Come on 7, Baby Needs a New Pair of Shoes
Kyle is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I love speculation plays. I think spec plays should have a place in everyone’s portfolio. Typically, I only purchase stock in spec plays with profits I made from another investment. For all you traders that are Mary Ann fans, I can’t help but reserve a small percentage of my portfolio (and heart), for Ginger (thank you, Sherwood Schwartz). I take small portions of some profits and, after doing much homework, I throw a tiny amount of “found money” and let it ride on what I feel might be the best number on the roulette table.
Believe me I have lost on several occasions with spec plays. But the “wins” are very similar to the feeling you get when your 40-1 Kentucky Derby bet comes rolling down the backstretch with an insurmountable lead.
For those of you who didn’t watch Gilligan’s Island, or don’t care for thoroughbred horse racing, or only trade blue-chips and bonds, feel free to stop reading.
Every single trade we make is some sort of a speculation. But there are several companies that fly under the radar, those little seedlings that we hope bloom into an amazing return on our investment. Companies that are publicly traded that sometimes have absolutely zero coverage from analysts. At one point in time, Ultra Petroleum Corporation (NYSE: UPL), was a stock that sold for less than five dollars. In a former trading life, Ultra was one of my first spec plays. I invested less than $200 in UPL at $4.76 per share. I closed my position in Ultra many years ago at a roughly 2000% gain; although I do still follow the stock and I like it at these levels.
Another example is Sirius XM Radio, Inc. (NASDAQ: SIRI). Quite some time ago, when my trading bike still had training wheels, I entered a position into, at the time, Sirius Satellite Radio (before the merger with XM). I have followed and respected the CEO, Mel Karmazin, for years. Much like my UPL trade, my first stake in SIRI was just under $5 per share. For anyone that has followed Sirius and the drama the past several years, I relish to admit, I added to my position when the stock fell to 4-cents per share. This amounted to a substantial stake in a company that was hemorrhaging money, couldn’t get out of its own way, much less the FCC’s, and showed no hope of returning a profit. I was worried, yes, but only inasmuch that I would have simply been upset if “I lost.” The money I used on both sides of the Sirius play was “found money” (which is one of the only ways I recommend dollar-cost-averaging). I still have a long position here, but I took out my initial investment, as well as some profit and I am letting the rest of the “house’s money” ride.
Speculation plays, much more than individual blue-chip stocks, take a little more guts and fortitude. I assure you, it is much easier to stomach a “loss” with profits from a previous “win” than it is with a regular part of your investing budget. It’s a good thing to keep that money separate, compartmentalized, and if you happen to hit a small jackpot with it, take some, if not all your profits and move on to the next one. Speculation plays also require much more homework, research (translation, time), and patience. I would not recommend any sort of stake in a spec play without listening to an earnings call or two (or more), for example.
Until next time, from the trading table,
Motley Fool blogger, Kyle Metivier, has a long position with Sirius XM Radio, Inc., with the house's money, and as of 2008, no longer owns shares of Ultra Petroleum Corporation. Feel free to follow him on Twitter (@kem312), for a full disclosure on this year's Kentucky Derby, as well.