My Biggest Win Yet – How I Turned a 300% profit in Two Weeks.
In my last post I wrote about my first big investment success. My experience with AJX taught me a lot about what can work when making an investment decision. In particular, I learned of one kind of technical setup that seemed to provide a good chance of success; the basing pattern followed by a breakout on volume. It also was the first time I really sunk my teeth into researching the fundamentals of a company.
My experience with AJX taught me a lot and made me realize that I had started growing my investing and trading skills. I had started picking some real winners (and making some good money in the process!) and both the technical and fundamental lessons I’d learned helped me immensely in picking my biggest winner to date. This next stock I’m about to talk about really blew my mind – it’s been one hell of a ride already!
The stock I’m talking about is Aziana Limited (AZK), a former mineral exploration company. To be honest I don’t know a whole lot about their history as a mineral explorer – more on this later in the post. I was initially alerted to AZK for the usual reasons – it showed up on one of my end of day stock scans which alerted me that it’s chart was showing signs of a breakout.
By now I had started identifying these breakout patterns quite regularly (as described in my previous post where the pattern worked a treat with AJX). AZK fitted my criteria to a tee – the company had undergone a long basing period following a long term down trend. During the basing period a lot of indicators were showing whats known as positive divergence. Positive divergence occurs when technical indicators are trending up whilst price is trending down or sideways.
In the graph below the positive divergence can be seen from around April 2013 where price is moving sideways to slightly downwards while the technical indicators, in this case Twiggs Money Flow, is trending upwards. This is a very important indicator which strengthens the buy signal on an eventual breakout. In this case, the breakout occurred on the 18th of March, 2015 when price broke out through two medium term resistance lines (shown as red dashed lines) on extremely heavy volume, giving me the buy signal I was waiting for.
I ended up buying in at 4.4 cents on the 18th of March.
Usually (but not always) breakouts from these long term basing patterns occur either upon release of some piece of fundamental news (if the company has kept it’s cards close to its chests, as it’s supposed to), or in the days/weeks preceding an announcement if the company has been a “leaky ship”, i.e. information has leaked to people in the know prior to the information being released to the market.
In this case, AZK went into a trading halt on the 17th of March. This was followed up the next day with the company announcing that it had signed a binding Heads of Agreement (HoA) with promising technology upstart BrainChip who were in the end stages of developing a next generation computer chip that learned and operated just like a human brain.
Due to the downturn in the mining sector, many exploration companies were trying to transition out of the struggling exploration business and into the tech space, which has been going through a renaissance of sorts (as at time of writing, 10th or May, 2015). There was a lot of hype surrounding BrainChip and it was known that there were many exploration companies interested in acquiring BrainChip.
A lot of people were sitting on the sidelines, waiting to see which company would snag BrainChip, so when Aziana Limited announced they were the lucky ones, the share price went ballistic. I was lucky enough to buy in early on the 18th of March (at 4.4 cents) and I ended up selling out on the very same day at 5.9 cents for a cool 34% one day profit, pocketing two weeks worth of my normal salary in the process.
I ended up buying back in, later that very same day for 5.1 cents – a cool 100,000 shares. I decided that I would trade half the shares and hold the other half as a long term investment.
Post break out trading in AZK was a little bit like a Mylie Cyrus newsreel – highly volatile and full of ups and downs. It was for that reason that I decided to set quite a generous trailing stop loss. I decided upon 35%, i.e. I would be stopped out of my trade should the share price drop 35% from its peak. That may seem like a large buffer, and maybe I should have set it tighter, but it allowed me to ride out a lot of the day to day volatility, which would often see the share price move 10’s of percent in a day.
You see the share price was running on hype that BrainChip could be the “next big thing” in computer chip technology. The chip creator and BrainChip founder, Peter van der Made, claims that the chip is 5000 times faster than any chip currently on the market and runs on 1/1000th the power. Furthermore, it’s claimed to be the only “neural computing” hardware device in existence.
Like me, I’m sure this doesn’t mean a heck of a lot to you, but nevertheless anything that claims applications from smart phones to robotics, from artificial intelligence to “the internet of things” garners attention in this day and age where electronics and thus computer chips basically run out lives. If BrainChip makes it into even one main stream application (lets say a major smartphone), then brainchip is likely to be a multi million, if not billion dollar company, hence the significant hype surrounding the acquisition.
The share price reached as high as 62.5 cents (more than 1200% gain from my buy in) towards the end of April, and in hindsight I wish I’d sold my trading parcel near the peak, but I really had no idea how high this thing would go. There was no real way to accurately value the company post BrainChip acquisition – the company had no revenue or sales and the thing was riding on complete hype. I’d seen companies achieve higher valuations on much less so held on for the ride and let me stop loss do the work for me.
I was eventually stopped out of my trading parcel (50,000 shares) at 38 cents a day after a selling climax saw the share price drop over 56% from its peak in the space of two days. Even though I sold far from the peak, I still managed to pocket a cool 640% gain in the space of 10 days – by far and away my biggest gain of my “investing career” so far.
I still hold my long term parcel, even though the price has dropped significantly over the past couple of weeks. At the time of writing the share price is trading at 22 cents and the company is in a trading halt “pending the release of an announcement relating to the proposed BrainChip Acquisition”. Time will tell whether the announcement is positive or negative, but I will probably be looking to sell out at least another 25,000 shares should it have a positive affect on the share price, thus reducing my long term parcel to a quarter of my initial investment.
My reason for this is that the share market is full of companies just like AZK (and BrainChip) that run massively on hype. In the end, very, very few of these companies end up making anything of themselves. Companies are always full of promise and hope. In this case the company has mentioned that it is known by the likes of Google, Apple and Samsung, but you have to ask yourself the question: Why hasn’t any of these companies, or another prominent US tech company made BrainChip an offer that is too good to refuse?
Peter van de Made seems like a genuine guy where money is the least of his motivations – he’s basically developed BrainChip in his garage over the past few years and I believe a big part of keeping it on the down-low is so he can retain control of the development of his invention. I also believe that if BrainChip does happen to be one of the ones that end up making something of itself, it’s likely to go huge and make a lot of early investors seriously wealthy, hence why I want to keep some exposure to the company.
However, if I’m honest, I think the chances of that are rather slim. That is why I am looking to reduce my overall exposure as I believe the easy gains have now been made. Regardless, even if my remaining holding were to drop to zero tomorrow, I’ve still made over 300% on my initial investment – not a bad months work if I do say so myself!
I’m interested in following the BrainChip development story and will keep you guys informed as to how it all plays out. I’m hoping that perhaps one day people will ask me “how did you manage to retire before 35?” to which I’ll reply – “I got in on the BrainChip thing when its shares were five cents”. That would be amazing, but I’m not holding my breath.
In the mean time, I hope you enjoyed hearing about my biggest success story to date and how I managed to make 300% in a matter of a few weeks.
P.S. I should write a disclaimer that this type of investing, in highly speculative stocks, is VERY risky (read this story for how it can all go pear shaped) and will more often than not, end in tears (particularly if you’re new to the game). I would advise anyone investing in the speculative end of the market to be prepared to lose 100% of their initial investment – it happens more often than not.