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Value Microcaps PICKSIX LOTTO CHAMPION

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Last Post: 5/4/2010 4:48:07 AM - Followers: 16 - Board type: Premium - Posts Today: 0

This board has been created to honor the Champion Stockpicker on the Value Microcaps Board in the latest Pick Six Lotto contest. The Champion will have a chance to semi permanently let others know his/her stock picking techniques as well as his/her favorite stocks. The Champion can provide background information on their investing experience as well as any area where they feel they have special expertise.

PICK SIX LOTTO FOURTEEN (PSL14): http://investorshub.advfn.com/boards/board.aspx?board_id=16746

 

January 11th, 2010 to April 30th, 2010

58 Participants -- Gainers: 33, Losers: 25

Average gain: +6%

 

WINNER - NorthernLightsk05: http://investorshub.advfn.com/boards/profile.asp?user=49614

 

Top 10 Posters

1 NORTHENLIGHTSK05 203.76%

2 KNOWLEDGEISKING   94.03%

3 GHMM              44.92%

4 JUSTFORFUN7       37.64%

5 SWICK984          36.31%

6 RESEARCHER59      34.16%

7 HWEB2             33.87%

8 MICHAELT          31.43%

9 TIKA1             28.54%

10 BIGPROFIT         28.42%

 

Top 10 Stocks

 

1 AGM      219.43%

2 MILL.OB  202.62%

3 CHGY.OB  198.90%

4 DCTH     180.92%

5 JNGW.OB  140.00%

6 LTS      133.33%

7 CTIB     126.00%

8 ZCO.V    110.30%

9 GSL      106.92%

10 QCOR     103.97%

 

 

NORTHERNLIGHT COMMENTARY


"1. Investment Philosophy

My investing philosophy is preservation of the capital (never lose money) and the home run (10 bagger). I learned this from reading investing books written by Warren Buffett, George Soros, Peter Lynch and Philip Fisher. The core of the philosophy is to maximise the gain instead of the number of wins. When odd is the most favourable, I would bet my biggest capital on it. The cautious side of this philosophy is to avoid the situation that the bet is too big that I cannot afford the loss and too big that I cannot get out when things move against me. It requires detained study and investigation of the targeted companies, their products, earning power, the sector trend and their business position in the competitive environment. I usually put about 70% of my capitals in top 3 to 4 companies on my selection list. I always hunt for high probability and high impact opportunities.

Specifically, I would look for undervalue stocks with low price-to-earning ratio , low price-to-book ratio, low price-to-cash flow value and low price-to-sale ratio with market cap less than $200 million USD. This selection criterion is based on several studies as published in the books of “What Works on Wall Street” by James P. O’shaughnessy and “Contrarian Investment Strategies: The Next Generation” by David Dreman that these undervalue stocks had outperformed the market by a huge margin in up to 60 years’ Compustat database. Basically, the odd is in my favour if I choose these undervalue stocks to outperform the market. This is the first and necessary step, but it is not sufficient. The next step is to look for a near term catalyst that would dramatically increase the earning or cash flow as well as the perception of these undervalue stocks. Finally, from the technical analysis point of view, I would also like to see that the stocks have formed a good basis or only at early stage of uptrend. One important thing to consider is the earning quality. I try to stay away from the companies showing great earning numbers, but negative cash flow with high account receivables or big increase in account receivables.

I also like to buy stocks at maximum pessimism either for a whole market or for individual stocks. I learned this from Benjamin Graham’s Mr. Market Theory and John Templeton’s value investing strategy. This also gives me the biggest Margin of Safety. Investing is a humble process and everyone is fallible. I always remember that the cockiest traders die first in the market place. The market can give, but the market can also take it away.

My favourites and super stocks are those that are traded at either trailing or forward PE=1 or less while earning or cash flow from operation look sustainable going forward. It is rare to find trailing PE=1 stocks, but they do exist at maximum pessimism near the bottom of bear market and for unknown stocks. GFRE and LPIH are two of the examples early last year and I purchased them both at trailing PE=1. Both have appreciated 1000% since then. It is less difficult to find forward PE=1 stocks. CHGY and NEP (CNEH) are two of the examples. When KiK posted CNEH (NEP) on VMC board after it posted a turn around earning report in 2007, it jumped from 0.40 to 0.6 - 0.7. At 0.6 - 0.7, it was traded at forward PE=1. I jumped in with both feet and bought a boat load at 0.62-0.69 in 4 days. When CHGY dropped to below 10 cents last year, it was traded at forward PE far less than 1 after coal mine open. I loaded CHGY shares to my chin. These are that stocks that would give you 10 bagger return or more.

My favourite investing books are Peter Lynch’s “One UP on Wall Street”, Jack D. Schwager’s market wizards series “Market Wizards, The New Market Wizards, and Stock Market Wizards”, and Edwin Lefebvre’s “ Reminiscences of a Stock Operator”.

 

2. Investing Background

I began investing and trading stocks from near the end of 2000 when NASDAQ at 3400, so I have about 9.5 years’ experience. My average annual compounded return is about 70% in 9.5 years of investing and trading. My worst performance or drawdown was in in my first year of investing and trading. I had lost 70% in my first year when NASDAQ index dropped from 3400 to 1500 from November 2000 to October 2001. My 2nd biggest drawdown was from the middle of 2008 to April 2009 and I had lost about 60% from peak to trough. My best performance year was about 2000% from March 2009 to March 2010. My 2nd best year performance was 1600% in 2002. It was a roller coaster ride.

I got into stock market when one of my friends and colleagues told me he had made a killing in 1999 and 2000. I knew that he had been trading stocks from 1996 to 2000. I borrowed some money from two local banks using line of credit with interest rate of 8%. I started out by investing this borrowed money into Canadian oil and gas stocks. Some of them are Canadian oil sand companies. In retrospect, It turned out to be the bottom of those Canadian oil and gas stocks and they delivered as high as 50 bagger for some o those companies. But I did get a cent of profit from them. After I entered those stocks for 1 or 2 months, and started to lose my patience because those stocks did not move much and were forming a base. One day I went into Safeway for shopping and noticed an advertisement by a high tech guru investor on an on-line investment magazine. I remember that Fred was his first name and had achieved annual compounded return of 55%b in high tech stocks for the last 15 years. That really impressed me, so I went home immediately and subscribed to his investment letter with annual fee of $380 USD. I sold my Canadian oil and gas stocks and bought his recommendations of RMBS, AVNS, JDSU and NT. Every Saturday, his many followers including myself would read his investment letter while his core recommendations kept dropping like a stone as NASDAQ corrected sharply. He continued recommending us to hold our positions. After about 10-12months and with loss of 70% of my principle, I finally gave up and sold everything with average 70% loss. This heavy loss in my 1st year investing experience was probably the best ever happening to me. This taught me to be independent and to do my homework. It also taught me that the market is cruel and you could lose a lot of money in a very short period of time.

I took the remaining capital and identified 4 stocks, TALK (Talk America, this company later merged with another company), SINA. SOHU and NTES. TALK had just turned around and delivered a good earning quarter with my estimation of forward PE=1. SINA, SOHU and NTES did not have earning at that time, but showed excellent potential. I put all my remaining capital into TALK at 38-42 cents and the stock rose 1000% to $4.2 in about 8 months. I sold at about $4.0 and bough back when TALK pulled back to $2.5. TALK then bounced back to $4 range. I sold and got in total 1600% return in about 1 year. But NTES. SINA and SOHU performed better with 100 bagger, 35 and 30 bagger return in 1 year and I missed them completely. However, the gain from TALK allowed me to pay back my banks loan and gave me the confidence to continue investing.

I bumped into Bobwins and a couple of other posters on MDF (MDPA) RB message board and Len on RB WRLT (Taiwan Internet Company). I started posting on VMC board in 2005 and thought it was the best board in the value micro cap land. I still think that it is the best stock discussion message board covering value micro cap and nanocap plays with posts from very talented stock pickers. I started to join PSL contests since PSL 7. My main purpose to join PSL contest is to improve my trading skill , buy winning is also fun If I can make it. I think that I can improve my trading and investing skill if I compete against the best of the best on the micro cap land. I think that your guys are the best stock pickers because I don’t see this kind of performance in such a short time frame in other competitions.

I am a scientist working for a company conducting R & D activities for companies in US, Canada, EU and China. I am married with two children. Investing or trading is one of my hobbies and I spend about 1 hour per day in average on stock study and selection . I do not post much because of lack of time. Although I am financial independent thanks to the big gain from the stock market, I am not sure that I want to be a full time investor or trader at moment.

 

3. Summary of PSL14 Contest

My original picks for this contest were CHGY.OB. CNAM.OB, WKBT.OB, CBPO, PFGY.OB and WEMU.OB. My trading stocks were SGZH.OB, CGPI.OB and BFTI.OB. I own all these stocks except for WEMU and SGZH in my real portfolios. CHGY was the only sure bet in my book and it was just like what Jim Roger had said before that the money was lying on floor and the only thing you need to do was to walk over there, bend down and pick up the money. I was confident that CHGY would deliver over 100% appreciation during the time frame of this contest since Q4/09 and Q1/10 earning reports would be out during the contest. I was confident that the reports would be good since CHGY had disclosed in Q3/09 10Q reports that the coal mine was open since early August last year. CHGY was traded at my estimated forward PE=2 at the beginning of the contest. I was hoping that one or two my other picks would perform well before CHGY Q4/09 report, so could double down into CHGY before Q4 earning report, but all my picks performed very poorly in the 1st few weeks of the contest. In fact, I was sitting at the last place in three weeks of the initial 5 weeks. I eventually sold WEMU at loss and double down into CHGY. CHGY reported an outstanding Q4 with 15-16 cents of earning per share. The share price jumped from as low as 80 cents to as high as $4. At about the same time, CNAM popped 100% after news coming out that it was going to build a big metal recycling plant. This was expected since it has been discussed for a while. The explosive jump of CHGY and CNAM moved my position from the 2nd last to the 1st in 1 week. I froze CNAM and later bought into SGZH. This turned out to be a bad bet and froze the position with 25% loss. When CHGY pulled back to $3.15 range and I knew that I needed a good trade to win the race since KiK started put pressure on with excellent performance of his picks. I traded into CGPI since it just delivered a good quarter earning report, but the stock did not behave well. I sold CGPI and bought BFTI since it had completed the transition from an old plant to a much larger new plant with a huge increase in production capacity. BFTI suddenly had a surge of buying volume of 0.5 million shares from almost no trading volume in the last 12 months. This happened to be the lucky trade with BFTI delivering 126% return.

My worst picks in this contest were solar stocks, PFGY and WEMU. At the start of the contest, I thought that solar stocks would have good chance for appreciation since the whole industry was going to turn around with orders and backlogs increased dramatically. Both PFGY and WENU looked undervalue from forward P/S and P/E ratio. But the German cut in solar subsidy and highly competitive business environment squeezed their gross margin. Both reported disappointed earning report although delivered very good revenue numbers. PFGY was down 41% and WEMU down 18%, respectively.

Good Luck Everyone for PSL 15 Contest!"

 

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PSL1  CHAMPION'S BOARD SUMMARY: http://www.investorshub.com/boards/read_msg.asp?message_id=11054704

PSL2  CHAMPION'S BOARD SUMMARY: http://www.investorshub.com/boards/read_msg.asp?message_id=13102250

PSL3  CHAMPION'S BOARD SUMMARY: http://www.investorshub.com/boards/read_msg.asp?message_id=15707449

PSL4  CHAMPION'S BOARD SUMMARY: http://www.investorshub.com/boards/read_msg.asp?message_id=19222015

PSL5  CHAMPION'S BOARD SUMMARY: http://investorshub.advfn.com/boards/read_msg.asp?message_id=22596832

PSL6  CHAMPION'S BOARD SUMMARY: http://investorshub.advfn.com/boards/read_msg.asp?message_id=25347294

PSL7  CHAMPION'S BOARD SUMMARY: http://investorshub.advfn.com/boards/read_msg.asp?message_id=28826790

PSL8  CHAMPION'S BOARD SUMMARY: http://investorshub.advfn.com/boards/read_msg.aspx?message_id=31870165

PSL9  CHAMPION'S BOARD SUMMARY: http://investorshub.advfn.com/boards/read_msg.aspx?message_id=34310724

PSL10 CHAMPION'S BOARD SUMMARY: http://investorshub.advfn.com/boards/read_msg.aspx?message_id=37678130

PSL11 CHAMPION'S BOARD SUMMARY: http://investorshub.advfn.com/boards/read_msg.aspx?message_id=41293175

PSL12 CHAMPION'S BOARD SUMMARY: http://investorshub.advfn.com/boards/read_msg.aspx?message_id=44849392

PSL13 CHAMPION'S BOARD SUMMARY: http://investorshub.advfn.com/boards/read_msg.aspx?message_id=49742388

 

NEXT UP: PICK SIX LOTTO 15: http://investorshub.advfn.com/boards/board.aspx?board_id=17764

PostSubject
#21   KIK FINAL MEMORIAL: Taken from Ibox. lentinman 05/04/10 04:48:07 AM
#20   ABH3VT FINAL MEMORIAL: Taken from Ibox. lentinman 12/24/09 05:14:16 PM
#19   RESEARCHER59 FINAL MEMORIAL: Taken from Ibox. lentinman 09/09/09 05:20:30 AM
#18   MSGI FINAL MEMORIAL: Taken from Ibox. lentinman 05/09/09 03:28:56 AM
#17   THREES FINAL MEMORIAL: Taken from Ibox. lentinman 12/19/08 02:29:55 PM
#16   R59 FINAL MEMORIAL: Taken from Ibox. lentinman 09/02/08 03:59:53 AM
#14   Gilead FINAL MEMORIAL: Taken from Ibox: lentinman 04/27/08 03:13:39 AM
#12   NilesCrane FINAL MEMORIAL: Taken from Ibox: lentinman 12/17/07 03:28:02 AM
#11   DANLC FINAL MEMORIAL: Taken from IBox: lentinman 09/05/07 03:42:54 AM
#10   Bobwins FINAL MEMORIAL: Taken from IBox: lentinman 04/29/07 05:42:58 PM
#9   KIK FINAL MEMORIAL: Taken from IBOX. lentinman 12/20/06 04:48:16 PM
#8   NETWORM: FINAL MEMORIAL. Taken from IBOX. lentinman 09/05/06 03:00:03 AM
#7   So networm is the winner and only has fructose 05/11/06 11:06:40 PM
#6   Please read the IBOX which includes a summary lentinman 05/11/06 06:29:37 PM
#5   Congrats to networm and everyone who openly participated FinancialAdvisor 05/11/06 06:28:34 PM
#4   CWS: FINAL MEMORIAL. Taken from IBOX. lentinman 05/10/06 08:17:24 PM
#3   Definitely a congrats to cws9 and everyone who FinancialAdvisor 01/27/06 03:32:40 AM
#2   ditto, congrats. I really appreciate the thought process analysis. bigpike 01/10/06 01:49:30 PM
#1   First message: congrats to cws9 Knowledge is King 01/10/06 01:40:43 PM
PostSubject
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