Friday, July 25, 2008

How One Investor Found a Home Run Stock, Part III

Below is Littlefish's addendum to his recollection of how he found Mexco Energy (MXC):

LOL, the fun part was after doing some DD on it after that time period. I do recall early on I felt pretty good about the initial wave of DD and started whooping it up in the study room when I knew I ahd something good (kinda felt like AYSI but I wasn't real confident on the Tarrant Cty wells yet).

My wife wondered what was up when I had all the commotion going on. It was weird though, I felt rather sure it was an easy 50% gainer and told my wife so. I also told her it would take some patience or a little luck to get a lot.

So I waited for I think several weeks on the bid and attacking the ask whenever more than a few shares came up available. I built a moderate position but never got the big fat chunk I wanted cuz it never sold down and the volume was mostly anemic.

There were I think 3 times though where the MMs or someone traded thousands of shares BETWEEN the bid and ask (maybe $4.2-$4.35) and I was away from the computer each time AND was on the friggin' bid EACH TIME as I recall (the trades happened over maybe 3-5 minutes' time each and seemed to happen around 8-10:30 AM Pacific on difft days with the trades mostly 1 penny above the bid and one penny under the ask so kinda weird).

After it happened the first time, I made sure the next day I sat vigilantly in front of the screen during that time.

But it was a waste of time after a couple days and had other stuff to do so sure enough a few days later it happened that 2nd time. When I went in and saw the volume I felt like swearing LOL. I was pissed that someone was getting a few thou shares in a few minutes when I was getting that many over maybe a week or so on a light week. So I would up the bid and sit all day getting maybe 200-500 shares. Sometimes.

Whenever I'd see a retail investor put in an order at the ask, say maybe 500 or 1,200 shares I grabbed fast. When my position was OK, I got my daughter in on the act chanting "Let's Go Mexco" when it went up. Man, we were dancing around a lot for a little while there LOL. She's 5 years old.

After getting my position about half full I mentioned it on I-Hub. Then waited thinking some people would start getting in. But no one did. I even posted on the VMC board 'hey guys I see 1,000 shares (or whatever it was) that have been sitting on the ask for the last hour or so (I htink it was around $4.5 or so), anyone want them?' or that was the gist of my post. No one grabbed them for awhile. So then I ate them up myself before the day ended.

Then after awhile with time it rather suddenly broke out to the upside so I sold a little. Then it pulled back a bit os I grabbed them back cuz I still ahd less than the position I wanted.
Then somewhere in there a PR announced the flow rates on the other 2 wells and I went ape sh#% when KiK posted the PR. I immediately started buying again and even drove it up a little.

Then eventually the whole market fell in love with micro energy plays and the thing took off way above anything I (or probably anyone) thought it would do. It was fun but way excesive

Anyhow, I got work to do now.

Oh ya, It;'s

'A NEW HIGH FOR AYSI!" in the house now:) Although haven't been able to pull that one out as much as the Mexco slogan...


Anonymous said...

Why bother even woorying about stocks that trade by appointment only?

No liquidity if you ever need to get out and there's no inherent extra value just because something is thinly traded.

The fact that you get zero comments on most of the posts relating to these super obscure stocks tells you how little revelvance they have to others.

DaveinHackensack said...


Thanks for your comment. The reason such small stocks are worth paying attention to is that these stocks are more likely to be mis-priced, since they usually have no analyst coverage, little media attention, are ignored by most institutional investors, etc. This gives them the potential for higher returns than more widely-followed stocks. Recent academic literature supports this. See, for example, "Information Diffusion Based Explanations of Asset Pricing Anomalies", by Bolmatis and Sekeris. In this study the authors found that,

Stocks that have no-trade days outperform other stocks by a wide margin, even after correcting for their higher risk as captured by their larger betas. This result is expected when comparing stocks with large differences in information availability.

Long before this study was published, at least two professional investors, Paul Sonkin and Aaron Edelheit, produced excellent returns for their funds by investing in these sorts of stocks.