How to handle a very speculative stock?

[Frznrth]

Hi
I went ahead and invested in a small speculative stock, Helius Medical.  I did so because I really believe that their product is going to be a huge benefit to patients - I work in health care.  I'm hopeful that this will translate into a good investment.  This part I'm a bit iffy on. 

The stock is mostly "pre-revenue" / "pre FDA approval".  It has been approved in Canada and they have 2 clinics up and running.  FDA approval is supposed to be coming in the next few weeks (maybe longer with the shutdown - I hear the FDA is still making approvals - just slower)

The stock fluctuates wildly - people I think try to drive it up and down to suit their needs - not something I am enjoying - especially since it is mostly lower since I got in - of course.

I am hoping that the FDA approval will cause a nice rise in stock price.  Any idea what a realistic peak would be?  I have no way to make any sort of educated analysis of this stock.  The ones who push this stock throw out these pie in the sky numbers that I am sure can't be based in much reality.   

Assuming it does rise sharply will it likely then go back down just as sharply as people take profit?

If it goes back down is it likely to stay down for a long time as it is a small company just trying to get started?

How can I best get out close to the top?  A Limit Sell order?  If so should I do this on the TSX or on NADAQ?  Its a "dual traded stock" - I hear I can sell my TSX shares on NASDAQ.  NASDAQ is more liquid but is this a good thing?  Will more liquid help to get me a better price or if it is moving too fast will it drop to a lower price that I am hoping for? 

I know I can't expect any real definitive answers to most of my questions - it is a speculative investment.  I'm just hoping for some good advice from people I can trust. 

May turn out to be a case study for why individual stocks should be avoided - but I hope not. 

Thanks for your help. 

[Indexer]

I feel many of your questions are very short term and speculative. I'm not trying to shoot you down, but this might be the wrong group of people to ask. Most of us stick to long term investments that are broadly diversified and we hold onto them for the long term. Even the posters here who use individual stocks tend to stick to long term investments in mid cap to large cap established companies and try to ignore the day to day noise.



I have no idea what to tell you other than treat this like it's a gamble. Don't put anymore into it than you are comfortable losing. Assume you will lose it all and be pleasantly surprised if the price jumps.

PS: Very small company stocks like this can have their price manipulated. The very people who are telling you pie in the sky numbers might be selling the stock at the same time. It's easier to move the price in small companies.

[Telecaster]

How can I best get out close to the top?  A Limit Sell order?  If so should I do this on the TSX or on NADAQ?  Its a "dual traded stock" - I hear I can sell my TSX shares on NASDAQ.  NASDAQ is more liquid but is this a good thing?  Will more liquid help to get me a better price or if it is moving too fast will it drop to a lower price that I am hoping for? 

In the industry,  the technical term for people who use limit sell orders is "suckers."  If you don't know why people who use limit sell orders are suckers, then, well, you're the sucker. 

[Financial.Velociraptor]

1. Position sizing: If this is speculative, don't allocate twice your normal position size. Maybe half your normal position size.

2. Trailing stop losses: Establish a trailing stop loss.  For a speculative position, maybe 35%.  Stick with it.   Don't enter this stop in the market for a small cap.  You'll get picked off by the market maker.  Track offline based on daily closing prices.

3. Sell half at 100% gain. Let the "house money" ride at a larger trailing stop loss.

Best of luck.

[MustacheAndaHalf]

Some background: I already run a momentum experiment that buys an ETF.  I allocate a very small amount of my investments to an experiment like that.  Last year I decided to try a more pure version of the experiment.

I selected micro-caps - the smallest stocks in the market - and picked stocks with the highest momentum and value characteristics.  Those stocks fluctuated wildly.  Although my investment was limited, and it was only an experiment, it just didn't suit me.

Maybe that describes you?  And if this speculation works this time, how will you know it isn't luck?  The human reaction to good fortune is to say it's all caused by you.  So if the stock does well, you're likely to do this again... until you discover it was luck, and that luck can run out.

Do you know who else owns the stock?  When you're buying, there's someone else on the other side of the trade selling the stock to you.  Is that an insider?  An institution?  What are the odds that you're better informed than the person who sold the stock?

[BicycleB]

I have no way to make any sort of educated analysis of this stock. 

...
How can I best get out close to the top? 

If you can't make an educated analysis (presumably you can't), we can't either!!

Probably the best way to get out is sell now. Or just abandon the money by marking it in your accounts as "educational expense."

[Blueberries]

Always have a plan in place before you purchase.  Plan your buy point(s) and your sell point(s), both on the gain and loss side.

I'm not entirely sure how to help you here other than to tell you that losses work against you geometrically.  A 10% loss requires an 11% gain, a 25% loss requires a 33% gain, and you get even more brutal from there.  The only way to live another day is to cut your losses short.  The stock might come back, it might revolutionize the industry, but you might be waiting 20 years for that and honestly, as with lots of pharmaceuticals, few succeed. 

You're asking about levels of where the stock could go, but please realize that is a) subjective and b) based on probabilities.  Even if I told you the stock was hitting a previous support level, that does not mean the stock will bounce or even come close to the highs.  Technical trading, contrary to belief on this forum, is not crystal balls and voodoo magic; it's based on probabilities.  No one knows what will happen next.

If I had to handle this stock, I'd assess my loss and either take it or if my stop wasn't hit, which is not likely the case on this particular issue, I'd wait to see how it handles this area right here.  It's gotten support there a few times over the last few years.  However, I wouldn't be surprised if it broke through support because this stock is trading below every other natural support level and has a lot of overhead supply.  That's how I would handle it, though, which ultimately means shit if we trade on different methodologies. 

[Frznrth]

Hi
Thanks for all the replies.  Yes it is a gamble.  One that I wouldn't likely do again no matter what the outcome.  Like I said I really believe in their product but am sickened by all the garbage that goes on with price manipulation.

I like the idea of selling some at a set profit and then letting the lest ride - sticking with the gambling motif. 

Any idea if I will be better off on selling on the TSX or the NASDAQ?

[Rob_bob]

How can I best get out close to the top?  A Limit Sell order?  If so should I do this on the TSX or on NADAQ?  Its a "dual traded stock" - I hear I can sell my TSX shares on NASDAQ.  NASDAQ is more liquid but is this a good thing?  Will more liquid help to get me a better price or if it is moving too fast will it drop to a lower price that I am hoping for? 

In the industry,  the technical term for people who use limit sell orders is "suckers."  If you don't know why people who use limit sell orders are suckers, then, well, you're the sucker.

Do us a service and explain the problems and advantages of different limit trades.

[Frznrth]

Unless someone can give me a better plan, I am going to be a "sucker" and use a Stop Sell on the stock.  Ideally I would use a Trailing Stop but RBC Investing doesn't offer that - wish they did.  Without this option I a planing on readjusting the Stop every day - several times a day.  I'm having a hard time though knowing what the Stop should be.  A percentage below the bid?  A percent below the stock price? Do high and lows for the last whatever time period matter with a speculative stock?  If the stock rises above what I am hoping for a reasonable profit then tighten the percentage?
Thanks for your advice. 

[theolympians]

Hi
I went ahead and invested in a small speculative stock, Helius Medical.  I did so because I really believe that their product is going to be a huge benefit to patients - I work in health care.  I'm hopeful that this will translate into a good investment.  This part I'm a bit iffy on. 

The stock is mostly "pre-revenue" / "pre FDA approval".  It has been approved in Canada and they have 2 clinics up and running.  FDA approval is supposed to be coming in the next few weeks (maybe longer with the shutdown - I hear the FDA is still making approvals - just slower)

The stock fluctuates wildly - people I think try to drive it up and down to suit their needs - not something I am enjoying - especially since it is mostly lower since I got in - of course.

I am hoping that the FDA approval will cause a nice rise in stock price.  Any idea what a realistic peak would be?  I have no way to make any sort of educated analysis of this stock.  The ones who push this stock throw out these pie in the sky numbers that I am sure can't be based in much reality.   

Assuming it does rise sharply will it likely then go back down just as sharply as people take profit?

If it goes back down is it likely to stay down for a long time as it is a small company just trying to get started?

How can I best get out close to the top?  A Limit Sell order?  If so should I do this on the TSX or on NADAQ?  Its a "dual traded stock" - I hear I can sell my TSX shares on NASDAQ.  NASDAQ is more liquid but is this a good thing?  Will more liquid help to get me a better price or if it is moving too fast will it drop to a lower price that I am hoping for? 

I know I can't expect any real definitive answers to most of my questions - it is a speculative investment.  I'm just hoping for some good advice from people I can trust. 

May turn out to be a case study for why individual stocks should be avoided - but I hope not. 

Thanks for your help.

As been written above, it reads like you are gambling: looking to get in low and dump when you make a profit. Your post implies skepticism on the stability of the company and product. I googled the company and still am not quite sure what they are selling. Some sort of non-invasive treatment for traumatic brain injury I believe; with headphones? This should tell you something.....

Also, I found this article: https://finance.yahoo.com/news/read-selling-helius-medical-technologies-180723205.html

It details people within the company selling the stock back and forth between themselves. The article reads like this is a good thing: "They must be on to something!" I look at it as the company trying to create artificial demand and inflate the price of their stock. That should tell us something.....

I am a buy and hold guy. I am no expert, so I look for established companies and let my money ride. For years.

With all this, there might be a chance the company is onto something and might have a miracle treatment.....I would consider this a lesson and again, let my money ride. See where the stock is in a couple years. I am guessing you didn't put too much money in and can afford the potential loss.......

Good luck. Invest, don't gamble.

[Frznrth]

Thanks.  I didn't know that you could find out about insider buying.  Must be an indicator of something - hopefully good like the article implies and not manipulation like you are thinking.

I do believe that it is pretty close to a miracle cure.  I read about it in a book by an MD that describes different ways for brains to heal with neural plasticity.  I agree the website does a crapy job of saying what exactly they do - seems almost shammy.  If they didn't have brick and mortar clinics started up in Canada I would be truly suspicious. 

Gamble - I guess it is.  But surely lots of people have made significant amounts of money on believing in a company/product and investing in it.  It would definitely sting if I lost all of my investment but I'm sure lots are stinging with the recent downturn overall.  I'm hoping the Stop order will keep the potential sting to a minimum. 

[ChpBstrd]

I was working on a project 2 years ago to use a Salesforce (CRM) platform in a way it was probably never originally designed - more as a complex business process automation tool than a sales lead tracker. I realized the CRM tool could replace most specialized business applications AND did not require software developers to do so AND had more flexibility/speed than an app AND was developing an ecosystem of implementation companies and freelancers. None of this was reflected in the financials. So with my "insider information" I bought 100 shares at $69. It's now $150.

I did not put a huge chunk of my net worth on the line and I researched competitors too. It worked out for me. A friend of mine was an early iPhone fanatic and invested in Apple. Worked out for him too, although I think he "let it all ride"!

Bottom line, if you have first hand experience of product superiority (NOT "I read about it" experience), I think it's fine to buy and hold a pet stock with a single-digit percentage of one's net worth. But also do your due dilligence (analyze financials, study competitors, look for conflicts of interests, etc.). You have to separate product love from greed, though. Greed will get you killed in the markets, but if you are an early adopter / domain expert and love a product, probably others will too. Also, be aware that in the biotech, software, and clean energy industries, there are lots of companies selling inflated promises and "studies" they funded. Be certain the product actually works. If you lack expertise in the domain area, you DO NOT have an advantage over thousands of full time stock analysts.

[Frznrth]

Thanks - I know I am at no possible advantage over anyone.  Just hoping that FDA approval eventually comes through.

[maizefolk]

I am hoping that the FDA approval will cause a nice rise in stock price.  Any idea what a realistic peak would be?  I have no way to make any sort of educated analysis of this stock.  The ones who push this stock throw out these pie in the sky numbers that I am sure can't be based in much reality.

Assuming an efficient market (which can be a bit tricky for really small stocks where lots of the shares are held by a few investors who may have insider information), any rise in price coming from FDA approval is going to be inversely proportion to how likely the FDA is to approve or deny the treatment given the information we have now.

If FDA approval is a "sure thing" then you'll see little or no increase in price when the approval comes through.
If there are equal odds that the FDA approves or rejects the treatment, there is potential for a much larger price spike.
If it's almost certain that the treatment WON'T win FDA approval, but then it does, that's when you see the Las Vagas gambling like returns.

Anyway, key point to take away is that if anyone ever says "as soon as FDA approval comes through the price of this stock is going to shoot up, and FDA approval is a sure thing" they are certainly either lying or mistaken about at least one of their two statement

[theolympians]

Thanks.  I didn't know that you could find out about insider buying.  Must be an indicator of something - hopefully good like the article implies and not manipulation like you are thinking.

I do believe that it is pretty close to a miracle cure.  I read about it in a book by an MD that describes different ways for brains to heal with neural plasticity.  I agree the website does a crapy job of saying what exactly they do - seems almost shammy.  If they didn't have brick and mortar clinics started up in Canada I would be truly suspicious. 

Gamble - I guess it is.  But surely lots of people have made significant amounts of money on believing in a company/product and investing in it.  It would definitely sting if I lost all of my investment but I'm sure lots are stinging with the recent downturn overall.  I'm hoping the Stop order will keep the potential sting to a minimum.

If you believe in the product, let it ride. I suspect there is a huge market for TBI!

[Frznrth]

Thanks - that insight on what happens to some companies with FDA approval is good to know - I never thought about it like that.  I do think it is going to be a good product for TBI and lots of others - I just hope the company holds up.  While they have two clinics in Canada running, FDA has asked them for more info.  This caused a big dip in share price.  I hope this is just a hiccup and some delay.  I don't know what would happen if the FDA flat out gives a denial - I don't know if the share price would ever recover from that. 

[soccerluvof4]

1. Position sizing: If this is speculative, don't allocate twice your normal position size. Maybe half your normal position size.

2. Trailing stop losses: Establish a trailing stop loss.  For a speculative position, maybe 35%.  Stick with it.   Don't enter this stop in the market for a small cap.  You'll get picked off by the market maker.  Track offline based on daily closing prices.

3. Sell half at 100% gain. Let the "house money" ride at a larger trailing stop loss.

Best of luck.

This

[bwall]

I think that you've gotten some good advice about trading so far. I'll try and answer your original question(s).

Here is what I found when I researched the company, Helius Med. Technologies, stock symbol (HSDT).

A) It's a very small company; total stock market capitalization is $160m. I'd consider anything under $1billion to be small, so this is very, very small.

B) It has 40 employees, based out of Newtown, PA (halfway between Philly and NY). Again, very very small. Upper management is probably taking the lion-sized portion of the profits (to the extent they exist--see below), so there isn't much left over for shareholders.

3) Looking at the balance sheet; they have $12m in the bank and liabilities of $17m. So, they will probably have to issue more equity at some point in the near future.

4) Thinly traded at 60,000 shares per day. It's so small (and thinly traded), that it can't be shorted. When I'm buying a speculative stock, I always look for a huge short position as these are guaranteed future buyers and a bit of a cushion against a big decline, as most nay-sayers have already driven the stock lower (or at least already voted with their short). I had a decent sized position in LOXO when it was bought out earlier this year. I wondered about the 8% short position that was on the books when the deal was announced. I'm sure that they had a very bad day when that was announced.

5) They haven't been regularly reporting income/financials, as best I can tell. This is not a good sign of a healthy company.

6) They've been listed on the stock market for 5 years and the stock has gone nowhere.

So, we have a company with 40 employees, barely profitable (if at all), with no patents, positive test results and no catalyst to drive it higher (how many years away is the FDA decision? What stage are they in testing?) . While anything is possible, I do not think that this company is very investable. I believe that there are better companies that you could find to invest in.

But, maybe they have something to offer that I'm missing. I don't know anything about their product, but you seem to like the product(s) they produce. Why do you like them? What do they do that none other does? How good is the competition (is there any competition???)  Serious questions, not snarky. I'm not in health care, so I'm coming at this solely from a stock-picking point of view.

[Frznrth]

Thanks for looking into the company.  Here is the little bit I think I know.  They will have profit soon from their two Canadian clinics that just opened.  I know they have patented their technology.  They have had successful research they used to get licensed in Canada and apply for FDA approval.  FDA approval is getting close.  They just received a request for more information from the FDA.  The company insiders say this is common for the type of approval they are seeking - a novel device - or something like that.  Best case is that they get approval in 1 to 3 months. Or worst case they are denied - have to go back for more research. 

If they do get FDA approval and it causes a nice increase in share price I am definitely either going to sell enough to get back my investment or keep a very tight Stop Loss on it.  I spoke to one investor that was "smart" enough to get in when the stock was much much lower.  He plans to keep it until it is hopefully bought out by a large company - he sees this as time that the share price would peak.  Would be nice. 

I heard that Montel Williams has a stake in this company.  At first I saw this as a negative but then I saw what he has to say - sounds credible to me. https://www.youtube.com/watch?v=tsxLg2Z3_XU