Marco’s Blog

We made one more purchase this week, 200 shares of Argonaut Gold @ $5.47 on the 22nd.  No stops were encountered and our portfolio gained modestly as the TSX also moved ahead.

Our purchases this week were tentative ones – small positions to test the water. If they pan out we will fill the positions.

Reading an interesting book right now – The Black Swan by Nassim Taleb. Talen argues that it is impossible to predict the future and that the future is determined, moreover, by what he calls Black Swan events, events that are totally unexpected. These can be for good or ill. The computer revolution and the advent of the Internet were unforeseen events that were good Black Swans.  9-11 was a bad Black Swan.

Good ones usually unfold over a longer time frame than bad ones, which usually are in the form of some disaster, whether a 9-11, a Hurricane Katrina or a stock market crash.

There is one very interesting quote in a recent chapter I read.  Taleb argues that the way to benefit from good Black Swans is to create an environment conducive to their appearance.  To be open to their happening.

The Darvas approach does that to some extent.  It recognizes that you can’t accurately predict which stocks will do apectacularly well.  But you can make educated guesses by buying stocks breaking out of their boxes. Breaking out of a box is a necessary first step to further gains. Buying these stocks, with a tight stop loss to protect against them going tthe other way, opens you up to the possibility of a good Black Swan – the stock that breaks out and starts to soar.

We lucked out with our very first picks with both Secure Energy Systems and Centric Health taking off. Centric Health has now hit a stop and was sold at a good profit, but Secure Energy Systems remains in our portfolio.

Of the stocks we have bought since, Alaris Royalty is the only one showing signs of possibly making strong advances. But the market has been in a down trend, so we have been fighting  a rearguard action here.  If the market starts to turn around, then we will likely find several of our stocks turning into winners.  And if it crashes, our stop losses, hopefully, will protect us from a severe wipeout.

The TSX soared over 200 points today and we bought three stocks:

Extorre Gold – 100 shares @ $11.67 – stop put at $10.00

IGM Financial – 100 shares @ $50.46 – stop at $48.25

March Networks – 200 shares @ $5.84 – stop at $5.50

March Networks has moved up rapidly recently so we placed a high stop on it.  If we erred, we’ll be stopped out quickly.  The other two are just breaking out and the stops are placed at the bottom of their last boxes.

We still have over $16,000 in cash.

Last week saw us stopped out of two stocks including our top performing Centric Health. We had set a stop at $2.70 but it was actually sold out at $2.666.  It dropped further to close at $2.16 so our stop worked to our advantage.  The week ended with our portfolio down 2.59%. We are around 80% in cash. The markets continue to slide and so we are holding tight. Our stop on Secure Energy Services is being raised to $8.40.

Bad week in the markets saw us stopped out of four stocks and lose 2.28% on the portfolio. We now have a substantial cash position and four stocks left.  We’re going to let the markets settle before re-investing.  We’re also raising the stops on three of our stocks.  Details in the Portfolio Update.

The portfolio was stopped out of Canyon Services (FRC) on Monday.  We have over $6000 in cash now and will hold until an opportunity arises.

We were stopped out of two stocks this week, but our portfolio gained almost a percent, largely on the strength  in Centric Health which continues to climb. The TSX, meanwhile, dropped two percent.

We have a $5000 plus cash position and will be looking for stocks to buy in the next week.

Although markets have been slipping, things may be turning. If the markets start moving up, our portfolio should move up even more.

One of the analysts I read is Mike Swanson who posted a column pointing to a possible end to the recent downturn. While he looks at the US markets, the Canadian markets are often affected by what happens south of the border. Check out Mike’s comments here.

Our current position can be seen here (as well as an update to our stops, four of which have been raised.)

This week saw our portfolio gain another 3.68%, outstripping the return of the TSX by better than 3 to 1.  This in spite of a stop on Zarlink Semiconductor early in the week.  However – as we have noted in our weekly portfolio update:

It’s interesting to note that two of the three stocks that have been performing well for us were in our starting portfolio, Centric Health and Secure Energy Services.  A buy and hold on our initial position without our trades would have us right now at $32,575.37 for a gain of 14.96% compared to our actual gain of 11.23%. Does this mean we should be using a buy and hold formula rather than active trading?  Remember, we are trying to emulate Nicolas Darvas impressive gains that he wrote about in his book. We know for certain that a buy and hold formula won’t accomplish that.

What we don’t know yet is whether we are following his plan very well. We know we made one foolish purchase and had two premature stops.  Perhaps three as one of our initial position stocks, Medusa Mining, has just broken out again and is very possibly a buy.

What remains to be seen is whether our active trading will net us another stock like Centric Health, one that will give us spectacular gains over a short time frame.

When Zarlink was stopped out on Tuesday, I commented that the stock still seemed to be in an uptrend so maybe we were stopped ot too soon. But a look at today’s chart shows that, in fact, the stock continued to move down and quite sharply at that. Darvas use of stops was meant to minimize losses and preserve gains.  One is reminded of the quote from Bernard Baruch, the famous financier, who said: Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he has been wrong.  See one of my other websites: When to Sell a Stock for more.

This morning I bought 400 shares of Miranda Technologies at $7.40.  It had just broken out of its box on massive volume a few days ago and looks to be headed higher, even though volume has tapered off and it closed lower today.

Centric Health pushed to new highs and is a big gainer for us.  Overall, the portfolio is at an all time high.

On Tuesday, Zarlink Semiconductor was stopped out at $2.38 – our stop was $2.40 but you don’t always get that price.  I’m not sure if we set the stop too high or not. The stock is still in its uptrend overall.  And it is up a bit so far today.  In any event, it opens up a slot and I’ll look for fresh opportunities, unless I decide to go back in to Zarlink.