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Thursday, October 8, 2009

Readers Respond: BMSN, ENTB, GNBT; Strategies for Buying Into a Stock

A comment from Alejandro regarding Bio-Matrix Scientific Group, Inc and Entest BioMedical, Inc:

Hi VFC
although when this is not a forum, is the place that more help me, and in which I can trust.
A dumb question here, although is not required a whole post to be answered, if any reader here could help me to understand It, I will be very thankful.
I don´t get the concept of "Wholly Owned subsidiary".
For example in the case of Entest BioMedical Inc (ENTB). is a wholly-owned subsidiary of BMSN, what I don´t understand is if ENTB sell a patent, will BMSN benefit when ENTB sell it? (the value of BMSN shares would rise in that case?). Is a relevant issue to take in consideration at the time of evaluating a company to invest? would you buy shares of the parent or the subsidiary?
Thanks in advance to everybody.



VFC's Take:

Alejandro,

There's no dumb questions, trust me. I appreciate you feeling comfortable enough to come here with your questions. I put this into a post because if you have this question, then there are most certainly others out there that have the same question.

A wholly owned subsidiary means that the parent company owns 100% of the subsidiary. Therefor, if the subsidiary profits then so does the parent.

One example from the stocks that I discuss here is Medasorb (MSBT.ob). Shares of that company have been on the rise because of the potential of Cytosorb - a product that in fact belongs to Medasorb's wholly owned subsidiary of Cytosorbents. Different to your situation, however, is that Cytosorbents does not trade publicly - only the parent Medasorb does.

As for which one to buy- the parent or the subsidiary - I usually purchase shares of whichever looks to me to be a better buy. In the case of your case of your two stocks, I think that they have about the same risk/reward profile with ENTB being the more volatile of the two. If I had to pick, I'd probably go with BMSN because, as the parent company, it will benefit from any ENTB successes while also benefiting from any income drawn on the labs and storage facilities that look to be the responsibility Bio-Matrix.

Just my opinion.

Thanks for the comment.

Disclosure: Long BMSN, no position ENTB.

RushCard

GNBT: A comment from Gillmore regarding Generex Corporation:

I saw your response to a reader inquiring about support and resistance levels for GNBT. Can you add some color on your strategy of buying half to get in and then averaging down? Basically, when do you add to your position...percentage drop, price drop, or gut feel? How would you play GNBT in this regard? Also, just as important, when and how would you sell GNBT?? Same method???

Gillmore


VFC's Take: Sorry it's taking me a little longer to respond to some of these emails; I know that you had asked me about GNBT a while ago, too. If I don't respond in a timely fashion - or even not at all - please keep in mind that this site is a hobby, not a job, and time is limited!

I'll start by addressing my strategy of buying in with about half of what I want to buy in with. First of all, if I'm looking at a stock that I don't believe is going to swing to the upside anytime very soon, then I usually just put it on the watch list for a while so I can get a feel for its trading patterns. Once I have a good feel for the price of the dips, I'll start accumulating.

If I'm looking at a stock that has already moved somewhat - either up or down - and I think that another move up (based on news or manipulation) is possible, then I'll buy in to get a foothold in the stock so that I don't miss a move to the upside if one does occur. In that case, I'll put my buy order in and if I want to buy 5,000 shares, for instance, I'll temper my order and only buy 2,500; that would be my foothold and I would then start accumulating the rest on any dips. In my opinion, that protects me both ways - it keeps me in the game if the stock runs and allows me the free cash to buy on any dip.

The reason why I like that strategy is because if I go all in right away and then the stock dips, I'm forced to buy in with additional capitol that may make my portfolio over-leveraged in one stock. I like to keep my portfolio even-keeled and level-headed.

As for how much of a dip is significant enough for me to buy, it depends on how long I've watched the stock. If I have a good idea that the stock dips 20% every now and then, I'll sit around and wait for that dip. Otherwise, it really depends on the stock. A 25% dip is a whole lot different for a stock trading at five cents than it is for one trading at $1.25, so I would play each one differently. Part of my entry strategy is coming up with a 'buy price' for each of my stocks.

For instance, my buy price for AGEN is $2.00. Earlier in the year my buy price for that stock was seventy cents or less. To me, it just depends on how the stock is trading and whether or not I feel it is news, manipulation or a lack of attention that is driving the stock lower.

With GNBT, my buy price right now is sixty cents. I probably won't add shares unless it hits below that mark. That's just based on my comfort level for buying and I think stock investing - especially for the small investor - has a lot to do with one's own personal comfort level.

As for whent to sell? Again, its comfort level. The important thing to remember is that there is nothing wrong with realizing profits. Even if you sell and the stock still rises, you've won if you sold for a profit. I usually stagger my sells on the way up but it depends on which stock it is as to how much/how often I sell.

Technicals and charts - I'll pay attention to those at times, but - and call me a pessimist - I know that a lot of people trade off of those, but I think that they can be manipulated.

Simply put - if the big boys want a stock to move up, then that baby is going up regardless of what the charts say and if the big boys want to drop a stock, then they are going to drop it. My goal is to be in a stock before they spike it and to have sold at least some profit before they drop again.

Thanks for the comment, I hope this answers your question as to my thought process behind buying/selling.

optionsXpress

The Childrens Wear Outlet

6 comments:

  1. Thanks a lot! Great post and very informative. What targets are you looking for in early 2010 and longer term into 2011 for GNBT...and the rational? (To me, the reasoning is more important than hitting a precise target. Would you agree?)

    Wishing you much success,

    Gillmore Viltati

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  2. Thanks VFC...
    I have to recognize that at first I was trying to figured It out what were your intentions about this blog, because as many websites of stocks, like AF´s blog are evidents that they try to manipulate the information and don´t give you advices like do your own DD, is more like, TRUST ME I´M ALWAYS RIGHT, AND I AM SO GOOD THAT I WANT YOU TO BE RICH FOR FREE.
    That is why we appreciate your time (wich is priceless), and personally I feel that I owe you a lot, because always take your time to answer without asking nothing in return (For example I got in CVM at 0.41, since that moment It has been trading more than twice and that is good enough to me, maybe not for all).
    The most important lesson I have learnt is trust in my own DD, but your point of view is really helpful and give me the experience that I don´t have (eg. VNTA or CQP)...
    Thank for sharing and answer my questions just for help me, that is generosity!
    (I don´t want to be flatterer and if I said thanks many times, is because I really feel thankful. If you knew how much money I have lost with my silly mistakes, and how much more I´m earning since I found this blog you would understand why saying thanks is not enough)

    Good LUCK... (Have I said thank? hehehe =P )

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  3. Hi VFC!

    What are your thoughts on IVOB? Do you think they're a good buy at this price?

    Thanks and God bless!
    -Noah

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  4. Do you follow Emisphere (EMIS)?

    Hampton Flynn

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  5. Hey VFC! I have been reading your posts for several months now and they have been really helpful. Maybe you could help me decide what to do on a losing position I own right now. The stock is SPPI, and my position is currently 25% down. I first thought that I would make some really nice gains if I bought the stock before the FDA decision that was held today, but it played out exactly the other way. The news today where not that bad, but bad enough to send the stock 18% down. Do you think this stock might regain some of todays loss in the short term, or would it be better for me to sell with a loss and buy maybe AGEN which has a lot of potential for the near future? Thanks!

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  6. How would you allocate $5,000 in new money?

    ...Mylan Zoraski

    ReplyDelete

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