Stock Squawk 🦜 - Catching a Rocket!

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Everyone want’s to catch the next “rocket”. The next stock that’s going to shoot up incredibly fast in an incredibly short period of time. Think $UPST; which as we are writing this is something like a 16 bagger… this year! Remember the old investing mantra, “it’s not how many times you win, it’s how big!”.

So Drowsy and I decided to discuss some different strategies to approach maximizing your investing returns, while minimizing some of the risk in these high growth/high risk rockets.

Let’s talk strategies for getting into (and out of) super high flying stocks.

*A Drowsy Parrot production 💤🦜

Sometimes an opportunity comes along where it makes sense to buy a full position right out of the gate. (My favorite setup is a hot IPO coming on the market on a day the broad market sells off)

One recent example for me was $PLTR. I bought a full position under $10 in early October ‘20. Within 2 months, at the end of November '20, it had ran 200%, where I sold half my shares just under $30. The stock went on to run over $40, then pulled back to the low $20’s, where it lingers to this day.

I bought 1000 shares for $10k, and sold 500 shares for $15k, a 50% realized profit with 500 shares free and clear. Yes, I missed out on some upside when it traded to $40, but I also avoided the urge to sell when the price was cut in half to $20.

It’s too bad every investment isn’t that easy.

It’s hard to go wrong dollar cost averaging over the long term. If you find a company you love, pick an appropriate amount for your budget & conviction, and buy a little each week/month/quarter. Drowsy has been doing this religiously with $MELI.

Fear of missing out on high flyers is a strong pull. Using a systematic DCA plan will get the emotions out of your investing, and you’ll be happy regardless of the short term price action.

*This is a great strategy for all types of investments. I personally use this strategy for my dividend portfolio. The one “slight” downside is your systematic approach may mean you miss a major drop/buying opportunity, but overall you can’t go wrong with DCA.

Similar to DCA, but less systematic. This is a big piece of both Drowsy & my strategy, and is counterintuitive to the prevailing FinTwit philosophy. I often find a company interesting and buy a starter position; THEN start the real due diligence (I work better with skin in the game; I started $SE at $50 and kept buying into the $200’s; Drowsy got in $SHOP at $58 and has been scaling in after every earnings).

Buy some shares (and potentially LEAPs - a favorite strategy for Drowsy). Get skin in the game, then add on during specific event and price action.

Look for key milestones, technical setups, earnings targets, partnerships, acquisitions, etc. By their nature, high flyers are volatile, use it to your advantage to average in during downward volatility.

You can catch a lot of stinkers this way, especially if you come to a position late like I did with $DMTK and $BIGC, and Drowsy did with $ATER and $SKLZ (we both could list many more examples). When you realize you made a mistake, just get out (or like Drowsy, just hold forever 😊).

Sometimes you catch a company at just the right time, and it takes off. Then the hard part is deciding to hold, add, or take profits. Drowsy and I both have examples of each in our portfolio’s.

$UPST is a great example of a company we both bought right before the latest run (under $100). When it stalled at $200, I was sure it would pull back and wasn’t willing to give back a 100% gain in such a short timeframe. Drowsy, being much smarter than I, is now another 100% richer as it trades near $400.

Remember, with this strategy, you have to continue your due diligence and build out your position. You may have crushed it with your initial buy, but it doesn’t help the bottom line much if it’s just a tiny allocation that’s gone up a lot.

Patience is not in our nature, so we’ve talked a lot about potential ways to take action now. But we would be remiss if we didn’t acknowledge that its perfectly fine to just wait.

Good companies will continue to perform over the long term. We all get FOMO (fear of missing out) from time to time, but adding a stock to your watchlist, letting them report a few quarters, and getting comfortable with your thesis/conviction are tried and true methods for investing in all types of companies… including rockets.

Even the best high flying companies will give you a good entry point for new investment if you’re patient.

These are just a few examples of potential strategies to catch a high flying stock. Every company, and every trade is different. You have to decide what works best for your situation. And most importantly… Have A Strategy!

Whatever your strategy, remember the risks involved with high growth companies. Your position sizing should match your risk tolerance.

Looking forward to your ideas on How to Catch a Rocket. 🙏

Market stayed bullish last week. I made a few trades, but continuing to try and be patient and let the market dictate any moves. The $OKE & $RRC trades continue to pay off, and the $RKT thesis appears to be starting to pay out heading into earnings.

I’m still looking for trades to trim in order to raise a bit of cash (currently at 1.5% cash). I’m at 3/5 of a planned position into $NET puts, so will add further if $NET continues to run into earnings.

Also looking at $SNAP into earnings this week (started a call position today).

I’ve got an exciting interview coming up in the next week or two (I’m working on questions now), you won’t want to miss it. Also working on a new topic around developing your own investing process that I’m really excited about… so stay tuned!

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