Investment Lessons from the Blackjack Table

Sometimes, I play blackjack. It's the only type of gambling that I've ever really been interested in, due to the surprisingly small house advantage - I don't have the skill to count cards, yet the odds are still not stacked too high against me. It occurs to me that there are a lot of similarities between blackjack and stock trading.

The main thing, I think, is that odds are in blackjack that at some point in the evening, you'll have more money than you started with. If you walk away from the table at that point, you've won - just not much. On the other hand, if you stick around waiting for the big payout, odds are good that you'll wind up behind, but there's that tantalizing chance that you'll walk away rich.

I sold my Timminco stock for a $400 profit, 9%. This is not the most I could have sold it for, and if TIM can deliver on their promise to make UMG-Si at $10-$15/kg, it could easily turn out that I missed out on $10 000. But, like blackjack, it's probably best with a wild swinging stock like this to walk away while I'm up. There's every possibility that they will be unable to deliver on their promises, in which case the company will only be worth a fraction of its current value.

I've found this to be true in my other speculative holdings. I have a great deal more confidence in the ability of FR and WEE to deliver on their promises...yet in both cases I've let slip chances to make a 10% profit and walk away, and in return, I'm currently sitting down 22% on the two.

So, maybe I'm a wimp...maybe I really don't have the balls of steel that it takes to make the big returns. On the other hand, maybe I'm that smart player who can consistently take small profits and run with them. After all, if I could consistently turn 10% on a trade in about a week, I could generate massive annual gains.

Anyway, for better or worse, TIM is closed, and I'm looking for the next one.

Update:
In the time it took me to write this post, TIM dropped from $16.30, where I sold it, to $15.00...within pennies of my buy point. Am I feeling happy right now? I think so.

Stress Much?

So my resource intensive portfolio has been melting down of late. FR is now down 23%, WEE down 34%. It's been a pretty nasty couple of weeks.

I keep toying with the idea of selling, but I just feel like these prices are insanely low for these companies, so I'm not prepared to do so. Maybe I'm crazy, but I still think that despite falloff in resource prices, they're still companies with a lot of growth potential. I'm particularly annoyed because these are companies which didn't benefit all that much from price runup, but seem to be taking the full brunt of the downturn in resources.

Anyway, still in them. Don't really want to sell when they're down...not while I'm still confident in their futures.

On another note, I opened a position in Timminco (TSX:TIM) today. TIM makes solar grade silicon, and was a star performer on the TSX last year. This year it had been performing well, but its second quarter earnings missed expectations, and led to a 25% drop in value. While that's cause for worry, I read the earnings information, and it seems like it it's not all that bad. I don't think it fundamentally changes the bright future for the company, which is what its stock price is largely based on. Pretty much the whole drop was in overnight trading, and today it held steady with high volume, so I don't think I'm the only one who smells a deal.

BMO Option Position Closed, WEE Releases Earnings

Today, I closed my option position in BMO. I had 10 call contracts expiring in August which I'd bought when the price was 0.30, and sold today for 1.65, a 450% profit. After commission, that means I pocketed $1310.10. Not too shabby for such a small risk, but still a bit disappointing given that this time last week had them trading around 2.50. I'd intended to hold until tomorrow, since I expected the stock to peak on its dividend record day, but was just getting to jittery and worried about it.

Whatever, you win some, you lose some, and some...you just win less than you could have.

So that leaves me with the same stock holdings I've had for a while. BMO, FR, WEE. I doubled down on WEE yesterday, buying an additional 500 shares at 1.90.

Today, WEE released their 3rd quarter financials, and I'm not sure what to make of them. From all the news releases recently, I'd expected to see an increase in revenue, and there wasn't much of one. Their losses continue at much the same pace as they've been for the last year. One bright spot was the mention of their PowerWave's performance at boosting oil production. In one field where they are demoing the technology, production is now more than 80 barrels per day higher than when it was installed, and almost double what production forcasts would have expected without the PowerWave. So that bodes well for future sales.

The company remains in a great cash position, thanks to recent equity offerings, and 9 million brought in from exercised warrants this quarter. So there's no concern about the company going under for many years. So, while I was a little disappointed by the quarterly figures, I'm still liking the company as they've got a great technology, and enough money to get the product to market.

The Stock Market Appears to be Broken

Okay, call me crazy, and I know you will, but something seems wrong here.

Because of the size of the option bet I have on BMO right now, I've been watching its stock performance quite closely. Given its dividend payment on Friday, I'm counting on it to outperform financials this week.

But today, it's acting oddly. Driving me mad, actually. The financial sector is pretty much universally up today, but BMO is not. That, in itself, doesn't really mean anything's broken...just not going the way I planned. But what is broken is that BMO is up about 2% on the NYSE, while being down about 0.3% on the TSX. They are otherwise moving together. This is the same stock, so the difference between the two's performance should represent only change in exchange rate, which is not the case here.


Of course, the two prices aren't linked directly, but are connected in that large institutional investors could buy on one exchange and sell on the other if the gap was big enough to make it worth their while.

Anyway, pissing me off, but what else is new. Still hoping for good performance going into Friday.

Sell or Hold?

It's been an emotionally intense week. After last week, when BMO continued to drop and I was worried about whether I'd recover any of the $320 I'd spent on August 48 calls, the stock shot up. Too fast, I would say. By the end of Wednesday, I was almost a full dollar into the money, and my calls were worth around $2500. But I had this target...I expect a peak next Friday, so I held off on selling them.

I'm still deliberating on whether or not that was a mistake. Thursday saw all of Wednesday's gains wiped out, dropping my calls by half their value. Today has been very up and down, the value of BMO has been sidelining, occasionally going down slightly, but generally hovering between $47.50 and $47.80. I have a history of holding onto stocks that have had good gains, only to see all those gains wiped out, ending in a loss. On the other hand, I sold my last option bet for a small ($400) profit, only to see them worth thousands more a week later.

So I'm really torn. I'm still telling myself that next Friday is the day. And if I've still got them, I'll definitely sell them then for whatever I can get. But getting that far without pulling my hair out will be a challenge.

Another Option Bet

The past month has continued to be fairly dull. I am hanging on to my positions in FR, WEE and BMO. FR and WEE have recovered from my earlier losses and are now hovering around my purchase price (I purchased FR at several different price points, so it is profitable for me at $4.71). BMO did the reverse, and so my portfolio continues be doing little for me.

But with the BMO drop, I saw an opportunity. August 1 is the day of record for the next dividend. At today's value, the $0.70 dividend is the equivalent of 6.5% interest, with lower taxes. So it seems likely that the stock price will recover significantly before August...the last dividend date saw the price spike up to $52. So I bought some August calls, with a strike price of $48. Currently, they're trading for peanuts - I paid $0.30, and they're currently at $0.20, but it seems like a good deal.

I like calls for a few reasons. They magnify the effects of normal market movements, so you can actually make a significant amount of money off of them, with limited downside. For instance, even in the worst case scenario that I hold them to expiry and they never go into the money, the most I can lose is $300. On the other hand, if the price were to repeat the last spike - to $52 - I would take home $4000. Somewhere in between would be fine by me.

It's Bike Month

I've been a bit delayed in getting my bike out this year - I've been deferring some major maintenance - it's needed a new drive train - on it for a couple years, and since I walk to work, there's not much financial benefit to biking. But I love my bike, and can't go the summer without riding, so I buckled down, spent the money and replaced my chain and gears the DIY way, and it now works better than it has in years.

And not it's got me thinking about bikes as an investment. Well...owning a bike is an investment to start with, particularly when it's an alternative to recurring fuel or transit costs. But with gas prices on the upward march, and increased concern about climate change, might there be some buying opportunities in the bike sector.

So I've been searching for bike related companies. This seems to have lead to a bit of difficulty. It seems like most manufacturers and dedicated retailers are privately owned. The ones that are publicly traded tend to do bikes as one of many things...and in a general economic downturn, I'm not sure that making or selling consumer products is generally a good place to be looking.

Shimano, which dominates the parts industry, is publicly traded, but only on the Tokyo exchange. While I'm not restricting myself to Canadian companies in this search, I'm actually not even sure my broker is set up for trading in Japan.

Bah...frustration.

Anyone know of any publicly traded bike manufacturers in North America?