Investing still has a lot to do with probabilities and risk adjusted returns.
Even though a thorough understanding of the companies financials, technology, and business prospects (market) is most important to making an investment, we must realize that we simply can't predict outcomes with a high degree of certainty.
These next comments reflect my personal investment philosophy, and certainly do not reflect a lot of the posters on this thread. If you don't want to read this very personal discussion, skip to the next posting.
You asked:"I bought 4000 more this morning, and now have 4% of my portfolio" How many stocks are in your portfolio?
I have 20 stocks in my portfolio at the moment, although 10 comprise over 80%. The remaining ten (including NUKO) comprise the remaining 20%. I limit myself to a 10% position when buying into a position, and that is usually only if I perceive the downside risk to be reasonable, say only 20-30%.
Nuko doesn't classify in that category, since the downside risk is clearly 100%. There is a significant probablility that a year from now, Nuko could have a stock price below 1. We simply do not know what competitive technology could replace Nuko's, or whether the market will grow fast enough to provide revenues before the company runs out of cash. But even if this probability is 25%, I still think this speculative investment is worth making. Since the management has slashed their salaries, bought Nuko stock on margin, and received a renewal of the credit line and additional capital due to a private placement of stock around the current price, it is clear that knowledgeable insiders still see a significant upside to the company's fortunes. So a reasonable upside is 8-10 in a year. I give that a 50% probability, and if everything goes right, a stock price of 20 is worth a 25% probability. So the probablity adjusted expected value of this investment is (.25 x 0) + (.50 x 10) + (.25 x 20) = 9. This represents about a 350% expected rate of return from the current price level. This is more than adequate compensation for the 25% risk that I may lose a significant part or even all my investment. I have owned other stocks like Nuko, that I liked very much, that went bankrupt, or were liquidated for less than $1 a share. We can simply never know for a certainty, about a specific outcome.
In my portfolio, I usually limit myself to about 4 speculative stocks like Nuko, that don't have earnings, or in some cases, even revenues. Right now, I have Nuko as a very speculative stock, Valence Technology (VLNC) as a speculative stock (no revenues yet), and Checkfree as a somewhat speculative stock (no earnings). These last two have threads on SI that have strong adherents similar to this thread. Altogether these stocks comprise about 10% of my portfolio. And so far, due to Nuko, I'm underwater about $30k on these three; my loss on Nuko is approaching $40k, so you see I still take this investment very seriously. I now hold 31,000 shares at an average cost of about 3.50 a share.
I am willing to go to 40,000 to 50,000 shares if I still feel the risk adjusted return is there. Based on what I can see, and know, the depressed price run-down is due to insiders who have been forced to sell their margined purchases that were bought around 7 1/2. I consider this a temporary drop, and an opportunity to buy, and I have bought 9000 shares this week. This one of only four stocks that I have purchased in the last month, and represents my largest $$ purchases during that time. In fact my investment partner (read spouse), thinks I'm crazy to be buying this stock. But she knows that it is a relatively small part.
My hope is that the stock will go to 20 in the next year, and provide a nice boost to my portfolio performance(approx 20%). So I'm in to the bitter, or to the crowd pleasing end. I'll buy the lift tix at Aspen.
Don't get me wrong; I think the sellers right know are throwing away their shares. I just have to keep some kind of control on my emotions to keep me from trying to buy them all!! If the revenues due to be reported next week are in the $4.5-5M range, then we should bounce above 3 easily, above $6M, then above 4-5 easily. These are just my guesses and if they don't come to pass, I'll still feel OK about this speculative investment, and keep waiting patiently for it to pan out.
Sorry for the long winded answer, but I wanted a thorough treatment. Too many people in this stock were playing on a "hope and a prayer" without adequate capital to support their speculation, and now the margin calls are cleaning them out. Sometimes your worst enemies are unwittingly your fellow shareholders.
Remaind cool, while others around you lose their heads.
Paul |
