Investment Report – 2018/06/14

Haven’t updated in a while. I doubt anyone is listening anyway. I’m still holding on KGJI and FTFT. They haven’t done jack squat over the last several months, but the story on them hasn’t changed. One thing to realize is that, if you find a low price now, then that means that you believe that the market is wrong. Why should it suddenly right itself after you buy it? The reason to sell a stock isn’t because it does something, but because the company itself has changed, or the company’s situation, or you learn something about the company that you didn’t know before.

In any case, a friend of mine suggested a strategy that I have been working on implementing.

Think about this – imagine that there is a stock you want, but you wanted to buy it at a lower price. You *could* put in a limit order and wait for the price to drop. But what if someone PAID YOU to put in that limit order? Don’t think this is possible? Well, actually, it is.

If you write a PUT option (that would be “sell to open”), that is precisely what you are doing. Most people write put options with the hope that they won’t be exercised. They believe the stock will go up, and if they wind up having to buy the stock that is considered a fail. However, a better strategy would be to find a company whose stock you WANT, and write a put option for the price you want to pay. You get immediate cash just for writing the option, and then, if the price goes down, you get to buy the stock at the price you asked for! It’s like a limit order that pays you!

The other side works the same, you can write call options for the price you want to sell at. You don’t really lose if the price goes up too high, because you were going to sell anyway. Instead, you get paid to write the sell order.

Anyway, I’m experimenting with this now. I purchased DM at $13.32, and wrote a call option for $15.00 that pays $0.63 per share, which expires on Nov. 15 (5 months). The cost of the shares was $2665 and I got paid $126 for the call option. That is a 4.7% gain in 5 months, if the stock does nothing, for an annualized return of about 11.3%. If the stock actually goes up to $15, then I would earn an additional $320. That is an additional 28%.

To me, this seems like a win/win. The problem I’ve had is that, with the limited amount of cash that I have, the stocks I want to buy are very limited in the options that are available. Micro-cap stocks often don’t qualify for options. Hopefully, when I have a bigger account, I’ll be able to be more flexible with my option strategy.

In fact, I was looking for a company to write put options for, but I haven’t found one which (a) I can afford, and (b) which you can write PUT options for which someone is willing to buy for a reasonable price.

Five month call options are the only things I have found that I can lucratively write.

As for other trades, I found SALM at $3.35, bought 500 shares, and sold at $3.97 and $4.50. I still have 200 shares which I will just hang on to indefinitely.

I bought IRL – probably a bad idea, but it’s a fund whose asset value is below the stock price.

I’m currently looking at GURE, BCRH, and SORL. GURE and BCRH both fit the profile of good, solid companies that have had a bad year. GURE got hit with a bunch of regulatory stuff, but have almost no debt. BCRH is an insurance company that got hit with major claims due to a hurricane, but other than that seem solid. SORL is just an undervalued stock.

Anyway, currently my portfolio is only gaining about 12%/year. Of course, since it is only half-invested, that’s not too bad. On the other hand, having a pile of cash to pick up good deals is part of the strategy, so I can’t readjust my numbers for that. If I am correct, my longer-term numbers should be about 40%/yr. If I’m incorrect, it will be probably still be at 12%/year.

Another strategy I’ve been thinking about is buying dividend-paying stocks and writing covered calls on them. If I can get a stock that pays an 8-10% dividend, and then gain 10% writing covered calls, that would be a nice easy way to earn 15-20% year-over-year.

Investing Status Report – December 2017

For anyone paying attention, I mentioned my first significant trade here, buying FTFT (Future FinTech, formerly Skypeople Fruit Juice – SPU). As per usual, after I bought the stock, it went down. I got in at $2.15, and it dropped to $1.37. Ouch!

But, I decided to ignore it, and it jumped to $8.00 before settling back down around $5. I sold half my position at $5. That gives me all of my money back with a small profit, and I get to keep the stock! Instead of Return on Equity, it is Return of Equity. What’s better than getting a valued stock is essentially getting one for free. I also have a standing sell order to sell half of what remains if the stock gets to $8.

At this point, since I have all of my money back, it is fairly irrelevant to me what FTFT does as long as they stay in business.

I will say, thought, that I am a little more skeptical of them than I used to be. They jumped on the blockchain bandwagon. That’s actually one of the reasons for the jump in price and why I let so much of the stock go at that price. I don’t think that blockchain is a good technology. It’s very interesting and innovative to be sure, but I don’t think it really is as good as people say. Now, they said they were building blockchain environments. If they do and they make money at it, great. But, if instead they are just jumping in with the latest buzzword, that indicates that the company is just pumping their stock price with fancy buzzwords.

So, it shook my faith in them, but I did get back all of my money plus I still have half of my position. Not a bad play. I unfortunately didn’t have a lot of money to play it with, but I put a significant stake in their.

My safe play right now is MNDO. Basically a stable dividend-producing company with a solid backoffice solution they are selling. Because they are producing a dividend, that is not only helpful monetarily, but it is a direct indication that they know the goal of a business and how to acheive it, and probably aren’t playing games with their stock price.

Additionally, the dividend is pretty steep – about 10%. So you get the return of a junk bond but the benefit of equity ownership in a stable company. Not bad.

For a risky venture, I’m looking at GURE, but can’t quite yet determine if they are for real or not. Haven’t decided for sure whether to commit. They say they have a P/E of 2.77, a P/B of 0.23, and a 37% gross margin. They don’t pay out a dividend, so that is a drawback. Also, the company has hit some hard times because of regulatory issues, so they are going to report a Q4 loss. Anyway, I’m waiting for the Q4 loss to come out and see what it does. If it drops hard, I’ll probably pick it up, because they seem to be a stand-up company letting everyone know about the issues ahead-of-time and when the picture isn’t so rosy, plus they have a nice cash position to help them weather through these times. I think the price will drop hard soon and then there will be a great buying opportunity. It’s not a bad opportunity now, but right now it is tough to say that it would be better than keeping it with a dividend-returning stock like MNDO.

Biotech is Awesome – And Accessible

I have a lot to say on this topic, but not now. For the moment, I just want to point out that biotechnology has always been with us, is a gift of God, and we have only scratched the surface of what we can do. What we need to do is get our kids excited about it and it will be the next big thing. I’ve had a dream for many years of having a public biology lab, and stuff like this would be awesome.

Fermenting is not Scary

Lately, I have started fermenting vegetables. The largest reason for this is that it is fun. It is like vegetable gardening, but what you are growing is microbes that preserve, flavor, and possibly nutritionally enhance your food. Rather than wait months for your garden to grow, your ferments will be ready in days or weeks. Rather than go outside and get dirty, you can do all of this inside whenever you feel like it. It doesn’t require watering or anything. It’s like magic.

Even better, fermenting is almost foolproof.
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Experts as Blowhards

Note – this is Part 3 of a series on Tom Nichols’ book The Death of Expertise. You can also go to Part 1 and Part 2.

Continuing on our discussion of Tom Nichols The Death of Expertise I want to talk about a specific story that Tom Nichols thinks shows that experts are giving us important information which we are ignoring, but which really shows that experts are infatuated with their own importance and focus on irrelevant technicalities to boost their own ego.
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The Real Cause of the Death of Expertise

Note – this is Part 1 of a series on Tom Nichols’ book The Death of Expertise. You can also go to Part 2 and Part 3.

I am currently listening to an audiobook titled The Death of Expertise. I have only just started it, so I am curious to see if my position changes over the course of the book. But so far, I think that the author Tom Nichols is dead wrong on the reason why Americans are skeptical of experts.
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Why is Wall Street Always Blamed?

My purpose of this post is not to exonerate Wall Street from its misdeeds, but rather to ask its accusers to be more introspective about their own role in Wall Street greed.

Let’s face it – everybody knows that the people on Wall Street are overpaid for what they do. Our problem with them is not that we begrudge them their money, but that we are envious and want to be able to make that kind of cash ourselves. It isn’t so much that we are mad at them for mis-spending our money, but rather we would like to be able to be overpaid for mismanaging the companies we ourselves work for. The problem is not that they are making the money or putting us into risky positions that they should know better about. The problem is that we are not making the money and when we put our employers in risky positions through our own ineptitude, we don’t get a similar payday on the way down.

The real reason everybody goes to Wall Street is because they are greedy bastards. There is a measure of safety in that realization. If you know that someone is completely amoral and only does things for money, you can be sure that if you pay them enough, their amorality is on your side. Similarly, this also puts somewhat of a cap on their own individual immorality, because, in real life, continual immorality sets a limit to the payday. Markets only function because of the general morality within business. If someone is amoral rather than immoral, they are more likely to behave morally in a generally moral society.

We actually have a sense of safety knowing that our money is tied up with greedy bastards who just want to know the bottom line.

If you actually did have a grudge against Wall Street that was based on true moral indignation and not simple envy at their ability to win bigger than you on every trade, there is a simple thing that you would be able to do to combat this.

Stop giving them money.

Instead, make money by offering loans to your friends and family to start businesses. Invest in local startups – people that you know have the strongest moral fiber. Invest in your local community.

What? That’s not liquid enough? There isn’t a big enough market? There’s too much risk and not enough reward? The people with character don’t make the deals that give the company the most profit? Local people don’t have the winner-take-all attitude needed to go to the top?

Well, then take Wall Street. But don’t act like you didn’t know what you were buying. And don’t act like you weren’t complicit when they do what they always do and leave you holding the bag. You went with them because you wanted to be the one holding the bag, right?