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How hard is it for you to jump on a rapidly moving train?

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January 05, 2011 – Comments (0) | RELATED TICKERS: AFOP

Using part of my pitch on AFOP, which made me reflective:

I enjoy looking at high flyers to see:

1.If I can learn anything from them that might help me spot a future high flyer.

2. Trying to determine if it has more to run.  (Green thumb candidate)

3. Trying to decide if  it's over inflated and if I expect it to fall. (Red thumb candidate).

Alliance Fiber Optics Products, Inc is clearly a momentum stock and my downthumb started as a limit order that was only intended as a bookmark while I did some more research. 

I usually start a limit order, usually one with no chance of kicking in as a marker for some more DD. After which I close the limit order, leaving the equity alone; or adjust the limit order to kick in at a more likely level as either an up or down thumb. In this case Alliance Fiber kicked in on me before I was done with my DD.

  Now that it's kicked in, subsequent research indicates that in an upward market Alliance Fiber may continue drifting slightly higher, but overall I still think it will retrace some of it's recent gains.  Alliance Fiber Optics is a 3 bagger over the last year, hit a double in the last 10 weeks, but I was more interested in the gain the last 4 days of 25% on no new news.

  So in this case Alliance Fiber is a good example of what I try to do with high flyers.  I decided, now that my pick kicked in while I had my back turned, that Alliance Fiber really may not be overheated at all, nor do I see much catalyst for more upside or downside.  If I'd been quicker on my DD or set my limit order further away I probably would have cancelled it.

 What I'm really after at this point is reflection on how likely I am to jump on a moving train even if I think it's going in the right direction. After the train has left the station, how likely am I to jump on?  In reality I've found that most of the momentum plays that I deemed too frothy here on CAPs and down thumbed have done very well. Some have a moat, some had good margins and good potential, some, while it might not have been determinable that they had more room to run, didn't deserve getting called down.  Of course some I'll contend despite their continued upward trajectory ARE way over valued and the market is an idiot.  Many of these I've learned to identify by having a huge short interest and relatively low volume that tends to propel them furthur upward. In these cases I've learned to stay away as well, and if I was less proud, I'd probably jump on and ride the train a few stations and capitalize off the market insanity.

I've definitely concluded that in most cases, I wouldn't jump on that moving train because I'd rather convince myself that I  already missed the upside or it wasn't deserved in the first place than confront my jealousy of others gaining and my own bias. My metrics are shifted and I'm looking more for negative reasons to down thumb the equity than I am for positive reasons to jump on.

 In some cases I do jump on because I still think I see value the market hasn't factored in, but this is rare and usually I'd rather spend my time looking for the beaten down equity and hope the market discovers it shortly after I do! 

I think I've gotten much better at holding my red thumbs, but probably not much better at being objective about joining in on a green.  I'm also missing a few red thumb calls that I really should make while I try to find more DD time or time the top. 

I think I'd rather have a chance of getting in on a green upthumb, even one that has already had considerable upside and miss a red thumb call.   There's plenty of obvious trash to pile onto!!!  :)

Maybe someday I'll figure out that jealousy ends in LOUSY!  :)

Any tips on how you rationalize joining in on a hot running equity after the trains already left??? 

 


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Rest of my rationale on Alliance Fiber.   Not related to my question of the moving train.

The items of note on Alliance Fiber are that it has been rapidly increasing revenue and seems to be benefiting from the extensive fiber optic network that needs maintained and updated.  Increasing share price has been partially offset by an increase in both sales and margins.

Prior to a 1:5 reverse stock split Alliance Fiber was a $.50 to $1.80 with less than a 20,000 share daily volume.  This week it averaged nearly half a million shares traded on a relatively low float after the reverse split.

Are institutional investors driving it up now that it's above their usual threshholds?  Will volume continue??  I think I'm safe for now on my downthumb, but I'm often burned on momemtum plays. My feeling of safety comes from the my experienes that high flyer equities have a solid majority of investors with a very respectable paper profit.  A slight selloff will cause their excitement to turn to protection and selling usually cascades.  Of course if institutional investors are waiting in the wings, they could turn that curve back the other direction.

Overall, an interesting company on a tear, no debt, reasonable P/B.   Despite my best efforts, I can't find much not to like and sometimes a huge spike in an equity is the market catching up on an equity left behind.  In this case it could also be the skeptics who can't believe a company can come out of nowhere to such heights without a serious correction. IF there is anything to dislike it would be Alliance Fiber's customer concentration being too thin. I don't know who their two 16% each clients are, but if either slowed their buildout or switched suppliers it would be a substantial hit.

Down for now to live with the hand I dealt myself.

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