This Week: I’m Buying Low & Selling High

If you missed my last two Live broadcasts, be sure to check it out here (I discussed MRIN in greater depth at the 28 minute mark) and here for the latest one from TODAY (where I discussed MRIN in greater depth at the 15 minute mark)… and as always, be sure to read my disclosures / disclaimers below. Cheers!

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Research Update: On Monday, a great piece was released from an industry expert, shedding light on the MRIN / GOOG deal. I personally think he’s missing the M&A angle in this agreement, but his ad-related commentary goes beyond anything I’ve discussed to this point. It also suggests that other such deals may (should) be coming for platform vendors. After all, if GOOG is willing to pay, why shouldn’t FB, AMZN, MSFT, YHOO, TWTR, etc?

The best news, in my opinion, is that Marin is one of the only viable players left in the market (following the market shakeout of the past few years)… and it may now make claim to having the most powerful platform in the industry again (with this month’s roll out of MarinOne).

https://www.thedrum.com/opinion/2019/01/07/what-the-marin-google-revenue-sharing-deal-could-mean-brands

 

Research Update: Yesterday, Smith Micro (SMSI) completed the purchase of the Smart Retail Product Suite from ISM Connect. At a minimum, this will diversify SMSI’s revenue, boost EPS, and give them an additional product to sell into large customers like Sprint (a divergence from ISM Connect’s focus).

Also of note, anyone keeping a close eye on their website may have noticed some changes going on. Their IoT offering is being marketed, along with vertical versions of SafePath for fleets, schools, etc. The company clearly continues to execute at a consistent level that we haven’t seen in years. Based on my reads, I expect SMSI to top the Street’s revenue and earnings Q4 expectations when they report.

 

Research Update: Yesterday, GAIA was written up on Seeking Alpha. If you can read this, you can read that, so need to recap. LOL. Enough said.

 

Research Update: On Monday, I learned that U.S. lawmakers are requesting funding support for additional Virginia-class submarines. This request would accelerate the already ramped-up manufacturing, which has helped gradually propel shares of Techprecision (TPCS) to a four-year high.

 

OK, on to today’s quick strategy session. As most of you know, on Christmas Eve, I said:

“Just a quick update… at the end of today’s action, my trading bias became more bullish on a number of stocks and the market in general.

The second part of that is something relatively new.

I’ve been negative / cautious on the market since September. Selling, shorting, and hedging has enabled me to preserve profits and stockpile cash to take advantage if bargains started to appear in the marketplace.

Despite today’s drop, I’ve still had a great couple of weeks and a fantastic year. More importantly, I have a ton of cash and bargains have indeed started to appear in the marketplace :^)

Euphoria/Panic oscillators finally hit “Panic” on Friday. Simultaneously, we’re now hitting major support levels on the charts. As a result, I think we can start trading for a bounce vs. a further decline.

In a volatile market, it’s generally smart to take profits (on longs and shorts) when they come (and then rinse-and-repeat). That should continue, but my portfolio, charts, and cash position all imply that I should be biased toward buying.

 

In other words, buy low and sell high.

Unless you’re one of the 5-10% of people who are wired to be winning traders (I am among the other 90-95%), you can NOT beat the market consistently via trading. For those of you who have been trying without consistent success, I have this advice: refocus your energy on learning how to do professional-level fundamental analysis.

It took three years of under-performance for me to realize that I was never going to be a great trader. At that point, I was in debt (from trading losses) with an ugly 1994 Mazda Protege and nothing in the bank. Less than 10 years later, I was a millionaire. Less than two years later, I was a multimillionaire. Two years after that, I was stringing together years of 7-figure annual income.

I went from loser to retired in 15 years.

I’m not going to say that you can’t be one of those special people who blaze a new trail and find a new way to become rich. At one point, I thought I might be… but eventually, I learned that it’s easier to follow someone else’s successful lead first. That way, you can break free of corporate society, giving you the money, time, and focus needed to become the special trailblazer you aspire to be.

So, I followed path taken by the most successful investor ever — Warren Buffet. After all, he went from paperboy to the richest man alive. In contrast, there aren’t even any traders on the list of the world’s richest men. They’re all long-term investors (mostly via the companies they lead).

Buffett’s path is such common sense, I now feel ashamed that I didn’t realize it sooner. If you can calculate the range of outcomes for what a stock should REALLY be worth, you can play the market like a poker player who’s always holding two kings. you won’t win every time, but YOU WILL WIN.

This is what I do.

One by one, I research and calculate what individual stocks could/should be worth. Then, I only invest in the ones where I have the best shot of winning a lot relative to how much I might lose (a.k.a. risk / reward). Basically, I’m playing Texas Hold’em without ever having to pay the ante. I can simply play whichever hands I choose.

Learning how to do this isn’t easy. It takes years… but the end result is well worth it.

OK, enough preaching. Let’s get into the meat and wrap it up.

Being able to properly calculate risk/reward makes it easy to buy low and sell high. Buy low / sell high is an overly-obvious saying, but it’s 100% true. The trick is knowing what’s low and what’s high. Once you know, the rest is easy.

At present (today, in fact), I’m doing both. I’m buying low AND I’m selling high. Based on my continued research, Marin Software (MRIN) looks like the most undervalued stock I know.

Accordingly, I’ve been accumulating more virtually every day. In fact, as is the case with SMSI, I am now one of MRIN’s largest shareholders.

Traders keep playing with it and arguing about what the chart is telling them. As always, I’m fine with that. If you’re one of them, I hope you’re making money! Either way, traders are providing liquidity and bring attention to the stock. Some percentage of people will actually do the research and become holders. That will ultimately help the stock achieve the valuation it deserves.

It almost never happens overnight. The reason is simple. Most traders don’t realize that a stock’s value is what determines where the chart is ultimately going. The chart simply determines how it gets there.

So, if you have a good idea of where it belongs, you can just sit back and enjoy the Uber ride, instead of sitting at the wheel trying to make your way through traffic.

FYI, my last blog post provides links to all of the research I’ve done on MRIN.

That takes care of “buy low”. Looking at “sell high”, my December 24 prediction has come true. The markets have rebounded with a vengeance. The S&P 500 has risen 9% in just over two weeks. That’s more than it lost all last year. As a result, I’ve made a great 2-week return on my ETF investments.

However, the market is now at levels where investors’ mettle might be tested. The risk/reward is nowhere near what it was two weeks ago. Accordingly, I’m taking profits on my ETF investments.In fact, I’m now SHORTING the major indexes, most notably the Russell 2000.

I’m not doing that because I think the market is going to drop.

I’m doing it as protection against a market decline, because I want to maintain my favorite individual stock positions, insofar as it makes sense. I’ve been buying MRIN because I think it deserves a much higher valuation. I don’t fear MRIN. I fear the market… so, THAT is what I’m selling / shorting.

This is the strategy I was pitching to everyone last year. Those who followed my lead were rewarded. I finished the year with double-digit gains, versus a 6% loss for the S&P 500. The reason is simple. I made a killing on my shorts (especially my shorts against the Russell 2000 and China), while doing o.k. with my longs.

Personally, I wouldn’t be surprised if my 2019 is similar to my 2018. I love my longs and I think there’s a good chance I will make money on my insurance bets against the market.

So, I can win on both (just like last year).

Cheers

 

If you missed my last two Live broadcasts, be sure to check it out here (I discussed MRIN in greater depth at the 28 minute mark) and here for the latest one from TODAY (where I discussed MRIN in greater depth at the 15 minute mark)… and as always, be sure to read my disclosures / disclaimers below. Cheers!

 

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Disclosures / Disclaimers: I am long MRIN, SMSI, GAIA, and TPCS. I am short the S&P 500, the Russell 2000, and the Chinese stock market via FXI. However, this is not a solicitation to buy, sell, or otherwise transact any stock or its derivatives. Nor should it be construed as an endorsement of any particular investment or opinion of the stock’s current or future price. To be clear, I do not encourage or recommend for anyone to follow my lead on this or any other stocks, since I may enter, exit, or reverse a position at any time without notice, regardless of the facts or perceived implications of this article.

I am not a financial advisor. Nor am I providing any recommendations, price targets, or opinions about valuation regarding the companies discussed herein. Any disclosures regarding my holdings are true as of the time this article is written, but subject change without notice. I frequently trade my positions, often on an intraday basis. Thus, it is possible that I might be buying and/or selling the securities mentioned herein and/or its derivative at any time, regardless of (and possibly contrary to) the content of this article.

I undertake no responsibility to update my disclosures and they may therefore be inaccurate thereafter.  Likewise, any opinions are as of the date of publication, and are subject to change without notice and may not be updated. I believe that the sources of information I use are accurate but there can be no assurance that they are. All investments carry the risk of loss and the securities mentioned herein may entail a high level of risk. Investors considering an investment should perform their own research and consult with a qualified investment professional.

I wrote this article myself, and it expresses my own opinions. I am receiving no compensation for it, nor do I have a business relationship with any company whose stock is mentioned in this article. The information in this article is for informational purposes only and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

The primary purpose of this blog/forum is to attract new contacts with professional industry expertise to share research and receive feedback (confirmation / refutation) regarding my investment theses.

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21 thoughts on “This Week: I’m Buying Low & Selling High

  1. Looks like I am going to make 100% on my $10 and $12.50 HEAR Puts. I closed out of my $17.50’s since it was a little to close for comfort, but it was still for a profit as well. Thank you for the recommendation to own the options instead of the stock. That would have been a crazy ride owning the stock. With the options I just sat back and really didn’t worry about it.

    Like

    1. Congrats! I LOVED that play. The premiums on those options were so high, I made them my biggest option position ever. Made 40%+ on the 17.50s and barring disaster should close out the 12.50s up 100%. 😎🙏🏼😇

      Liked by 1 person

  2. Hey Mark, sorry if you had this in one of your videos and I missed it…

    In regards to the Smart Retail Product Suite from ISM Connect. Do you know if that was generating a profit for ISM Connect, and if so how much annually? I know Smith is going to add value to it based on their relationships with the carriers, but I’m wondering what the impact would be to their bottom line as a starting point and project from there. Does my question make sense?
    Thanks!

    Like

    1. Good question. I can’t remember off hand, but CFO Tim Huffmyer said that it would be immediately profitable / accretive to them.

      They thought enough of the opportunity to do that last round of funding. I don’t think they would’ve done that without a wink and a nod from one or more potential customers.

      It has been hinted that board-member Steve Elfman has been working some magic. Those who don’t know his background (especially with Sprint and AT&T) should read about it here — https://www.smithmicro.com/company/investors/board-of-directors

      Helps to connect the dots… 😉

      Liked by 1 person

  3. Short interest in SMSI dropped 60 percent according to NASDAQ figures released today between 12/14 and 12/31. It appears that the short thesis was end of the year tax loss selling, now that is over with the stock has been slowly rising awaiting news, not very fast though since earnings are still two months away.

    Like

    1. not saying they’re right but earnings whisper has them reporting January 23rd which would be three months after the last time they reported quarterly earnings 🤔

      Like

  4. Hey Mark,

    Pretty personal question, so feel free not to share, but curious how you have your overall investments laid out. Are you almost 100% invested in stocks or are you invested in other avenues such as real estate? When you’re buying stocks like SMSI, are they something like 1% of your overall investment portfolio or 5%? Obviously generalizations are fine if you choose to answer.

    I’m curious because as someone who has a background in sports betting (successfully making money over 5 years), I’ve always been a proponent of diversification and never really letting any single position get much bigger than 3-5% of my overall bankroll. I have ~50% of my net worth in index funds and only pick single stocks with ~20% of my portfolio spread out over 5-10 stocks at any one time.

    Like

    1. Pretty personal, but reasonable. I’ll keep it general and veiled…

      At this stage, I have no reason to be risky. I can make 7 figures a year without betting the farm, so I keep things allocated in a way that I can sleep easy (after all I did getting here, no stress is an important gift to self) 😇

      So, right now, my net worth is ROUGHLY 10% real estate, 40% long stocks, 20% short stocks, 20% in a some special investments (mostly merger arbitrage which pulled +12% last year), and 15% short term bonds @ about 2.4% which is waiting to be deployed into the next investment opportunity I find.

      My long/short ratio changes with my perception of market risk/reward and my ability to find attractive long and short ideas (which is often an indicator of market direction in itself).

      I think that’s a little over 100% which can likely be explained by a little bit of leverage being used in my long/short strategy.

      Hope that helps.

      Like

  5. Hi Mark,

    you mentioned some time ago that you are long Disney. Probably not in focus right now, but I am curious, do you still like the stock long term?

    Thanks!

    Like

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