. We still have to address privacy, we still have to respect it. I think that consumers are playing a much larger role in their own health. And, combining the diagnostics we have with artificial intelligence, with AI, there’s going to be a lot of optimism for the future of health care in the next couple of years.

The second space I’m really interested in is using AI for insurance. Insurance is highly complex, whether it’s home insurance, whether it’s life insurance, whether it’s car insurance, wherever it might be. There are just too many choices for us to keep track of, especially when those choices are changing on a weekly basis. If we could deploy AI to monitor this multi trillion-dollar industry and give us the best rates for the coverage that fits us best, I think there’s a huge opportunity for companies to benefit from that. Personal assistants as well. I hate managing insurance, I hate managing my life and my calendar. If I could just give the AI a way to do that for me, it’d be a huge win.

The third one that I’m also really excited about is quantum computing. This is something that’s going to happen a lot faster than most people think right now. It’s mostly just a science project. A lot of companies aren’t making any revenue off it. But once we get commercial grade quantum computers, everyone’s going to want to embrace them because no one’s going to want to fall behind their competitors. Even at a national level, no one’s going to want to fall behind their competitors in the form of other countries. So, we’re going to see the embrace of quantum happened very quickly. We’re starting to see some publicly traded options. And I think that several of those will be worth several times their current valuations in a few years.

This is just a small sample of what's packed into this weeks newsletter. I hope you take the time to read the full interview here: "Stock Squawk: Interview with Simon Erickson"

I would love to hear where you guy's think the puck is going! 👇

🦜

Everyone want’s to catch the next “rocket”. No, not the Bezos phallic spaceship, but the next stock that’s going to shoot up incredibly fast in an incredibly short period of time. Think $UPST; which as of this writing it's something like a 16 bagger… this year! Remember the old investing mantra, “it’s not how many times you win, it’s how big!”.

So I decided to discuss some different strategies to approach maximizing your investing returns, while minimizing some of the risk in these high growth/high risk rockets.

Let’s talk strategies for getting into (and out of) super high flying stocks.

Contributions by @drowsyinvestor, make sure and give him a follow on Twitter.

Sometimes an opportunity comes along where it makes sense to buy a full position right out of the gate. (My favorite setup is a hot IPO coming on the market on a day the broad market sells off)

One recent example for me was $PLTR. I bought a full position under $10 in early October ‘20. Within 2 months, at the end of November '20, it had ran 200%, where I sold half my shares just under $30. The stock went on to run over $40, then pulled back to the low $20’s, where it lingers to this day.

I bought 1000 shares for $10k, and sold 500 shares for $15k, a 50% realized profit with 500 shares free and clear. Yes, I missed out on some upside when it traded to $40, but I also avoided the urge to sell when the price was cut in half to $20.

It’s too bad every investment isn’t that easy.

It’s hard to go wrong dollar cost averaging over the long term. If you find a company you love, pick an appropriate amount for your budget & conviction, and buy a little each week/month/quarter. Drowsy has been doing this religiously with $MELI.

Fear of missing out on high flyers is a strong pull. Using a systematic DCA plan will get the emotions out of your investing, and you’ll be happy regardless of the short term price action.

*This is a great strategy for all types of investments. I personally use this strategy for my dividend portfolio. The one “slight” downside is your systematic approach may mean you miss a major drop/buying opportunity, but overall you can’t go wrong with DCA.

Similar to DCA, but less systematic. This is a big piece of both Drowsy & my strategy, and is counterintuitive to the prevailing FinTwit philosophy. I often find a company interesting and buy a starter position; THEN start the real due diligence (I work better with skin in the game; I started $SE at $50 and kept buying into the $200’s; Drowsy got in $SHOP at $58 and has been scaling in after every earnings).

Buy some shares (and potentially LEAPs - a favorite strategy for Drowsy). Get skin in the game, then add on during specific event and price action.

Look for key milestones, technical setups, earnings targets, partnerships, acquisitions, etc. By their nature, high flyers are volatile, use it to your advantage to average in during downward volatility.

You can catch a lot of stinkers this way, especially if you come to a position late like I did with $DMTK and $BIGC, and Drowsy did with $ATER and $SKLZ (we both could list many more examples). When you realize you made a mistake, just get out (or like Drowsy, just hold forever 😊).

Sometimes you catch a company at just the right time, and it takes off. Then the hard part is deciding to hold, add, or take profits. Drowsy and I both have examples of each in our portfolio’s.

$UPST is a great example of a company we both bought right before the latest run (under $100). When it stalled at $200, I was sure it would pull back and wasn’t willing to give back a 100% gain in such a short timeframe. Drowsy, being much smarter than I, is now another 100% richer as it trades near $400.

Remember, with this strategy, you have to continue your due diligence and build out your position. You may have crushed it with your initial buy, but it doesn’t help the bottom line much if it’s just a tiny allocation that’s gone up a lot.

Patience is not in our nature, so we’ve talked a lot about potential ways to take action now. But we would be remiss if we didn’t acknowledge that its perfectly fine to just wait.

Good companies will continue to perform over the long term. We all get FOMO (fear of missing out) from time to time, but adding a stock to your watchlist, letting them report a few quarters, and getting comfortable with your thesis/conviction are tried and true methods for investing in all types of companies… including rockets.

Even the best high flying companies will give you a good entry point for new investment if you’re patient.

These are just a few examples of potential strategies to catch a high flying stock. Every company, and every trade is different. You have to decide what works best for your situation. And most importantly… Have A Strategy!

Whatever your strategy, remember the risks involved with high growth companies. Your position sizing should match your risk tolerance.

Looking forward to hearing your ideas on How to Catch a Rocket in the comments. 👇

You can view the full article on my newsletter here: Catching a Rocket!

🦜

Investing isn’t gambling. YOLO'ing on a hope & a prayer isn't investing (or trading).

That said, there ARE shades of gray….

Investing isn’t gambling. You’re buying a piece of a business. You’re an owner. You should approach investing as an owner.

If you owned (or own) your own business, you wouldn’t care how much your neighbor would pay to buy it from you on a daily basis.

What you would care about was sales, revenue, expenses, profit, etc.

When you’re buying shares of a business, stock price is important. Once you own those shares, you own a piece of the business, and unless you’re planning to sell, the stock price is irrelevant.

Try to focus on the things that matter to an owner. Are “we” growing: market share, revenue, profit, etc…

If you’re swing trading, you’re likely looking at a short term disassociation between the stock price & a companies perceived value.

The thesis usually assumes the market always over reacts, and trading off the extremes in price can be very profitable.

It’s important to remember, you’re still invested (an owner) in the company, even if temporary. Knowing the companies fundamentals, and trusting their execution, is still an important part of swing trading, even if that isn’t your primary focus for investing.

The March 2020 Covid19 dip was a classic opportunity to swing trade many positions. Going into the summer of 2020, I made some nice profits on $CCL & $MGM among others.

I hope I don’t offend any day traders out there for calling this “gray”. There is definitely a TON of work and skill that goes into being a successful day trader.

But similar to a professional poker player, it rides the line between gambling and investing in that it’s risking money on the known odds, and being disciplined in making the correct decisions based on those odds & statistics.

The volatility in China has made for some nice day trading opportunities in the past few weeks. I’ve successfully traded $BABA 3 or 4 times the past two weeks, but still a lot of risk for a longer term swing trade at this point in my opinion.

Buying a potential bottom, before you actually see the bottom. Buying the IPO of the next hot tech company at a sky high valuation. Buying just about any SPAC. LOTTO options. A lot of micro-CAPS. And nearly all Genomics plays. (Okay, I’ve probably offended the rest of my readers by now) 😂

I’ve done all that (and more). But if you’re speculating, you absolutely need to practice risk management. No matter how confident you are that you’re right, you will be wrong. Maybe not the first time, or the second, but eventually you will have gotten it wrong. So position size is key.

To me speculative plays are a bit like Blackjack, it’s a gamble, but there are also some statistics that can help keep it an even playing field, and if you’re good at counting cards, you can make a lot of money.

My friend @drowsyinvestor and I like to call it “Broken Clock Investments”. For me that means “because we’re always right sometimes! 😏 And really, that’s all you need to be right if your positioned correctly”. Drowsy takes a slightly different view “When the clock is right, it can change your life” ❤

We both agree, when speculating: Remember if the investment goes bad, a little is all you want, and if it goes well, a little is all you need.

I was speculating when I bought $MGNI @ $6 and $UPWK @ $13; amazing returns.

But I was also speculating when buying $ATER @ $11, $DMTK @ $66, & $SKLZ @ $17; -50% for the first two and -25% for the last. Interestingly 2 of the 3 could have been closed for large gains if I would have taken profits along the way. Poor risk management on my part for 2 of them, and borrowed conviction on the other, had me paying the price in the end.

But to the above point, of the 5 tickers mentioned above I had roughly the same starter investment in each (the 3 losers actually had a slightly larger allocation). Total gain: 55%

If you’re doing any of the above outside of investing in an Index or ETF without a plan, with no due diligence, with no understanding of the investment… you’re gambling.

If you bought $AMC because your buddy bought it, you’re gambling.

If you bought Dogecoin or Safemoon because everyone is buying it, you’re gambling.

If you give your money to a money manager or fund with no research or understanding of their strategy and philosophy, I hate to break it to you, but you’re gambling too.

This is not a knock on anyone. A lot of smart people gave money to Madoff. Some prominent investors have mentioned owning Dogecoin. The point is not to stop these investments, but to recognize what they are, and allocate accordingly.

If Elon buy’s a million dollars worth of Dogecoin, that’s 0.000006 of his net worth. So if you have $100,000 invested, by all means, throw down $.60 on Dogecoin.

I believe a long term strategy can have a blend of all the above.

There used to be a rule of thumb, based on years to retirement, that suggested what percentage of stocks to bonds you should hold in a portfolio. Although outdated in my opinion, you can take that same concept and apply it to multiple investment types (such as the above).

Just be honest with yourself. How much do you know about your investment/trade? Did you put in the research? If it drops 50% tomorrow, are you selling or buying more.

Take that knowledge and allocate accordingly. My highest conviction position $SE is pushing a 20% allocation in my portfolio. My LARGEST speculative position is less than 1%.

Be cautious when you see people posting big dollar buy’s of a stock. You don’t know if that’s an investment, a trade, or just a gamble. And you have no idea what the associated risk is to their account.

For example, when Elon throws down $1 million on the next crypto coin, you may think that’s a high conviction play when it’s more likely a fun little gamble for him. It’s $.60c to him, he could care less if it goes to zero.

Develop your own thesis, understand your own risk tolerance, and invest/gamble accordingly.

You can find the full article here: Stock Squaw - Investing or Gambling

Have a great week! 🦜

These are 10 market lessons I’ve picked up over the years that have cost me tens of thousands of dollars. However, I don’t regret losing this money, as each mistake was a stepping stone that guided me forward as an investor.

In no particular order:

In a study conducted by the University of Florida from 1980-2016, 3,246 companies returned -50% or less compared to their first day’s closing price over a 5-year period. 1,397 returned -50% to 0%, and 3,070 returned 0% or greater.

It’s always reasonable to wait for the first earnings report, or at least until major share lock-up periods expire. Many hyped up IPOs that I have tracked over the past 5 years have fallen below their opening-day IPO price at some point in time, highlighting the need to be patient when targeting a newly traded company. These include: SE, SNOW, CRWD, NET, UBER, and many more.

In a joint research study, Boston Consulting Group and Morgan Stanley concluded that revenue growth, or sales growth, is the major key driver for stock appreciation over the long-term.

Note: Topline growth is synonymous with revenue/sales growth.

TSR= Total Shareholder Return.

The effect of revenue on stock performance is most evident when moving from Year 1 to 3 and increases each year. The longer the time horizon, the more important revenue growth becomes for the shareholder.

I can personally attest to this, as I never held a stock for longer than one year until my 3rd year of market experience. I started off day-trading and swing-trading biotech penny stocks/stocks I interacted with in my daily life and transitioned into short-dated options after I blew up my account. After I blew up my account for a second time trading options, I knew that I needed to change my strategy.

After I graduated college and got my first high-paying job, I realized I needed to reduce my risk, as I had more money than I ever did before and needed to pay for my own costs of living. I revamped my strategy to play the “long game,” and I haven’t looked back since. My returns have improved drastically and my portfolio risk and stress have plummeted in the process.

It’s extremely frustrating to hold a stock down 10% the past 3 months while the overall market is up 3% in the same period. At first, I would overlook this and think to myself that I needed to be more patient. It’s fine if a stock you own outperforms the market for a few months, but when exactly do you call it quits and realize that you just made a bad investment decision? There’s really no fine line answer to this question, and I generally hold an underperforming stock for ~10 months before seriously reevaluating my holding. Nothing material may have changed about the company, but if a stock I own has been seriously underperforming the market while other stocks in general are outperforming the market for an extended period of time, then it is simply a matter of capital allocation, bad timing, and missing out on opportunity costs.

The media will try to rationalize every .1% move in the major indices, which is completely unhelpful to an investor. Popular financial media outlets like CNN, CNBC, and Fox News have a daily quota for deliverables, meaning they MUST publish a certain number of articles a day, regardless of a lack of material news. Financial reporters MUST talk about something interesting during their on-air time, and they could care less if the news is insignificant, as they are getting paid either way. A majority of news will have zero effect on the market, so it’s up to the investor to sift out the useless news from the useful news.

The smart money being institutional investors and hedge funds. Since large financial behemoths like Blackrock and Citadel hold thousands of holdings, I prefer to analyze funds with 50 or less holdings and a consistent record of market outperformance. Additionally, I keep track of the top performing funds in a 3, 5, and 10+ year range, as well as all hedge funds in aggregate, and observe which positions are picking up the most momentum in net buys/sells each quarter.

Funds I track include: SCGE Management, Duquesne Capital, Lone Pine Capital, and Coatue.

Today, the price for one share of $SHOP is $1577.50. I can guarantee that any investor who purchased shares of Shopify in 2017 for $45 wishes they purchased more, whether it be at $45, $55, or even $100. Shopify is up a mind-blowing 4,701% the past 5 years, rewarding anyone who initially purchased shares at $788.75 or below a minimum 100% return.

Time and time again, investors rationalize to buy the 2nd best or 3rd best company in a certain industry because it is “cheaper” and has “more room for growth.” While this certainly can be true, the majority of the time the leader in an industry is the leader for a reason. The leader oftentimes has the highest revenue growth and gross margins, which are key contributors to stock price.

Biotech penny stocks are especially alluring to the fledgling investor due to the promises of boundless innovation and market expansion. Biotech stocks are especially risky due to the volatile effect that FDA approvals can have on share prices.

Penny stocks are risky in general due to their inherent nature. They’re cheaply valued for a reason, and the chance that you pick a severely distressed company that manages to revive their business spectacularly is low (but possible). However, the risk/reward ratio is not in your favor and an investor is much better off investing in financially healthy companies.

I can’t stress this last point enough, as it is a summation of all the previous points. I have seen it happen countless times where an eager investor gets caught up following the opinion of someone else and ends up losing a large portion of their investment.

A list of hyped up stocks that have plummeted from their recent highs:

$ATER (formerly MWK): -78.33%

$DMTK: -57.18%

$FUBO: -58.08%

$NNOX: -69.70%

$SKLZ: -65.67%