Letting It Ride

When I started trading on the Boston Stock Exchange in the summer of 1987, one of my bosses was a very interesting Chinese man named Geno Eng. Geno was a consummate gambler besides being a trader. His favorite game being blackjack, Geno had a philosophy; he would always let his winners ride for two more hands. He played for 3 straight wins, then would take his chips back.

Blackjack is a losing game (except for the house) and his strategy wasn’t going to improve his odds. But, he loved the game and that’s how he played it.

While it doesn’t work for cards, which have no memory and, therefore, your odds aren’t improving with each hand, the strategy of letting winners ride is actually a good one for bull markets. Right now we are in the midst of a rally; an epic one if you look at certain sectors. There are clear winners out there and letting them ride is paying off in a big way.

This past week saw my personal portfolio leap by 40%. The winners were across the board, as several stocks that we’ve mentioned consistently the last few weeks (or longer) are breaking out to new highs. Importantly, the fundamental stories underlying these stocks is improving, which is driving the performance. Unlike Geno with his blackjack, there’s a good reason to leave the chips on the table; the good times are rolling.

Leading what was the best week I’ve ever had in the market was Aeluma (ALMU), which, despite giving back some gains on Friday, still managed to soar roughly 50%. Sparking the rally was a $4M government contract for working on quantum computing solutions. Quantum computing was indeed hot last week in general, but there was much more to this press release.

In the PR, Aeluma had two quotes from partners that they named for the first time. Sumitomo Chemical and Tower Semiconductor are industry leaders. In a stock, Aeluma, that has a high short interest and some skeptics thinking the valuation was ahead of fundamentals, the quotes from these two companies is a major shot across the bow of the short sellers.

Overnight, the risk/reward on Aeluma has taken a change for the positive. There efforts to develop large-scale manufacturing of next-generation semiconductor chips has suddenly become more concrete. While we wait for end customer orders, it is now much easier to envision them coming both soon and in large quantity. Aeluma made a big jump but it’s still well off its highs. Let the chips roll, baby!

Also driving performance was Energous (WATT), which gained over 40%. Pushing this one higher was their own press release discussing the business, which is absolutely booming. Just like ALMU, the risk/reward behind WATT has changed. They are clearly moving from concept and early adoption to broad acceptance in real time. The opportunity is large and we are still in the top half of the first inning here. My bet here is staying on the table as well.

Ditto for Vicor (VICR) and Kazia (KZIA), both up over 20% last week. Vicor’s business is booming and Kazia’s valuation is crazy cheap, especially ahead of data coming at ASCO in late May.

The urge to take your money and run is a healthy one. There are certainly times when stocks get ahead of the fundamentals. In these times, reducing your bet is smart. The story of the CEO who asks his plant manager how things are going comes to mind…when the manager says, “things are going GREAT! It can’t get better!”, the CEO’s next call is to his broker to sell his shares.

When things can’t get better, it’s time to get out. In the case of the four stocks I just mentioned, things are improving faster than the stocks are rallying. Things are getting better in real time and, if you cash out, there’s a good chance you’ll regret it soon enough. For now, in honor of the late Geno Eng, I’m staying all in.