THE 2018 GRAND SALAMI STOCK PICKING METHODOLOGY THE 2016 ELECTION GRAND SALAMI METHODOLOGY – MCOA, AMMJ, CNAB
Reverse Engineering the 2014 MJ MANIA
With the seemingly gigantic catalyst represented by the November 2016 elections looming ahead and its probabilistic concomitant mania, in the Spring of 2016 I embarked upon a comprehensive analysis of the 2014 MJ Mania. Since history tends to repeat itself, I sought to reverse engineer the 2014 MJ mania to determine which specific factors possessed the greatest predictive capacity for identifying the stocks with the highest probability of delivering outsized returns -- I wanted to develop a comprehensive blueprint and subsequently pinpoint which components of the model would lead to the highest % gains for my MJ portfolio in the fall.
After approximately 500 hours, the deconstruction of the mechanistics of the 2014 MJ Mania into its component parts was completed. Relying somewhat on my firsthand experience deconstructing the late 1990’s Nasdaq internet sector mania -- you can read about it here -- http://investorshub.advfn.com/boards/read_msg.aspx?message_id=136784484
-- and much more strongly on my graduate school training in the methodology of instrument construction, I reviewed each and every MJ stock and divided about 350 stocks into 4 quartiles by performance as judged by % gain from trough to peak.
I removed the stocks in the middle quartiles so I was left with the top performing quartile and the bottom performing quartile.
Then I performed a series of statistical analyses including discriminant function analysis and factor analysis, along with a variety of other statistical methodologies and mathematical simulations.
Strongly resembling my primordial findings from 1998, the final product was a factor-based algorithm whose composition was very heavily weighted towards measures of sentiment. Supply/Demand factors were the second most important construct. Technical factors were significantly lower weighted. And not surprisingly, similar to the internet sector mania, traditional fundamental factors (revenue, revenue growth, profit margins) and valuation metrics (P/E ratio, market capitalization) possessed no predictive value.
From the lowest priced shares purchased to the peak price in November:
MCOA gained 5600% -- from .0035 to .1985
AMMJ gained 2370% -- from .085 to 2.10
CNAB gained 2040% -- from .1565 to 3.35 THE 2018 GRAND SALAMI METHODOLOGY
Reverse Engineering the 2014 & 2016 MJ MANIA
I performed the same analysis once again, this time on both MJ manias
SALAMI factors were extracted directly from the statistical analysis of the 2014 and 2016 MJ Manias -- those are the factors that possess predictive value for stock performance by % gain inside of both manias
Utilizing a weighted scoring system, a preliminary SALAMI score is calculated for every MJ stock
IPA THEORY is an outgrowth of my intensive study of the sentiment-based SALAMI factors -- it is my attempt to break down sentiment into its essential constituents... you can read more about it here: http://investorshub.advfn.com/boards/read_msg.aspx?message_id=136788597
All MJ stocks with a preliminary SALAMI score greater than the 75th percentile are assigned scores for the IPA subfactors, which together comprise the IPA score
The final SALAMI score is a composite measure consisting of the preliminary SALAMI score and the IPA score
Only the MJ stocks that score at or above the 90th percentile for the final SALAMI score meet criteria to be potentially selected for entrance into THE GRAND SALAMI
The 2018 GRAND SALAMI selections are made based on a combination of the final SALAMI score and my personal judgment
In the end, I believe the collaboration amongst statistical formulation, mathematical computation and human analysis provides the very best results THE SUBSECTOR SUPERMANIA
The key to the biggest returns during a MJ MANIA
When reviewing the stocks ranked by % gain from highest to lowest in THE 2014 MJ MANIA, it became apparent that stocks in the same subsector did not trade independently of one another, but instead tended to trade in specific clustering patterns stratified by performance. The mania was so strong in 2014 that nearly every marijuana stock achieved tremendous gains; however, it was readily apparent that certain subsectors vastly outperformed others. Vaporizer stocks generally experienced superior returns, in comparison to other subsectors such as lighting, security and financing. Stocks whose primary business plan revolved around vaporizers, along with stocks who merely announced they were entering the vaporizer industry became absolute rockstar Kangaroos hopped up on Adderall. Everybody who witnessed the unfolding of the mania remembers the singular posterchild encapsulating the utter ridiculousness of it all as the vaporizer play SPLI meteorically rose 75000% in 10 weeks.
The utter dominance of the vaporizer subsector during the 2014 MJ Mania calls out for a new term: SUPERMANIA.
Although stocks residing in the Supermania subsector generally possess the greatest potential to experience the rarefied air of 99th percentile returns, the clustering of stocks within a given subsector by performance was not so clean and absolute that every single vaporizer stock achieved the most superior returns. Many of them did not.
Only the very best of breed stocks within the vaporizer Supermania vastly outperformed nearly every other stock in the MJ universe to achieve Superman-like returns.
We saw a similar phenomenon during the 2016 MJ Mania where the best performing subsector this time around was the all-purpose cannabis stocks. There were more than a dozen of them and as a subsector they handily outperformed the MJ sector as a whole.
But only the top stocks in that subsector – MCOA, AMMJ, and CNAB -- participated in the SUPERMANIA.
In early 2017, a SUPERMANIA in cannabinoid pharmaceutical stocks occurred, and once again only the very best of breed stocks in that subsector participated in it -- OWCP and CNBX.
So it seems the key to picking the very best stocks in the 2018 MJ MANIA will be to first predict which subsector will experience the SUPERMANIA, followed by identifying the best of breed stocks in that subsector.