Dear Investing Diary - Volume I

Summary

• This article presents my buy and sell transactions from January and February 2020, before S&P 500 collapsed, and my household and workplace went into lockdown.
• A steaming hot market of February 2020 should be studied by every investor who doesn't want to be burnt in the future.
• Admit it, if you ever got too greedy. Recognize your emotions.
• If you are a retail investor, it is smart to follow the smart money.

How I started 2020 with a smile and cash reserves

In the beginning of January, I was full of enthusiasm for the stock market, not only in the U.S. but also in Europe, specifically for the Eurozone and in Poland. Not so much because of the climbing S&P 500 levels, as for my eagerness to put in practice some new trading strategies I worked out. I enriched my thinking with ideas coming from books on ETFs, CEFs, a pile of books by Minervini, Wyckoff, Fosback, the life story of Jesse Livermore (from the side of psychology of traders), and I just started studies of volume theories: volume profile ("Mind over market"), VWAP, etc. All that I read could be summarized in two principles: look for proof of big institutional buying and buy at historical discounts.

During Christmas holidays 2019, I spent crazy hours running my backtesting software and maintaining a copybook with my ideas, drawings of charts, volume profile shapes, etc. Additionally, I have modified my pension savings plan in Poland to one based on the stock market, where profits and dividends earned on the Warsaw Stock Exchange would be exempt of the 19% tax as long as this pension account would be maintained until my reaching the pension age according to the local law. The world was still not very much worried about coronavirus and I was looking at my cash reserves with hopes of a reasonable "correction" in the market so that I could start buying. My trading/investing philosophy has begun to crystalize: trading for profits, investing for income. Little did we know...

Investment Diary - January and February 2020

Below goes a story of my purchases and sales when life still seemed "normal", until about February 19, and my first reactions to the sliding indexes.

I bought Anthem (ANTM) on January 3, and very quickly I realized that it was a wrong moment. Although I liked the trend of growing revenues, I had missed out on the fact that the stock did not really have strong momentum. At that moment the price was flirting with $300 for the third time within the last 52 weeks and soon after my purchase, it started going down. As soon as it returned near break-even price on January 23, I sold it with a 2% loss and decided to forget about it. If it ever crosses $300 in a convincing manner, I might start to look at it again.

After having sold Anthem, on the same day I used the freed up resources to buy one of the latest purchases of Warren Buffett, Restoration Hardware (RH). Well, it only sounds this grandiose, because we all know that most of the new positions in the portfolio of Berkshire Hathaway (BRK.A)(BRK.B) are selected by the famous couple Todd and Ted. Yes, I could have sold RH with some profit in February, and I could have picked up more shares after the stock dropped over 70% from its February top to its March bottom, but I just left it as it is. I need to see a new proof of any new significant institutional purchases to get more enthusiast about it.

The beginnings of the months are when I get inspired by my EquitiesLab.com screeners. As you can read in my article of January 7, entitled "2 Under-The-Radar Stocks From A Growth Strategy With 36% Annual Returns", I recommended in it to follow stocks of Vanda Pharmaceuticals (VNDA) and GMS Inc. (GMS). As I tend to put my money where my mouth is, I bought GMS just after submitting the article. As you can see on the chart below (NB. the right edge of the chart indicates the day of purchase, 6 January), the price of the stock was very near the level called Point of Control, defining the prevailing price of the upper bulge in the volume profile.

Source: Tradingview.com

Remains to see how attractive the stocks will be in the coming months. It is still in my portfolio.

On January 27, I bought a small position in Xpel (XPEL), a $330 million cap protective films and coatings provider, a quite niche and underfollowed company known for an emblematic Stealth body wrap for Teslas. Around the time of my purchase, I could see that the ownership records published on Morningstar.com were very bullish. See below the screenshot I took just a couple of days later, January 30.

Source: Morningstar.com

If you look at the records as of May 1, they are bullish as well, which explains the stock price recovery underway since the bottom in mid-March.

Thanks to another of my original screeners on EquitiesLab.com called "Volume Spikes", I noticed Virgin Galactic Holdings (SPCE) some 2-3 weeks before articles about this company started popping up on SA, but I did not buy it until January 31. On the way to work, I was listening to one of Motley Fool's podcasts where one of the analysts was saying "You don't bet against Richard Branson". After returning home, I verified if this was the same ticker that kept popping up in my software, so I ended up buying it. I sold SPCE position 2 weeks later with a 33% profit.

On February 3, I took a 17% loss by selling Universal Display Corporation (OLED), having missed the opportunity to sell it with profit in January. OLED was the first casualty of COVID-19 in my portfolio, due to the uncertainty around its factories in Wuhan region in China.

On February 4, I sold my position in Benefytt Technologies (BFYT) when it was still called Health Insurance Innovations (former ticker HIIQ), with a 16.5% profit. On the same day, I also sold my position in Paylocity Holding Corporation (PCTY) with 17.3% profit. As I look at its current chart, PCTY might be ripe for picking up again. Its VWAP lines and volume are growing like crazy, giving signals of enormous buying transactions.

Source: Tradingview.com

On February 6, I bought some stocks of Vivint Solar (VSLR), a $726 million cap solar energy company. It has crazy rates of revenue growth but booking losses for the last 2 years. I bought it for $9.26 and sold it on February 20, the day it topped (chart right edge), with a 32% profit.

Source: Tradingview.com

On February 7, I tripled my existing position in USA. It has all the right holdings and I like the rate (currently just above 10%) and quality of its distribution, despite some occurrences of ROC. Just as a side note, I know that there are many articles in SA that discuss ROC from every point of view, but I don't work full time in finance and I don't have time to study if this specific ROC is good or bad. I just want it simple - ROC should be minimal or none. In the case of USA, it has had a few of them in the last 10 years and sparingly in the preceding decades. The fact that a CEF has been paying distributions for almost as long as I am alive, well, it tells me something.

On February 12, I sold my position in Medpace Holdings (MEDP) with a 17.7% profit.

Following another of my EquitiesLab screeners, on February 18, I opened a position in Pure Cycle Corporation (PCYO), a water and land development company with operations mainly in Denver. In the last two years, the revenues of Pure Cycle shifted from selling water to companies providing fracking services to the oil and gas industry, to revenues from lots' sale and water and wastewater tap fees on the new projects developed on these lots. At the time of my purchase, the stock seemed to have very strong momentum.

Source: Tradingview.com

Relmada Therapeutics (RLMD) stock was suggested to me by one of my original screeners called "Nearly breakouts", that searches for stocks with a sudden drop of volume combined with rising moving averages. On February 18, I bought a small position in this $588 million cap biotech that doesn't have yet revenues but has interesting research focus on central nervous system diseases, especially neuropathic pain. Given the debacle of the old school opioids, I speculate that Relmada drugs could be the next direction in the painkillers market. Also, with one of my loved ones suffering from widespread pain, I felt I needed to give Relmada a shot. Apparently, big institutions felt the same. As you see below on the screenshot I took on February 27 from Morningstar.com ownership page of Relmada, the quarter ending September 30, 2019, included only "new" buying transactions.

Source: Morningstar.com, captured February 27, 2020

If you look today at the Q4 of 2019 records, Relmada got on the radar of more institutions and there are no selling transactions either.

Source: Morningstar.com

I am curious to see the upcoming records for Q1 2020 but I am quite certain that I selected something very hot.

On February 18, I started regretting selling my first position too early, so I got greedy and blind enough to buy Virgin Galactic again, near the top of its price... Somehow, hours before S&P 500 topped out, I felt that I was giving in to a rush speculative fools but I still couldn't stop myself.

The stock Clarivate Analytics (CCC) came from the "Nearly Breakouts" screener. I bought a small position on February 21. When I saw the chart below, where one could clearly notice both recent buy transactions with heavy volume and bulging of volume profile in the area between $20 and $23, I said to myself "They are buying it!", whoever "they" were.

Source: Tradingview.com

With the delay of institutional reporting in mind, one can see on Morningstar.com, that the top 20 institutions poured over $50 million into this $8 billion cap scientific data analytics company. I have subscribed to IR notifications of the company and enjoy reading their news.

Source: Morningstar.com

Again, I am looking forward to ownership updates.

On the same February 21, I also bought another stock - Victory Capital Holdings (VCTR), a $1 billion cap investment management firm with amazing growth rates. It was suggested by the same screener "Volume spikes" that produced the Virgin Galactic recommendation.

As of end of 2019, I started loving CEFs. With SPY falling for already a week, my thinking was to start locking in some good sources of income. On February 24, I decided to establish a position in Wells Fargo Global Dividend Opportunity (EOD). Qualities I saw: its significant distribution rate (currently above 14%), a reasonable expense ratio (currently about 1.9%) and the fact that in its history since 2007, it has rarely had Return of Capital included in the distribution - only through 2009 - 2010 and 2012 - 2013.

I can call February 24 a "CEF Day" - First Trust/Aberdeen Emerging Opportunity (FEO) was the second of 3 CEFs I bought on this day. It invests in equities and fixed-income securities of emerging markets. I chose FEO not because it has just a cute "ugly" name, but because it offers an attractive distribution rate (currently above 13%) at the expense ratio of just below 2%, and with an acceptable (but barely) number of occurrences of ROC in its history since 2006. Since 2009, the quarterly distribution is a fixed amount of $0.35 and it's good enough for me.

The last CEF I bought on February 24 is GAMCO Glb Gold, Natural Resources & Income (GGN), which invests in companies in the gold industry and natural resources. This monthly payout CEF offers the distribution rate of nearly 18% at the expense ratio below 1.4%. GGN has had ROC almost all the time, but I got greedy (again!), so I bought a 100-share position. Not sure if it was a good idea: distribution amounts have been consistently dropping and this CEF has heavily invested in the energy sector that has taken the biggest beating in history. On a good note, gold companies have performed quite well in recent weeks, so all is not lost.

On February 26, I finally pulled the trigger on the stock that I had been secretly dreaming of buying - Veeva Systems (VEEV). It's one of those companies that I kept on every imaginable wish list, still remembering an impression left after the interview with its founder that I read in Forbes years ago. After stock price dropped from $167 to $150, I started my position in Veeva, planning to keep it long term. Not regretting at all and with plans to add more.

Conclusions

February was a very curious period for me, as probably for everybody else. From a mood of exhilaration and buying stocks on-sale, I have passed to sadness related to COVID-19 casualties and compassion towards those who have lost their jobs. With time I realized what a blessing it is to have a relatively stable job and to be able to work from home. In my next article, I will cover not only my March and April transactions but also some thoughts on how living under lockdown influenced me as a consumer and an investor.

Analyst’s Disclosure: I am/we are long RH, GMS, XPEL, SPCE, USA, PCYO, RLMD, VCTR, CCC, EOD, FEO, GGN, VEEV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Comments

[Magdalena Pacholska]

Dear Friends, there will be no follow-up to his article, no Volume II. Transactions made in period March and later lost somehow their relevance, and as for my musings on evolution on my behavior as citizen and investor, I can only sum it up in a few lines. As a citizen, I need to be responsible, always, and everywhere. And as for investing: I have overtraded. I made money, ok, but I gave too much away in commissions. I don`t want to be paying for the third mortgage of my stoke broker! The challenge ahead of me is to buy stocks rarely but surely, not to sell (while rolling stop losses on winners), and just do other more joyful things in life.

[James Catlin]

Thanks for sharing. I enjoyed the write up.

[Niksurfs]

Magdalena,

I see you have very much immersed yourself in the technical aspects for trading and congratulations on growing so well in that area. What I might suggest and I don't hear you talking about in your diary, is an in depth understanding on the companies/business's you are investing in. The fundamentals of their business, the markets they address, the customers and moat they have. Maybe I missed that somewhere.... if I did, pardon me.

I would submit for your consideration that a very deep dive into each business itself should be ahead of the technical research on buying and exiting a position. Sounds like you got a taste of that fundamental research component with your VEEV purchase.

Just an observation on my part and please take this as advice and not a criticism. Understanding the business in detail, their vertical, their market position, competitive edge, their competition and TAM/SAM is critical. Also who is involved in management and on the BOD are very important primers before researching the technical timing.

Best of luck with your VEEV holding, it was a wise choice and truly a keeper. It is one of my core positions and I have been in VEEV for quite a while.

I wish you all success in your investing endeavors.

[Magdalena Pacholska]

Thanks, Nik. I indeed did not dedicate too much space to the presentation of companies' markets and fundamentals, but believe me, if I say that for a predominant majority of them I have read at least one annual report and listened/read at least 2 (but sometimes up to 4) earnings calls and peruse lines of their fin statements for trends in revenues, net income, CF, FCF, debt, various coverage ratios, etc. I don't want the time (nearly 1000 hours) I spent on preparation for my CFA level I & II exams to go for nothing :), Plus a minimum of 2 hrs a day of financial podcasts and reading fellow SA contributors. My technical focus here is more about WHEN, not WHAT to buy, to make money. Not always 100% correct, but that's life. As for the market shares, I look at that too but it's not a religion to me. I rather look at what societal challenges they tackle, what demographic needs they respond to. I have been working for the last 10 years in research funding consulting, 6 years before that in border security, so R&D spending, innovation, and international politics are very important to me. Anyway, thanks so much for your positive vibe.

[jesneed]

Good article and good reply to Nik. I think I will push the follow button.

[Niksurfs]

Thank you for your reply. You certainly have a lot going on and have put in an extraordinary amount of time in both your thought and research. I wish you all the best with your selections.

Congratulations on reading Con Call's and notes, that is so important, also I review the Q&A from analysts on the call, sometimes this reveals a lot as well in tone and content with regard to replies to questions.

All the best...

[Gino Verza]

Magdalena.
Thank you for sharing. I am impressed with the probity of your work. Three unrelated comments:

1) Re: "........and I just started studies of volume theories: volume profile ("Mind over market"), VWAP, etc. All that I read could be summarized in two principles: look for proof of big institutional buying and buy at historical discounts."
- ROIC and Growth (rate) determine FCF, which in turn determines Fundamental Value.

2) Re; "......my eagerness to put in practice some new trading strategies I worked out. I enriched my thinking with ideas coming from books on ETFs, CEFs, a pile of books by Minervini, Wyckoff, Fosback, the life story of Jesse Livermore (from the side of psychology of traders)".
- Warren Buffett: (a) Be mindful of your Circle of Competence, (b) Maintaining a concentrated portfolio is okay.
- Einstein: Compound interest is the most powerful force in the universe.Let long term compounding energize your returns

3) XPEL is a core, large holding, in my portfolio.

Thanks for sharing again..

[Magdalena Pacholska]

Thank you, Gino. My motto is to be always learning. I just wish I had started studying finance at least a decade earlier...

[Brenbto]

I don't think they're known for specifically wrapping Tesla's I think they're just known for wrapping cars in general

[Magdalena Pacholska]

Thanks. That's the make I found most references to.