Let's do an investing experiment...
I really want to do this so I (we) can learn something new.
If you ever read any of my posts, you probably know I specialize in highly speculative stocks. I also like to study charts (developed a method I call chart-eyeballing, which is more art than science), and use no fundametal analysis whatsoever.
Now, as you know, majority of investors say that's just wrong, and they advise other people to stay away from speculative stocks.
However, I think that's wrong. I think every portfolio should have one or two (or three) of these speculative stocks. Of course, I would never tell you to put a lot of your money into them, but I think a certain small percentage (that you can afford to lose) is OK. I think these speculative stocks keep investing interesting as they usually make very wild moves, and they also give you that hope that you are possibly owning a potential 10+ bagger.
So what is my experiment?
I found 3 stocks that fit my chart-eyeballing screen perfectly: BPG, RAS, and ZLC. Their charts are just beautiful. Music to my eyes (or something like that).
However, all 3 of these are highly speculative, fundamental junk stocks.
Let's take a quick look at them:
BGP, Borders Group Inc., currently at $2.06, operates bookstores, 1 star stock
RAS, RAIT Financial Trust, $2.09, provides financing to real estate industry, 4 star stock
ZLC, Zale Corp., $3.64, operates jewelry stores, 1 star stock
Some technicals too:
BGP is down 45% from its 52W high ($4.34 on 6/5/09), but up more than 100% since 2/1/10
RAS is down 39% from its 52W high ($3.45 on 9/18/09), but up more than 100% since 2/1/10
ZLC is down 57% from its 52W high ($8.51 on 9/16/09), but up 100% since 2/1/10
Now, what I'm trying to learn is whether these stocks are good buys as a part of a speculative part of one's portfolio or not. Are they simply junk, stocks waiting to die (and that's why they are $2-3 stocks, 50% off their 52W highs), or are they just starting to come back (and will eventually be $6, $10, $20 stocks).
I really don't know what to think, and that's why I'm posting this "experiment".
Once again, I love their charts, but are fundamentals more important than charts? Is there a good reason people stay away from sub-$5 stocks? Is there a good reason 2 of these 3 stocks have the lowest CAPS rating possible? Is there a good reason people call these stocks garbage? I don't know, and I'm trying to find out.
But those are not the only questions I have. I'd also like to find out if there is a good reason these stocks were multibaggers up until the day they started going down. Is there a good reason they are now up more than 100% in a very short period of time? Is there a reason they are now jumping up on volume that's much higher than the volume on which they were going down (for BGP ad ZLC the most recent volume spikes are almost highest ever)? I don't know, but I hope to find out.
Naturally, I'm pulling for my chart-eyeballing and hope these stocks will take off, but I'm also kind of in an uncharted territory for me (picking low priced stocks this late into the rally).
I have all 3 of these stocks in my CAPS portfolio (as I believe my chart-eyeballing makes no mistakes), and I'm not planning on closing them for at least 12-18 months (unless they die before then).
Let's see what I (we) will learn from this...