Sunday thoughts on when to sell....

Its Sunday again, time to sit back and relax and consider those things in the market that daze and amaze, astound and confound.  The things that both thrill and send chills down the spines of retail investors.  Today I'm going to write about selling, not just any selling though....about selling after you've made profits.  

I've put forth some long ideas here at Avoid The Bag that have made some nice gains:

Lithium Americas at $0.75 cents CDN now trading over $0.90 with  gusts up north of a dollar.  

http://www.avoidthebag.com/2016/04/lithium-americas-cup-and-handle-forming.html

Eguana Tech when it was $0.15 CDN now trading around $0.30   

http://www.avoidthebag.com/2016/05/the-lure-of-clean-energy-eguana.html

Xenith Bankshares (pre-merger when it was HMPR) at $1.81 now trading for $2.26.

http://www.avoidthebag.com/2016/05/hampton-roads-bankshares-hmpr-great.html

Resverlogix at $1.25 CDN now trading at $1.53

http://www.avoidthebag.com/2016/06/resverlogix-phase-iii-clinical-trial.html

I also wrote about Aurora Solar at $0.15 CDN and it is currently trading for 10 northern coppers: http://www.avoidthebag.com/2016/07/the-lure-of-green-energy-aurora-solar.html

Four out of those five stocks that I've written bullish opinions about are green, which means there is the potential for profits.  Not bad....gains are good, but until those gains are crystalized by selling, there is no profit.  

My legion of loyal fans (all three of them) have probably come across someone who's owned a stock that dropped in value and heard them say something like:  "Its not a loss until I sell".  And that is true, but it also works when a stock climbs.  There's no profit made until the shares are unloaded. Paper gains and paper losses are notional and only become real once a stock is sold.

But selling is hard, and I will suggest it can be even harder after big gains than after a stock has dropped.  Why?  Psychology, and the triumvirate of emotions that seasoned market players know oh so well: Fear, Uncertainty and Doubt....or FUD for short.

FUD doesn't just rear its head when a company's stocks falls, it also pops up after a stock has climbed.  You've bought my favorite hypothetical stock ABCD at $1.00 per share when things were quiet and volumes were light.  You've read all the filings, the PRs, all the industry stories related to ABCD, you even know the histories of the CEO and other board members.  

Then ABCD starts attracting attention, volumes pick up....it getting mentioned in social media. The PPS starts climbing, to $2 then $3....before you know it ABCD is trading at $5 per share and you're sitting on a 500% paper gain.  Its not a capital gain though because you haven't sold.

And here's where FUD kicks in.  Let's say you bought 5,000 shares for an initial investment of $5,0000....and now those same 5,000 shares are worth $25,000 for a paper gain of $20,000 if you sell. But things are obviously going well now, better than they were when you bought shares at $1. Maybe there's analyst coverage, or a newsletter has picked up ABCD and is touting it to its readers. Those storming into ABCD are all over social media with predictions of $10 and $20 valuations to come.

What if they're right?  What if ABCD does go to $10...or even $20.  Those 5,000 shares could be worth $50,000 or maybe even $100,000 for monster gains in other words.  A new car, a bigger and better house....that dream vacation.  Sure $20,000 profit is incredible, but damn!  Won't you be kicking yourself if you take $20,000 when you could have had $95,000 in profit?

Time to take a deep breath.  A lot of people start investing with the goal of making huge "life changing" returns.  The stock market is the epitome of the Dream Factory.  And people do fall in love with their stocks, digesting every tidbit of news and opinion that hits the internet.  Whether its something from a respected analyst, a Seeking Alpha or Motley Fool author, or some moron like me with a blog.

I will suggest that you consider, when a stock has made big gains, whether or not its a profitable company.  Of the five stocks I mentioned at the beginning, four of them are not....

Lithium Americas is a junior mining company developing a Lithium mine in Argentina, Eguana makes inverters for battery storage power systems, Resverlogix is trying to develop a drug that will reduce major adverse cardiac events and Aurora is in the solar panel space.  None of these four companies is profitable.  Only Xenith Bankshares has actually achieved positive earnings.  

Next I will suggest you look at recent volumes.  Has trading in the stock exploded or is the PPS climbing higher and higher on light volume?  I have a rule of thumb, if between 5 and 10% of the float trades in a day, I start thinking about looking for the exit.  And that is doubly true if higher than historic volume happens in tandem with lots of Promotion, News and Hype.  Especially when its a company with a history of using shares to fund operations, pay salaries and keep the lights on.

My ultimate goal with this blog is to help retail investors understand the forces at play.  And I will suggest that these forces are most active when a stock has made big gains.  The goal of the industry players, in my opinion, is to get retailers buying when stocks are high while the true professionals sell.  And if a retail player is lucky enough to have bought in early and is sitting on big gains, to keep that retailer holding tight.....to fall in love.

I'll end with my favorite piece of market wisdom:  Nobody ever went broke taking profits.  And if the stock you sold at a profit keeps climbing, and you miss out on even bigger gains?  Then cry into the money you made.  

Good luck

Musk's "Master Plan" - The Green Energy Paradigm

Tesla CEO Elon Musk has just come out with his updated "Master Plan".  If you're reading this practically invisible and pathetic little blog then you already know the details.  

Its a new world.  We're all going to be driving electric cars, have solar panels on our roofs and battery storage systems in our homes.  Okay, but is it realistic?  Are we going to do away with fossil fuels and be living on a cleaner planet in the decades to come?  

There's no way to know for sure, the master plan doesn't include the building of a time machine. With that being said, I like the chances.

Someone born in the year 1900 would have had two major forms of transportation, by foot or by horse.  For those fortunate enough to have the means to travel the world there were steam powered ships and coal fired trains.  Cars and planes were still dreams in the planning stages, but they were dreams that came true. Within fifty years cars were everywhere, suburbs sprang up and ribbons of pavement crisscrossed the landscape.  Intercontinental travellers were spared the long journeys across oceans as commercial air travel started flying people all over the world.

The new paradigm?  Clean energy stored in Lithium Ion batteries running our homes, our cars and pretty much everything else.  

When cars first came out some thought they were a fad, that the old reliable horse and buggy would never be replaced.  The same thing happened when cell phones hit the market, some people said that there would always be a need for a hard wired phone in people's homes.  

The world changes, and when the change is big its sometimes called a paradigm shift...that's what Mr. Musk is suggesting.  I think he's right.  

Will companies like Tesla combined with Solar City (assuming the merger goes through) lead the charge?  Maybe, maybe not.  There were a lot of car makers that were big at the start, and many of them were absorbed or disappeared.  Does anyone remember the Packard?  Same thing with cell phones, companies like Nokia and Motorola were the early leaders, long before Apple and Samsung.

Investors hoping to cash in on the changing landscape have a multitude of choices.  Aside from the aforementioned Telsa (TSLA) and Solar City (SCTY) there are lithium miners, manufacturers of battery storage systems and their associated components, solar panels and wind turbines....and much more.

I've place a few bets, these aren't recommendations, there are plenty of publicly traded companies to choose from.  I've put money into Lithium Mining with Lithium Americas (LAC on the Canadian TSX) and into battery storage and the inverters needed to integrate them into power grids with Eguana Tech (EGT on the Canadian TSX Venture) and a company that works in the solar panel space called Aurora Solar Tech (ACU also on the TSX Venture).  For those seeking less risk the Global X Lithium ETF might be an option.

In my opinion the Green Energy sector is just starting to grab investor attention, and I don't think the party will be ending any time soon.  And with Mr. Musk's ability to grab the spotlight, this updated master plan will be getting lots of play and chatter over the coming news cycle. 

Spotting the pumps easier than going long

This blog is not even three months old, and already I have managed to identify some stocks that, in my opinion, were inflated and due to come down.  Taking the PPS from my first write up on the following companies, here is how my bearish calls have performed as of this past Friday's close.

• May 8th  RYU.V   Down -18.9%
• May 5th  ZIOP     Down -27.2%
• May 17th KTOV   Down -54.9%
• June 12th ABRW  Up    +04.0%

My scorecard on bearish calls isn't perfect, but if ABRW does what I expect in the coming weeks and months, then I'll have to give myself an A+.  

As much as I'd like to pat myself on the back for my genius skills at sniffing out inflated stocks, it really wasn't that hard.  The way I see it this was all "low hanging fruit" so to speak.  Three out of those four companies, ZIOP, KTOV and ABRW were all hyped and promoted by an email blasting promotional outfit called StockReversals.  

I followed StockReversals long before I started this blog, and I've seen them pump a number of stocks that have all tanked.  In no particular order I've witnessed them pounding the proverbial table to drum up buyers for SBOT, MOBI, CLDN, LEJU and WBAI over the past 3+ years, touting long term value potential.  

If you want to check the charts on those stocks be my guest.  Those buying in expecting price appreciation over the long haul got creamed.  

RYU.V on the other hand was a stock I saw getting spammed all over a site popular for Canadian listed stocks, stockhouse.ca.  They'd just announced that Gwenyth Paltrow was going to promote their clothing line. I've seen so many celebrity endorsements for penny stock companies over the years, and have yet to see one deliver long term value to shareholders.

So why is identifying inflated stocks so much easier than finding companies with low share prices poised to make gains?

That's pretty easy to explain in my opinion.  Inflated stocks that are poised to drop big, they are SCREAMING for attention.  Why?  Simple....the smart money holders who want to sell need dumb money suckers to come in and pay the inflated price.  

Companies that are trading at or near their lows on the other hand, the good ones in my experience aren't experiencing heavy volume and don't have much in the way of news.  So it can be hit and miss trying to discern which ones might be good candidates.  

I have put out some bullish opinions on a couple that have born fruit though.  I wrote up EGT.V when it was 14 to 15 cents and it got up around 40 and is still trading in and around 28 to 30 cents.  And HMPR was at $1.81 when I expressed my reasons for being bullish and it just closed up over $1.90.

Hampton Road Bankshares is actually a company that I truly believe has the potential to deliver long term shareholder value.  That's not to say it is without risk, but to my eyes the fact that they are turning  a profit gives them a lower risk profile as compared to companies using their shares as capital to stay afloat.

Ultimately I think its every bit as important to know what to avoid as it is to know what to look for. Who wants to pay $6+ for a stock like KTOV only to have half your money wiped out in a matter of weeks.  

I've also mentioned some stocks that have come down, RVX.TO is one that I wrote about when it was trading at $1.34 and this past Friday it closed at $1.23 for a drop of 8.2%.   With RVX though I haven't seen any suspect pumping and table pounding all over social media....if that happens my opinion will change in all likelihood.  And if that does happen it might be reasonable to expect to see the PPS climbing well above even $1.34....only time will tell.  Ideally I'd like to see them succeed with the Phase III clinical trial.  

News Hype and Promotion boys and girls.  In my opinion that is the Unholy Trinity of the stock market that should be avoided.  Beware when something looks too tempting, things are not always as they appear.

Eguana Technolgies mentioned in NY Times article about "FREE" energy

I wrote about Eguana Technolgies back on May 1st of this year already:

The Lure of Green Energy

The world is changing, but then that's nothing new.  Twenty years ago I in 1996 I was not writing a blog that's for sure.  Back then if someone was surfing they were near a beach, and the web wasn't something world wide, it was something spun by a spider.  Tech savvy individuals who were ahead of the "information age" curve, they were connecting at baud rate speeds of 28.8 kbps, and were excited about the advance to 33.6.    

Even cell phones back at that time, they were bulky analog things, my first one was commonly referred to as "the brick", with a battery that was thicker and heavier than any of the smart phones commonly used today, phone and battery together.  And smart phones which are everywhere now, they were thought to be too expensive when they first started hitting the market it 2006 and 2007.  

The world changes fast.

We have already seen an explosion in the market capitalization for junior mining companies engaged in the development of lithium projects.  The vast majority of them are not yet active, but that hasn't stopped investors from storming in and sending share prices up 100, 500, even 1,000 per cent in just a year or two.  

Those who get in front of the herd can make a lot of money.  The difficulty is in deciding where the herd is going to go next.  

As regular readers of this pathetic and nearly invisible little blog already know, I like to state my biases up front.  As I disclosed in the May 1st piece I wrote on Eguana, I am invested in this company so my opinions should be viewed in that light.  All my readers, all three of you, know that I don't put much stock in fundamental data.  I view all fundamentals as being old information, and as such I already consider it to be priced in.

What I consider essential when investing in speculative stocks, is to get in before the herd shows up. That comes with risks however, because although I may get in before the herd, there's always a chance that the sheep will ignore my little corner of the investment pasture and walk right on by.  

When I first wrote about Eguana it was trading at 15 cents on the TSX Venture exchange (symbol EGT.V).  This past Friday it closed at 28 cents, so its already fast approaching a double for me, but I still see the potential for a lot more upside.  Part of the reason is this recent mention by the NY Times.

A Suburban Experiment Aims for Free Energy

In that article is one little snippet mentioning Eguana:

"Half the test homes also have energy storage systems with LG batteries and Eguana inverters, which help manage the flow of electricity between the solar installation, home and grid, to allow researchers to test and compare how much value they add".

You may have heard the expression "when someone else blows your horn the sound travels twice as far" or something close to that.  I like the fact that's there's no mention of Eguana as a publicly traded company in this NY Times story, and at least so far, there has been no PR issued from Eguana touting the news.  

Does Eguana have the potential to attract investors the way junior mining companies engaged in lithium projects have?  Ultimately I don't know, but I do see it as a distinct possibility. Technically the chart is pointing heavily toward overbought right now, which in the short term could translate into a pull back.  But I have seen overbought stocks stay that way and continue climbing before.  Lithium mining caught the attention of investors, maybe battery storage systems and the concept of free energy can too.

Who knows?  Maybe in another ten or twenty years we'll be talking about paying electricity bills the same way we talk about old clunky cell phones and 28.8 baud rate modems now. 

Do note again that I consider Eguana to be highly speculative, and it is not a suitable investment for everyone.  There are no slam dunks in the markets, and certainly not with penny stocks.  It is my full intention to sell at some (as yet undetermined) point.  And I fully expect to sell too soon.  Just as with Nemaska when I disclosed selling I also expressed the opinion that I considered continued appreciation in the share price of NMX to be very likely, and that's exactly what happened.  

I sold Nemaska too soon, but a conversation with my brother helped ease the pain after leaving over 50 cents per share in profits on the table, he told me:  "Cry into the money you made on a 500% gain".

With the prospect of Eguana being part of a revolution that leads to electricity bills of just $10 or perhaps even $0, I like the chances for at least another 500% gain....and if I sell too soon, allowing those who end up with my shares a chance at big gains themselves, its all good.

You'll never go broke taking profits folks.  Cheers and good luck

The Lure of Clean Energy (Eguana Technologies)

Eugena Technologies is a development stage company involved in the design and manufacture of energy storage systems for both the residential and commercial markets  The company is involved in a multi year agreement with Korean giant LG Chem to deliver an AC battery for the North American residential market.  (NEWS STORY).  Their Eguana AC battery is a grid ready Lithium-Ion storage system, with news just released about a third order from partner E-Gear (NEWS STORY).

Penny stocks are dangerous things, they're the ultimate risk/reward play, with the potential for both incredible gains and for massive losses.  When it comes to penny stocks there is one thing I consider to be absolutely essential, you have to get in early before the herd shows up.

Often you will see a stock trading for pennies, nickels and dimes when volumes are light, go to $1+ as volumes soar into the millions for a sustained period.  The herd storms in thinking $1 or $2 is still cheap.  Then all too often the bag closes, the smart money escapes with cash and the dumb money retail crowd is left holding shares, aka the dirty bag.

"Green Energy" is all the rage right now.  Energy is nothing new, but the world is changing.  We're going from a long period of dirty energy, and entering into a time of transition with the world, (certainly the developed world) throwing all kinds of money at clean energy projects: Wind mills, solar panels, electronic vehicles and lithium batteries for storage being just a few examples.

And as often happens with new technologies and paradigms, many of the companies with the greatest potential qualify as penny stocks.

I was fortunate to get into some junior Li miners when things were quiet.  Now though, some of those thinly traded stocks are seeing volumes in the millions.   Retail investors, listening to paid promotional outfits are being whipped into a buying frenzy.

You may have heard the expression:  If you want to taste the fruit, you have to go out on a limb.

I think there's a lot of validity to that old bromide.  But I would add to it by saying:  When the herd moves out on the limb, the branch often snaps.

One thing I want to make perfectly clear, development stage companies often pay promotional outfits to garner attention and investment, it comes with the territory.  For me its a question of degree, and I keep a close eye on volumes as a barometer to gauge when the retail herd is storming in.  Also its important to remember that all volume isn't created equal.  1 million shares trading at 10 cents is not the same as 1 million shares trading at $1+.  There's a lot more cash changing hands at a buck.

That's a lot of preamble I know, but I'm older and tend to be long winded.

Eguana Technologies is a battery storage company that came onto my radar last Thursday, and after spending a few hours researching it I took out a position on Friday.  In doing my Due Diligence (DD) I had my cynic's cap on, expecting it to be just another penny stock hype job.  However the only promotional outfit I found was some site called MidasLetter.com that did an "interview" with Eguana's CEO in November of 2015.

Here's the link: Midas Letter Interview

In checking the trading though there wasn't a big surge in volume after that interview came out.  In fact there were many days after that date where (according to Yahoo Finance) volumes were less than 100,000, which I like to see.  As I mentioned before, some promotion is to be expected with development stage companies, so long as it doesn't cause a big jump in both the PPS and in volumes trading I'll keep doing my research.

Before even checking for promotion and hype I usually look at the chart, and the chart for EGT.V to me looks incredibly promising.  Had I seen a stock that had already climbed 500% or more I would have stopped right there. But it looks to me like EGT.V has plenty of upside potential left.

The PPS moved above the 50 day moving average in early March and soon after moved over the 200 dma.  There was also a Golden Cross at the beginning of April when the 50 dma crossed over the 200, a technical event often considered very bullish.  One note on the Golden Cross though, some TA aficionados do not consider a Golden Cross to be truly Golden unless the 200 dma is climbing.  For my own part I consider both to be bullish, but more bullish if the 200 is also on the rise.

Also take note the large volume spikes on days the PPS climbed (colored green).  I view that as another bullish indication, I like seeing the PPS climbing on big volume days and pulling back on lower volume.   Retail investors tend to focus on price, but I consider a climb of 2 cents on volume of 1 million to be more significant than a drop of 10 cents on volume of just 50,000 shares.

Okay, I can just hear all of my readers right now (both of them) "ENOUGH, ALREADY...WHAT ABOUT THE FUNDAMENTALS"?!?!?

Before I get into the fundamentals I want to point out that I already consider them priced in. Fundamental data is always old information, weeks if not months old.  I did not risk money on EGT.V based on what they've done in the past, but rather on the potential for what they may do in the future.

With a stock trading in and around 15 cents I wasn't expecting much.  But I actually came away a bit surprised.

Market Cap      23.5 Million CDN

Shares Issued   167,778,702 (as of April 15th 2016)

To read the company's filings you can go to Sedar.com, here is a link to their Management Discussion & Analysis for the 3 months ending December 31st 2015.  Take note of the debt situation (they paid off their LOC) and existing sales.

Sedar Filing MD&A

They have the "going concern" tag you typically see with stocks trading at this level.  However financing news for $1.2 million came out recently, and it appears to me the company is well capitalized going forward.

(FINANCING NEWS)

I'm going to end this blog entry here with one last fundamental metric I consider to be important, that of short interest.  I used to view Short Sellers as an enemy to be defeated, but not any more.  Short Selling is an incredibly risky proposition, especially with a penny stock.  If bears have raided a stock, I assume they have a very good reason.  Sometimes though I believe short selling is done for manipulative reasons by those looking to scare retailers into selling low by injecting some fear into the market.

Short interest for EGT as of April 15th was just 7,900 shares...less than one hundredth of one percent. However back at the end of January of this year that number got up over 2 million, still only 1.4% of the issued, but regardless a fair sized number.  It looks to me like that little bear raid may have been an effort by some looking to accumulate, and its something I think may happen again if the PPS continues on this up trend, which is what I am hopeful of, and in fact expecting.

Comments are always welcomed, just no profanity please.  And please read the disclaimer at the very bottom part of this blog.