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Healthy Wealthy Wise Project
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I satisfy both sides of my brain by following two different systems, devoting about half my portfolio to each: 1) Fundamental investor using Free Cash Flow as defined by Buffett's 1987 shareholder letter. Invest only in predictable, undervalued stocks with good management. Buy with a Margin of... More
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HealthyWealthyWiseProject
  • A 92% Return in Geokinetics (GOK) - but I could have made 5 times more money! 0 comments
    Jun 29, 2011 9:13 PM | about stocks: N, HOS, MANT, CSCO, WMT
    I sold Geokinetics, Inc. (GOK) today for $7.91 per share, a 92% profit in exactly one year.  Geokinetics is the second of two Oil Services firms that I purchased a year ago during the BP Oil spill fiasco, when there were threats to shut down all offshore drilling in the Gulf of Mexico.  I knew the U.S. would not abandon our Gulf oil supplies.  I described the purchases in this article: Buying When there's Blood in the Street.   The other stock (Hornbeck Offshore Services) was sold March 21st for a 112% profit, as described in this article.

    That's 2 great stock picks, averaging more than 100% profit, yet better money management, combined with my new trend exhaustion spreadsheet, would have yielded a much greater total return to my portfolio. 

    The bigger the bargain, the more you should buy..

    I put 3% of my portfolio in GOK, which was my standard weighting last summer when I bought the stock.  There was nothing special about 3%, it just 'seemed' right.  But GOK was grossly undervalued when I bought, and I should have placed a greater amount in the stock in order to take advantage of the mispricing.  How much exactly to invest puzzled me until I remembered the Kelly Formula.  I then researched and developed  The Kelly Formula for Stock Investing: Growth-Optimized Money Management.  (Click on link for article)  I use that spreadsheet to tell me how much weight to give each new stock purchase.  It is based on a gambling method that gives you optimal betting fractions.  In the case of GOK I should have placed 9% of my portfolio in the stock.  This alone would have tripled my monetary return.

    But that's not all.

    The Trend is your Friend - Until the End..
    I bought GOK on June 29, 2010 at $4.12 per share.  The timing was perfect, late June 2010 was the 52-week low for the stock.  I timed the purchase of GOK using my then-brand-new spreadsheet:  Trend Exhaustion Market Timing Spreadsheet.

    GOK hit it's highest price of the past year - over $10 per share - back in February 2011.  Unfortunately I wasn't monitoring my trend exhaustion spreadsheet for this stock, because it gave a signal to Sell GOK on February 28th.  I could have got out of the stock at around $10.59, when I was sitting on a 157% return! 

    You can see the Buy and Sell signals in the spreadsheet image below.  The Buy signal was a 9-week Buy SETUP, the signal is given in cell O709 (June 28, 2010).  The Sell signal was an 'Aggressive Sequential', the signal is given in cell BH744 (February 28, 2011). 

    Click on the spreadsheet image to enlarge-

    Trend Exhaustion Signals for GOK: Buy-Setup / Sell-Aggressive Sequential

    So there it is - the perfect trade.  Buy Low and Sell High, and bet more when the odds are in your favor.  This Trend Exhaustion stuff, combined with better money management using the Kelly Formula is truly powerful.   Actually that may be an understatement.  I just did some math that shows me if I had combined my 'Kelly-size' bet with my 'Trend Exhaustion' spreadsheet, I would have made 5 times more money! (4.7 times to be precise)  Incredible!

    I did not time my recent stock purchases (MANT, CSCO, and WMT) using my 'Trend Exhaustion' spreadsheet.  I may regret it, but those are stocks I really wanted to own at the prices I bought.  I did use the 'Kelly Formula' spreadsheet to optimize my bet size.

    If you'd like to work with them, both of these spreadsheets are now available on my Research Offers page. 
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