Odd Earnings News

That certainly didn’t go the way I expected. Sports have their seasons and so do corporations. Four times a year corporations officially announce their quarterly results. It is called the “earnings season”, but the official verbiage usually says “results” because “earnings” may not exist. Of the companies I follow (see my semi-annual exercise) all have had news. The reactions have been so surprising that I can’t convince myself of what my original expectations were. In the short term, stock investing can be a guessing game. In the long term, surprises should balance out and risk and guessing become less important. In the midst of my financial horse race, I could greatly benefit from good news and patience.

Before the slide that has been my portfolio since the Triple Whammy, my portfolio was diversified. At one point I had about a dozen stocks, which limited my exposure to losses from bad news from any one. Silly me. Almost seven years ago I “diversified” by selling some stock to make a large down payment on some real estate, my house. Another stock or two left the pack as I paid bills. Fortunately, just as my portfolio shrunk, one of my investments, Dendreon (DNDN) received FDA approval for a cancer vaccine. Yes! Then DNDN took part in the Triple Whammy, and I had to grudgingly sell it and a couple other stocks while I tried to find a job (unsuccessful so far) and sell my house (unsuccessful so far). Now, my portfolio has less than a half dozen stocks. Well, at least it is easier to track fewer positions.

I think this view is priceless, or $264,500.

I think this view is priceless, or $264,500.

With my semi-annual exercise in mind (when I review my investments), I expected:

  • AMSC to do nothing until the Chinese government decided what to do with Sinovel’s acquisition of AMSC’s intellectual property,
  • GERN to do nothing because they are only in phase two clinical trials, and using Dendreon as a guide suggests a stagnant stock for another year or two,
  • GIG should announce good news, and maybe finally get recognized for their market capture of a high-tech need,
  • MVIS could announce stellar news because they’ve already mentioned that five major customers will eventually announce major products
  • and,
  • RSOL might do well or not because, despite the need for renewable power, they are treated more as a construction firm or as a cousin of Solyndra.

Well, it didn’t go that way at all.

  • AMSC: Okay, I got this one right. They did have a spike when a US court ruled in their favor, but nothing to reflect the size of the potential settlement from China.
  • GERN: Biotech financials are almost moot because they all must spend immense amounts of cash to prove their drugs and please the FDA. But, GERN spiked because someone liked their phase two data well enough to suggest a 150% price appreciation.
  • GIG: GigOptix does have 50% of a high-end, and hopefully high profit margin, industry, yet the stock went nowhere because sales barely budged. But they did sneak in a possibility of working on consumer electronics. Hmm.
  • MVIS: MicroVision, the company that can make my mortgage company happy, managed to announce – nothing really. Yes, revenues were up and costs were down, but the numbers are small relative to what investors expect from a successful product.
  • RSOL: Real Goods, which is not stirring up any excitement, suddenly decided to merge with another company, and the stock spiked.

At one point on Friday, my portfolio was up by about one month’s non-mortgage living expenses. That’s encouraging.

I guessed wrong about what would move and what wouldn’t, but those were short term guesses. I continue to trust my semi-annual exercise results which estimate my portfolio’s value at several times above its current value. I could see results like Friday’s for months and just get back to what I consider a nominal, conservative valuation of my portfolio. That potential puts each day’s efforts into perspective because my average day’s income covers about a half a day’s expenses. Of course, I expect that to change too. Business is up, and the more consulting I do (got a project you want help with?), and the more passive income I receive from books and photos brings me closer to paying my bills without having to sell stocks.

my most recent sale

my most recent sale

Fortunately, I haven’t had to sell any stocks this year. I haven’t paid the mortgage either. Unfortunately, I might have to sell some this month, which would decrease my diversification. I almost sold some GERN a few days ago, and am glad I exercised a bit more patience. Friday’s impact on my GERN holding wouldn’t make much of difference in my bills. It is an encouragement to give GERN, and the others, a bit more patience.

Investing in individual stocks requires a high risk tolerance (or fatalism or good luck), patience, and a bit of research. Even with diversification and a Long Term Buy and Hold strategy, bad luck can coincide.

Investing in mutual funds is apparently easier, yet I don’t do that. I don’t do that because, as odd as individual stocks can be, mutual funds are nothing but dozens or hundreds of individual stocks. The task isn’t simpler. The task is so phenomenally complex that it is easier to ignore the complexity and slap on a label of simplicity.

My investments may be doing poorly, but at least I have an idea of why, and I have an idea of what they may be worth. Buy low. Sell high. Buy small companies. Sell when they become big companies.

As a measure of the irrationality of the market:

  • the company furthest from making money has the largest market cap (GERN),
  • the company with the highest revenues is three times smaller (RSOL),
  • the company with the next smallest price-to-sales has the smallest market cap (GIG), and
  • the company with the greatest present-value-of-future-revenues has the next smallest market cap.

A bit more patience, the right good news, and the results will turn into earnings and income.

By the way, in case you don’t recall, the stock I sold to buy my house is now up more than four-fold since then (FFIV); and Dendreon (DNDN), despite potentially revolutionizing cancer care, has managed to decrease sales and implode their stock price. It’s all so odd.

About Tom Trimbath

consultant / entrepreneur / writer / photographer / speaker / aerospace engineer / semi-semi-retired More info at: https://trimbathcreative.wordpress.com/about/ and at my amazon author page: http://www.amazon.com/-/e/B0035XVXAA
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