Onxs released lack-of-earnings last night. Valuation has fallen to low $5 level. Time to get out. Reward not worth the risk.

This Blog is the result of being an active investor for the last 20 year. I had “played” the stock market literally since I was 14 years old and made a little and lost a little. In 1986 I borrowed $700 on my credit line and turned it into $30,000 in less than a year. Then came the crash of 1987. I got out with around $5,000. But it was devastating. Just after that I got a sizable distribution (under $50,000) from a 401k plan. What to do? I sat there and calculated the compound value of my distribution at 5%,6%,7%. Not too exciting. At 15% it did start to get exciting. I thought “how do I make 15% a year?”. The only way was the stock market. But to get this kind of consistent return I figured I would have to work at it–pretty hard–no playing anymore. So I put my distribution in the market and started doing research reading every thing I could and talking to brokers, companies etc. My backgound is financial and I have been the CFO of several companies both public and private, so this helps deciper company financials–and the words in press releases (since I used to write them).

So over the last 15 year ending 2005, my portfolio has grown at a compound 25% a year and is solidly in the low 7 figures. I have taken out more cash that I ever put in. I have 3 IRA accounts, and 5 non-IRA accounts. I have 2 live brokers and I manage small portfolios for several friends and relatives which have done better than the 25% a year on these (it is easier to get bigger % gains on small portfolios of course).

So, how do we do it? By working at it every day. For tech companies we have a valuation formula that works great. By using financial metrics we can come up with very accurate valuations of these companies (it works on smaller medical companies also–but with some filtering). We read their financial reports and get the flavor for where we think the company is going, plans etc. If there are no big “gottcha’s” (like losing big customers, hemmoraging cash, big lawsuits, bad guidance, etc) and the current stock price is less than 60% of our valuation–and generally they have to have a lot of cash–we buy. Once a stock gets to 80% of our valuation we start to think about selling, depending on the stock price action, new earnings reports, guidance, etc.
It works. NTCT and DTLK are examples so far in 2006 as is AVSO.ob. Others are noted in our Profile. We find a lot of very cheap Bulletin Board stocks these days. American Oriental Biosciences was one of our buys back when it was below $2.00 and they moved to the AMEX. At around $5 today–we don’t think it is cheap anymore. These OB-abies are usually thinly traded, but have great potential and are good for small portfolios.

Some rules we consider when investing:

Don’t buy on margin. EVER

Plan on holding a stock for 2 years (but sell it if it hits the target price–even in 2 days).

Stay away from commodities. The past year or so has been great and I have even bought a steel company and an oil and gas company and done well, but only a little. Too risky and unpredictable.

Only buy stocks that you don’t lose sleep over. We generally stay away from companies with a lot of debt. We like cash laden companies with good margins–even if they are losing a LITTLE money.

Try to NOT lose money. Even if you only make a little, losers kill your performance over the long term. We try to get it right at least 80% of the time. Unlike Venture Capital where they are doing good if they get 1 out of 10 right.

Some other stocks that I own (not saying to buy them!) are: SPNC, SCR.a, CPD, EASY, EGY, CTE, IHR, MECA, OTIV, TMR, VERA.ob, RDCM, ARIS.ob.

Good luck to all

Pretty boring week for our stocks here.

MIVA–(Buy price $3.80, Valuation $9.10) closed at $4.41 up a penny from last week. Up 16%. Still buyable here if you don’t have any. BUY
DWCH–(Buy price $3.66, Valuation $9.31) closed up $.06 from last week at $3.83. Up 4%. Still buying at this level. BUY
INFT–(Buy price $4.11, Valuation $7.32) closed up $.15 from last week at $4.90. Up 19%. Buy a little here if you don’t have any. BUY
ONXS–(Buy price $4.10, Valuation $7.12) closed up $.03 from last week at $4.57. Up 11%. Hold for word on investment banker activity and CDC buy-out offer. HOLD

OB-abies:
LINN.ob–(Buy price-$.36 ask, Valuation $.79) closed down $.06 from last week at $.42 ask. Up 17%. Linn announced earnings last week. Sales were down and they lost a little money, but they keep signing new customers, even though their mortgage activity business dropped off as expected. Expect improvement next quarter based on new customer announcements. HOLD
OPTO.ob–(Buy price $1.25, Valuation $3.09) closed even with last week at $1.43. Up 14%. Still have orders in to buy at $1.35–just having trouble filling them!
AVSO–(Buy price $1.19, Valuation $3.14) closed up $.11 from last week at $2.50. Up 110%. Announced a huge stock offering on Friday, $20 million of preferred stock. Deal is not closed of course but this is big. Looks like they are committed to growing. Only negative is that the preferred is convertible to common at $1.85. Not an unreasonable discount given the size of the offering. I plan of selling 1/2 my position at $2.50 or so and holding to see what happens with the rest. Sell 1/2, Hold the rest.
CTIG.ob–(Buy price $.27 ask, Valuation $1.10) closed down a penny to $.34. Up 26%. Very quiet. HOLD

ONXS– (Onyx) closed the week at $4.54 up 11% from our $4.10 buy price. No news on the CDC takeover offer status-or what their investment bankers are up to . Valuation remains at $7.12. HOLD

OB-abies:
Linn.ob–jumped to $.48 ask from our $.36 (ask) buy price. Up 33%. They announce earnings this week on May 4th. Hang on–valuation is $.79. Volume last week was over 1 million shares compared to under 100,000 the week before. Looks like it is being discovered! HOLD
OPTO.ob–closed the week on the upswing at $1.43, up 14% from our $1.25 buy price. Valuation is $3.09. Been buying more at $1.35 or less. HOLD
AVSO.ob–closed at $2.39, up 101% from our $1.19 buy price. Valuation still over $3.00. Holding for north of $2.50. HOLD
IYXI.ob–closed at $2.43, up 27% from our $1.91 buy price and slowly climbing back from the earnings disappoinment a few weeks ago. HOLD
CTIG.ob–slipped back a bit to $.35 ask, still up 30% from our $.27 buy price. Valuation $1.10. HOLD

INFT also announced earnings on 4/25. Sales were up 15% and they made $.03 a share up from a loss last year. Cash was $30.1 million or $2.59 per share–still more than 50% of stock price. New valuation is $7.32 a share up from $6.85. Stock moved up steadily to $4.75 on Friday–up 16% from our $4.11 buy price. Hold–or buy a little if you have none.

DWCH announced earnings on 4/25. They were very good. Sales were up 6% and they made $.04 per share. They released some details on their new acquisition. I believe this will be accretive to earnings going forward. They will use most of their cash for this deal, but have arranged a $3 million credit line, so they should be ok. Valuation has moved up (incorporating the estimated impact of the acquisiton) to $9.31 per share from previous $7.50. Buying more at this level since stock did nothing–closing Friday at $3.77 up only slightly from our $3.66 buy price.

Anounced preliminary Q1 results on 4/21. Not bad. Sales are expected to be over $44 million with positive EBITDA ($.5 million), and a GAAP loss of $.12–slightly higher than expected due to higher foreign taxes. Stock jumped to $4.40–up 16% from our $3.80 buy price. Cash grew to $39.7 million–over a buck a share. Looking good. Will update our $9.10 valuation when full numbers get published. Hold–or buy a little at this price if you did not get in.

Another OB-aby.

Lion Inc. Valuation is $.79, trading at $.34-$.36. Thin volume as with most of our OBabies–until everyone else figures it out!

We got our second close-out this past week–Datalink for a nice 45% gain in a crappy market. We are hoping these will be next!

DWCH–continues to do nothing. Closed at $3.74, up slightly from our $3.66 buy price. Valuation is $7.50. Buy
MIVA–Closed at $3.62 down from our$3.80 buy price. Nothing has changed, valuation still $9.10. Buy
ONXS–closed at $4.45 up from our $4.10 buy price. Hired Piper to evalaute CHINA takeover offer–and hopefully others. Valuation $$7.12. Hold
INFT–closed at $4.47 up from our $4.11 buy. Valuation $6.85. Hold

OB-abies:

OPTO.ob–starting to move on some volume. Closed at $1.45. Valuation $3.09, but price $1.25. Buy
AVSO.ob–Valuation $3.14. Closed at $2.35. Buy price $1.19. Hold for at least $2.50
IYXI.ob–holding for a bounce back into the three’s.
CTIG.ob–volume perking up. Closed at $.37 bid, $.44 ask–up from out $.27 buy price. Valuation is $1.10. Looking for $.75 at least. Hold

Cha-Ching. DTLK released earnings this morning. They were goooooooood. Stock soared to over $6, We sold 3/4’s of our position at $6.25, this morning and closed out the remaining 25% at $5.75 this afternoon for a gain of about 45%. we’ll take it.