My first attempt at stock picking, an experience in progress

by arthur450

I started my investment journey by buying into a moderately high fees UK fund (Fundsmith) in 2016. I’m almost at 50% gain after 2.5 years so I can’t complain… Then I got tired of paying the fees and thought that I could just copy their stock picks. Which I started doing in 2017. Then I discovered Berkshire (I’m a slow learner) and decided to invest most of my NW in BRK-B. At that point I didn’t have much idea about investing. I just realized that Berkshire owned good companies and they were conservative in their practices so there were little chances for me to lose money if I stayed invested for the next 20 years.

But I got interested and as I learned more about the market and investment, I wanted to give stock picking a try. So I decided to invest 1% of my NW worth in each of the stocks listed below last April-May. This is mainly to test for myself if I could be a competent stock picker. I am comfortable losing all of this money (8% of my NW), although I have good hopes to at least break-even within 2-3 years. Maybe even match the S&P500, who knows?

I believe that almost all 8 picks have the potential to be a 5-bagger. Obviously, not all (if any) will. My quick calculation is that one of these company could actually go to x5, two could go to x2, one could go sideways and the rest could go to 0 after 2-3 years. That’s 5+2*2+1+0 = 10 for an investment of 8. But if I get lucky and get 20 instead of 10, I could use this post to pretend that I have some skills in investing (wsb, here I come!). And if it goes to 0.001, I can read this post every time I’m tempted to be clever again.

My plan is to let these stocks ride for at least 6 months and then consider getting some gains if the reasons why I bought them in the first place are no longer present (either due to a higher stock price, more debt, changes in business, etc.). I won’t buy more shares of a stock even if I’m tempted to. I’m giving these bets 2-3 years to pay off. If they don’t after that time, I’ll sell whatever is left.

Here are the companies I picked and the reasons why I picked them. Some are highly speculative, some are more typical “value” picks. I did more DD than what I wrote here but here goes:

Winners (for now)

  • $MNK – pharmaceutical company. Dirt cheap (P/B < 0.5, PE around 3), good ROE (>25%) with reasonable debt (debt/eq around 1, quick ratio > 2). Lots of insider trading. Bought at $16. Could have bought at $12 but got greedy and sold a put at $11 instead (hoping to get assigned).
  • $AAOI – makes and sells fiber optics. Impressive growth (EPS past 5 years, Sales past 5 years above 100 and 40% respectively), reasonable ROE (10%) with little debt (debt/eq around 0.2 and quick ratio around 2). High PE (28) but future PE (14) is more reasonable. Bought at $32.
  • $LCII – sells RVs parts and accessories. Solid growth (EPS past 5 years, Sales past 5 years around 20%), good ROE (>20%) with little debt (debt/eq around 0.3 and quick ratio > 1), and reasonably priced (PE = 19, future PE = 12). Bought at $89.
  • $COHR – makes and sells lasers. Solid growth (EPS past 5 years, Sales past 5 years around 20%), good ROE (>20%) with little debt (debt/eq around 0.35 and quick ratio around 2), and reasonably priced (PE = 22, future PE = 13). Bought at $169.

Sideways (for now)

  • $RBCN – US sapphire producer. Dirt cheap (P/B < 0.7, PE around 1). No debt! This is a typical cigar butt. They switched targets and products lately to focus on higher margin products. They have some intellectual property for military applications. Hopefully, with higher US military expenses, they’ll get a big contract or get bought by a bigger fish. Bought at $8.
  • $ICHR – makes and sells gas and chemical subsystems for the semiconductor industry. High ROE (35%) with reasonable debt (debt/eq around 0.7 and quick ratio = 1). Cheap (PE around 8, future PE around 6). CFO bought for > $130,000 at $27. Bought at $22.

Losers (for now)

  • $HX – chinese peer-to-peer lending company. High growth while still cheap (PE = 5.5, future PE around 3). High ROE (>70%) with no debt! I like their business model (kind of a UBER for lending). They do not carry delinquency risks. They get beaten up right now because the chinese credit bubble is popping. But they are profitable with high margins (>60%) and carry not debt so they’ll probably survive… hopefully . Bought at $11.
  • $RDUS – biotech company. Bought solely based on insider trading. The CEO and the CFO bought for around $500,000 and $100,000 respectively around $30. A successful swiss biotech investment company (has been around for 20 years with a good track record) is a >10% owner and keeps buying. I’m just assuming that they know what they are doing. Bought at $29.

Thank you for reading all this ; feel free to criticize my investment ideas.

441 views