Andy, Let Me Tell You a Tale

Investing Strategies Technical Trader's Sanctuary
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I might come across as “Just the facts, Ma’am. Just the facts” trader. But all of us have soft spots in our hearts where values trump possible profits or when a sense of fun wins the day.

Friendly Ice Cream was/in an East coast/ Mid-western, family-style, restaurant chain I’d never heard of before stumbling onto its bonds one day. The yields were fat. The company’s financials seemed fine. But for me being a West coaster, I knew nothing about the restaurants themselves. Some poking around said they were known for their ice cream. Further poking around said the company was trying to reinvent itself by “empowering its employees”. “Yeah, right”, I thought. “The usual management buzz words.”

My daughter was attending the U of Akron. So I rang her up and asked if she had ever been to one of their restaurants. “No. But there was one nearby.”

“Would you go there”, I asked, “and buy something? I’ll cover for it. And check them out. I’m thinking of buying some of their bonds.”

A couple days later, she called back. She reported the restaurant was clean, not too busy, and she had walked up to the counter. When asked how the clerk could help her, she had asked for a peanut butter milkshake. The counterman said that they didn’t offer that flavor. But then he paused and said, “We have peanut butter for our sandwiches, and I know we have ice cream. Why I don’t just make you one?”

When she told me that, I knew I had a winner. ‘Employee empowerment’ wasn’t just management hype. It was happening at the store level. So I immediately went online and bought two of the only five bonds being offered of one maturity and all three of another maturity. (In other words, on that day, I was 60% of the total volume traded. Talk about “thinly traded”.) But I had done my due-diligence, plus some “field research”, and I was willing to make a five-bond bet, which --at that point in my career-- probably represented 4% of AUM, not a sizable position, but enough that a loss would sting.

I’m happy to report, though, that both came to maturity, and I made my 15% YTMs. And I could tell you a dozen other such tales, where I bought because I thought the project was worthwhile. E.g., World Wildlife’s bonds, the Smithsonian’s bonds, or where the company had been part of my childhood (Treehouse’s bonds), or where it just seemed like a fun thing to do, e.g., Jamaica’s bonds, Turkey’s bonds (both doing well).

Arindam

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Thanks Arindam, I think we have very different styles of investing. I don’t think your way is bad for you but it isn’t the way I want to do it. Nothing wrong with that just different. I want to own companies that are growing fast and hold them till the growth slows down. Your style has helped me by getting me to wait for better entry points where before if I had checked out the company and liked it I would have bought it immediately. Also your style has helped me look at the market as a whole to see if it looks like it is turning over, I think it is going to start going down now, so that will help me tremendously on writing options. I also like the idea of using tetter totter on Arkk and Sark. It is something I thought about but didn’t really know how to accomplish that. Well I tried a small position in Sark today to see how that works.

But what I do not want to do is sit in front of a computer every day watching signals of stock charts going across my screen, I would rather read about companies and find long term investments or be outside working around my house. But realize you have been a great fountain of information and I do appreciate the help, you have started me to realize more about risk and less about the upside. So thank you for what you have done to further my investing experience.

Andy

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“I think we have very different styles of investing.”

Andy,

That all investors each have their own means, needs, goals, interests, and opportunities is what everyone wants to ignore in favor of “one size fits all programs” that mostly benefit them advocating for them, namely, Wall Street and most financial newsletters. As I keep saying, Schwager makes that exact point about the need for differences built on one’s own personality, as does Alex Elder, as does any decent investing/trading coach. “You gotta find what works for you.”

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Exactly Arindam and you have been a fountain of information.

Andy

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Andy,

You’ve got an edge few investors have, namely, the willingness and ability to use options in conjunction with your stock investing. That’s going to become even more important as the recession/depression deepens. Don’t let that edge wither from lack of use.

Arindam

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It is worthwhile to have several investing or trading systems that you become comfortable with. People always talk about diversifying your stocks. But it is more important to be comfortable with a diverse set of approaches to investing. There are things to be gleaned from different approaches that can strengthen your overall personal portfolio management.

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Thanks Arindam, you really have opened my eyes up. Now I understand what you were trying to tell me about Enphase and what I was doing wrong. I am getting a better understanding of all this and this will help tremendously with my options so I do not get steam rolled.

Andy

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Andy,

You’ve got an edge that few have, and you need to think about making money from the composite trade, not just the equity or the options leg alone. In other words, accept that one leg or the other might fail. But if the net is positive, you’ve got a repeatable, scalable game (and time to go fishing).

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