The Short Stack

Short Stack Shove

Last time I talked about how Texas Hold ’em poker molded my approach to trading.  I start with a short-stack, play no-limit and don’t get fancy.  So, without further ado, I give you the Short Stack, No-Limit, Non-Fancy Portfolio that I started a little over one year ago.  The Short Stack, for short:

Short Stack

The first thing you’ll probably notice are the staggering returns, because I’ve made them bold and highlighted them with a cool color to draw your attention to them (These returns are net of brokerage fees, but not taxes).  The second thing you’ve probably noticed is that I’ve traded two stocks in 15 months and hit winners both times.  Lastly, and really this is incredibly unimportant and hardly worth mentioning, but you’ll notice how sm- th- mmph mph hh ahhhh… What’s that you were trailing off a bit there?  I said, “You’ll notice how small the short stack actually is!”

I Am The Short Stack

Off course, that’s not unimportant at all.  One of the main drivers of the success of this portfolio is the fact that I was willing to shove all my chips in on one stock and ride out some pretty significant volatility to get to the point where I was able to sell at about a 50% gain each time (my target).  I said before this money is money we can easily afford to lose.  In fact, I consider the $130 invested house money because it is roughly the amount of money I earned from writing articles on these two stocks on Seeking Alpha.  I’ll link to those articles at the bottom of this post, if you want to check them out.  I get one penny per click, by the way.

I Didn’t Get Fancy

That brings me to the second reason I believe these trades were successful.  I did my research and I was able to understand the companies I was buying into.  In fact, I convinced myself to buy in with the very articles I wrote on Seeking Alpha.  I didn’t hold the stocks before I wrote the articles, but I researched them and liked what I saw at the price they were at.  The articles forced me to organize my thoughts and get them down on paper.  This approach worked well and I plan on continuing to do that here.  Before shoving my short stack into any given stock, I plan to write a similar article about it on this blog.

I Played No-limit

I mentioned a 50% gain is my target with this portfolio, a no-limit kind of mentality.  I’m aiming for 6-12 months for this kind of gain, long enough to let the investment marinate and not feel like I have to time the trade perfectly.  When I bought into the first two stocks, I asked myself if I could see the stock 50% higher in six months.  A lot of that had to do with whether or not I felt the sentiment had turned so dramatically negative on the stock that it couldn’t help but snap back.  A lot of it had to do with how volatile the stock has been historically.

Now, playing no-limit requires a bit of luck.  I felt confident that these stocks were going to pop at some point, but I can never know that for sure.  I was fortunate these trades worked out, but that may not happen going forward.  That brings me full-circle to the short stack.  I have to be willing and able to lose it all with this strategy inside this portfolio.

I don’t take this chance with most of our money.  Outside of this portfolio, we have a very small number of stocks that we plan on holding for the long term.  In fact, I did such a good job convincing myself and my wife that ETSY is a good long-term investment that we bought more shares outside the short stack portfolio to hold for the long haul.  The majority of our money is not even in individual stocks, but savings, retirement accounts and low-cost index funds.  All of that money is off the table.

As for the money that is on the table, I plan on letting the short stack grow… for now.  It’s a little bit of a psychological experiment.  I’m curious to see how big the stack gets before it changes my mind-set and affects my trades.  I’d like to think that because I started off so small and because we don’t need this money at all, I will consider it a short stack well into the high $1,000s (maybe even $10,000 or more) and will be able to stomach trading the account exactly how I’ve been trading it now.  That’s the ultimate goal, to grow this puny amount into five figures.

What are your suggestions?

As you can see, I have sold out of my short stack position in ETSY.  I’m flush with $287 in cash and I’m looking for another winner to trade in this portfolio.  I welcome any of your suggestions.  What stocks do you see out there that are significantly undervalued that could pop 50% or more in 6 months?  I’ll look into them, maybe write an article one or two of them and consider them for my next choice.

Here are the links to my other articles on Seeking Alpha:

Etsy and Its Macro Tailwinds

Angie’s List and The Negative Narrative on the Net

Building a Contrarian Case For Angie’s List

I am not an investment advisor.  These are my opinions.  Like I mentioned above, I own shares of ETSY along with other individual stocks.  Please do your own research before investing in any individual stock.  

follow me on Twitter @cabbageblog

follow me on Pinterest www.pinterest.com/crispycabbage

 

 

 

Advertisements

5 comments

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s