Thrill Money Investing

Although I invest for the long term, I’ll admit, from time to time, I speculate on market movements for short term gains.

I call this Thrill Money Investing.

I only allocate a very small portion of my investing funds, funds that I can afford to lose without losing sleep, towards TMI. Any gains are plowed back into boring, conservative stocks or ETFs.

This is essentially profiting on current events, mob psychology and market trends rather than on company fundamentals.

Of course there are many methods, these are some of the techniques I’ve used personally with good success.

Profiting From Stock Splits

On May 11, 2010, each share of Baidu (BIDU) was trading at $714.17. I bought a few based on Baidu’s 1:10 stock split announcement that was to happen next day. I had 10 times as many shares as I had bought. A stock split doesn’t change the value of a company. A single $100 bill is the same as 100 $1 bills! Any smart investor knows this. But for some reason, people find a lower price attractive.

Baidu soared in the coming months. I finally sold all my holdings in Baidu in less than 7 months locking in a gain of 55.89%!

Profiting from stock splits - Baidu (BIDU)

(The sell timing was 90% nervousness and 10% luck! I did not have any special insight on Baidu!)

I didn’t trade BIDU on fundamentals. As a company, I think Baidu lacks creativity. (Here’s a sneak peek of how Baidu will look like in a few months from now!) But there is money to be made on what others think of Baidu!

I successfully pulled this trick with GMCR as well!

Do all stocks rise after a split? No. There are numerous examples of stocks falling after a split. Why did I choose Baidu and Green Mountain Coffee Roasters? Because they were ‘hot’, expensive stocks with a high PE and high valuation. Even without a stock split these stocks were rising, the split accelerated the rise.

I wouldn’t try this on conservative stocks.

Profiting From Anticipation

This is last year’s chart for a small biotech company called Intermune. The dramatic rise and fall of Intermune in the chart below, can be traced back to one drug in Intermune’s pipeline, Pirfenidone for treating a fatal lung disease, idiopathic pulmonary fibrosis.
Intermune's rise and fall due to pirfenidone
On Jan 4th, 2010, FDA approved and granted Priority Review Designation for Pirfenidone’s NDA (New Drug Application). An action date of May 4th was set. On May 4th, FDA declined to approve the drug! You can see the investor sentiment reflected in the stock’s movements!

Now I never bought or sold Intermune, but I was watching it keenly and missed pulling the trigger at the right time. But this is a fascinating case study.

How I Could’ve Profited From News Related To Intermune
On Jan 4th, 2010, Intermune received favorable news and a clear action date for a yay or a nay. Now if Pirfenidone had received approval, the stock would’ve soared. But it didn’t and yet, one could’ve made money by buying the stock after Jan 4th and selling it before the Action date of May 4th! You would’ve made a profit of more than 200% no matter what the FDA ruled!

Biotech’s are a different beast and you have to have a basic understanding of how a drug approval process works in order to profit from news related to biotechs. Check out my primer on the Drug Approval Process if you are curious.

Profiting From Apple Events!

Although I shun tech stocks, I do make a few exceptions and Apple is one of them. Also note, I’m long on Apple, but since I follow AAPL closely, I do realize there is ample opportunity for short term gains!

Any big announcement, or rumors of a big announcement from Apple is usually followed by a surge in Apple stocks!

I speak as a fanboy and as an investor – there is money to be made!

Profiting From Irrational Market Fears

Now, I normally don’t give buy or sell recommendations. But during the flash crash last year, I made an exception and posted this on Sat 8, 2010, two days after the flash crash.

The market crash was a great opportunity to stock up on quality stocks. I didn’t recommend a high beta stock because no one can predict how long a market might be down and volatile stocks can bring you down hard (NASDAQ hasn’t yet recovered from it’s dotcom highs). But with good dividend paying stocks you can actually make money in a down market.

Profiting From High Beta Stocks

Beta is an indicator of how volatile a stock is. High beta stocks can rise and fall dramatically when compared to the market in general. One such stock is CLF (Cliff Natural Resources). It has a beta of 2.36. Due to recent events (Euro worries, feds etc.) the market has been generally down and this stock which was trading at over $100 a share in April, fell to low 80s in less than two months.

profiting from high beta stocks - Cliff Natural Resources CLF

On June 16, I took the plunge and bought a few. Today it is trading at over $92.
profiting from high beta stocks Cliff Natural Resources (CLF)

Of course, the gains are real only when I sell. Haven’t done that yet!

Word Of Advice

The above are some of the ways I use play money for quick gains. Market timing is hard. The stocks above were not randomly selected. I’ve been watching some of them for months getting a ‘feel’ of how it moves and yet I realize none of the above techniques are a given. An unforeseen event can throw all studies out the window. BP is a good example.

Speculation should never be your core strategy.

What are your market timing stories?

DISCLOSURE/DISCLAIMER: Short on CLF, long on T, BP and AAPL. This is for educational purposes only. This is not a recommendation to buy or sell.

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51 thoughts on “Thrill Money Investing

  1. Like you I keep my thrill money to an amount I can afford to lose. I also like to follow a stock for a while to get a sense of how it trades but sometimes that’s not possible. I also try to focus on stocks I am willing to hold for a long time but if the market gives me a quick gift I’ll take it on occasion.
    One time I was reading the Wash. Post and there was an article about a company testifying in front of Congress (I don’t even remember the company now) about its bomb detecting devices for airports. I wondered if it was public, looked it up and bought a couple thousand shares at $4 or so, figuring the publicity on a high profile subject would help. I went to a dentist appointment came back and it was at $10 or so. I looked at it as a gift and took a quick profit.

  2. I admit I am a poor market timer, so I don’t even try. I have some stocks, but mostly mutual funds. My asset allocation misses the highs and lows of the volatility, but over time grows fairly consistently. My allocation reflects my age and closeness to retirement.

  3. I like the TMI concept! I admit I do dabble a little in this (with my retirement only since i have a long investment horizon). I was really tempted to do a little TMI last week when the market was down, but missed my shot and now I’m kicking myself!

    • Hey don’t be too hard on yourself! With the economy the way it is, I’m sure there’s plenty more dips in future! :)

  4. You’re good at this. You should do it more often! :)

  5. Kevin, don’t get caught up in it! Just because you have a few wins, doesn’t mean you can always do it. That’s why it should be done with play money!

    • You are absolutely right Robert. No matter how high the temptation is, I never go over my thrill money budget.

  6. I enjoyed reading this post immensely because I enjoy trying to figure out the market. I remember watching Intermune myself but not investing especially near May 4th. I did read some of the data on the drug and felt that it should be rejected. I also bought some Imclone several years ago because I thought it was a buyout candidate. It did get bought and I made a quick profit on that one. Bought Onyx after that for the same reason but still waiting for it to be purchased.

    • Nice to know you were following Intermune as well! On Onyx, I have a feeling Bayer is simply waiting for the right opportunity!

  7. I’m not a very good market timer. On the other hand, I have not a little invested with mining penny stocks. Some say that their high betas are not for the faint of heart, but I accept the fact that the stock *will* rollercoaster, and put in limit sell and buy orders accordingly.

  8. While you said speculation should never be your core strategy, and I whole heartedly agree, it ain’t bad with fun money.

    I look at speculation like gambling. It’s a trip to vegas without the airfare.

    Do the front end research, use some money you can afford to lose, and if you hit, pull out your profits or a pre-determined percentage of them and roll the dice one more time.

    • Absolutely HAE! The key is not to get too greedy! (I guess the same principle applies in Las Vegas too!)

  9. So how’s your portfolio doing? One of things I learned is that you tend to get extraordinary returns when your investing in a really calm, nonchalant mood.

  10. Nice picks! Ugh, I’m like the Bizaro Money Cone. Baidu I rode them back up pretty nicely after the market bottomed. I didn’t realize it still had sooo much more to go. I was gone long before the split. When it happened, I thought it was too rich for my blood. Wrong. I got taken out by the Apple flash crash. I had stop loss orders and it got triggered. I couldn’t shake it off in time and then the train left without me. So my advice? Do the opposite of everything I do, haha!

    • I’m actually smiling reading your post Buck! One strategy I would suggest is to observe a stock for a few months before attempting timing. Not a sure-fire method, but it will give you a ‘feel’ of how a stock moves in relation to the overall market.

      Also have exit points – one if you lose too much and one to lock in gains.

  11. I like how you call it “thrill money”! I call it my gambling money :) I have the same concept, I keep a small portion of my portfolio for more speculative plays (keeps the excitement).

    So far, I haven’t been as lucky as you!

    Great post- I like the pictures/ charts :)

    • Thanks YT! Thrill money, gambling money, speculation… same thing (almost!). Just don’t put in more than what you are comfortable losing!

      I’m still sitting on CLF – I need to lock in the gains.

  12. MC- I was just taking another look back at this post and thought you might want to know the images aren’t showing up for me anymore…..don’t know if it’s just me or if you have a more widespread problem. Feel free to email me if you want me to look again later.

  13. hmmm….now they’re showing up…sorry if alarmed you….I usually like to hear about these types of things myself so thought I would mention.

    • Hey thanks much CNC! I definitely appreciate you letting me know! And you were right, there was a temporary blip – I was experimenting with redirects and that broke the site.

      Should be back to normal now.

  14. Good for you. It’s always nice to see a pick march out to a winner.

    I don’t do this very often at all, and I will probably do it even less going forward.

    However, I did make 2 short-term plays last year and both worked out great. One was RIG and one was VZ. With RIG, I was playing on market fears and with VZ I felt it was simply undervalued, especially leading up to the iPhone announcement.

    RIG was purchased not long after Horizon went down, and I purchased around $50. I sold very early this year for right about $80. The P/E at time of purchase was ridiculous, somewhere around 5 or less.

    VZ was pretty cheap last July when I bought, and there were a lot of rumors about the iPhone coming over to CDMA and Verizon. I sold out of that position earlier this year as well for a gain of around 40%.

    Again, these were just two plays, but I probably won’t do this very often…and neither were “huge” plays for me. I think I had a couple grand invested in both. Short-term speculation really goes against my investment thesis.

    Thanks for sharing your winners.

    • Wow you bet on RIG? I considered, but wasn’t comfortable how things were going right after the disaster with BP and RIG blaming each other!

      Instead made a safer, long term bet on NE and ATW!

      Hats off to you! Buying RIG was a pretty bold move!

  15. You’re looking good on CLF – nice! That’s a noteworthy point you make about people liking cheaper priced stocks per share and buying in before stock splits. I wonder if the opposite tends to happen with reverse stock splits. :) -Sydney

  16. This is surely a good example about “How to buy in rumor, and sell it in news).

  17. I like this concept. Personally, I invest for the dividends… that gives me the biggest thrill of all to get the check! I figure the gains (short and long term) will come and I don’t worry about it, but let my dividend check be a day late and I panic! HA!

    • Sure does Denise! I love dividend paying stocks too! In fact most of my core portfolio are dividend paying stocks!

  18. Thrill money…good description of these short-term or momentum plays.

    I’m absolutely with you in that this is money that you can afford to lose, not a part of your core investments. Sometimes, the inner speculator in us takes over and we want to let our less risk-averse side see what it can do. Fair enough, just make sure it’s with a small amount of money that you set aside for that purpose, right?

    I did this a few years ago, buying on momentum and opportunistically purchasing stocks then dumping them within days or maybe a week or two tops. After a series of trades, I calcluated that my annual return was head for somewhere around 60%! This in a so-so market too!

    Then, I made the one trade that didn’t go as well, and the stock dropped. It took a year or so to recover. Thrill Money success story was crushed right there. Oh well….:)

    I don’t make such calls often these days, but the two I did make on Squirrelers hit perfectly. One was calling the buying opportunity in Japan after the tragic natural disaster. Sure enough, the NIKKEI bounced back quickly. The other one was calling the bursting of the silver bubble. It just seemed way overheated in the high 40′s. Sure enough, it soon dropped.

    Of course, as I pat myself on the back, keep in mind that unfortunately I never profited from it personally. I never invested, just gave my opinions. In this case, my inaction totally cost me. Would have been a good use of Thrill Money! At least it was money I could afford to “not grow”….the mirror of money you can afford to lose:)

    • Good call on Japan and Silver Squirrelers! Pity you didn’t heed your own advice! I too considered Japan but didn’t pull the trigger!

      You are right – speculation is fun while things go your way, once they turn sour, it is back to the basics!

  19. I love your disclaimers throughout this post. Too many people think that speculative investing is the primary way to invest.

  20. Nice explanation and the fact that you are only investing “funds that you can afford to lose without losing sleep” is a very good approach when playing the “thrill money” game.

  21. Fun ideas!
    Baidu was probably hot regardless of split; usually a stock reacts the day of the split announcement, not following split itself. I’ve been long for years, so up like 400%. Lovein’ it.
    Funny, I also watched the Intermune thing. What I like to do with Biotechs is just check out the way out of the money options. You know it’s gonna run like 50% up or down, so for a few bucks, you can grab a few fliers (granted, volatility gets priced in so they’re not cheap), but you can still easily make 100-1000% or more in a day depending on how nuts the stock goes. They’re totally binary trades around FDA meetings.

    • That’s an excellent strategy DM! Glad I wasn’t the only one watching Intermune! You are the second one to comment on ITMN in this thread.

  22. You’ve got a lot of good picks there. I haven’t hit any home runs this year, but I did have a bit of luck with Annadarko Petroleum last year shortly after the BP spill. The last page of the wall street journal turned me on to it!

    • That’s a good call ST! I thought about it, but considered it too risky since at that time there wasn’t enough information on who was to blame. But I did add BP later on once the dust settled.

  23. I too have a sensible portfolio and a…slightly less sensible one. Do you ever get a little carried away and let your thrill portfolio get a little out of hand? Or is that just me? :)

  24. Everyday Tips says:

    Hey MC. I swear I commented on this before but I don’t see it. Any chance I got sent to moderation and I am trapped there?

  25. Thanks for stopping by my site. I like this thrill investing as well and use technicals to find trendy stocks and oversold stock during a market correction.

  26. Love it! I also have some “fun money” that I use to “play” the market, but I’m always aware that this is “playing” and I limit this to money I won’t lose sleep over. I own AAPL, GOOG and some other big-names, so I guess even my play money is a little conservative in that regard (they’re not small caps that are likely to declare bankruptcy.)

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