Readers Respond: Finding the Speculative Plays

A comment from Scott regarding finding speculative stocks:

Hi VFC,

I’ve found your posts not only very entertaining, but loaded with opportunities to do DD.

Yet, while I’ve found some terrific companies myself running screens for hours on end, I have not been able to find as many of the speculative stocks like Celsius. My question for you is simple: where do you get your leads? Screens do not reveal companies like this most of the time.

Thanks, Scott



VFC's Take: Good question, Scott. I, like you, spent a whole lot of time on the stock screeners when I first started getting into the speculative market. What I noticed, however, was that the speculative picks would not show up on the screeners and if they did, it was way to late to get in because the stocks had already enjoyed a big run and did not have the same upside as they would have had I come across them months earlier.

I will say that I have tried many things when researching my next picks - newspapers, magazines, search engines, etc.; but the best method for finding good stocks is, in my opinion, through word of mouth.

For instance, a couple of years ago I ran into an old friend and we started having conversations about stock investing. This friend was heavily into healthy living, contrary to VFC's lifestyle burning the candle from both ends, and it was no surprise to me when a few months later - after his stock investing had started to take off - that he tipped me off to CSUH, the stock symbol for the company that had created the world's first calorie burning beverage.

Aside from like-minded friends that share ideas and tips, I think the Internet as a whole is a great place to find good speculative plays. I've found quite a few picks on stock message boards, Yahoo investors groups and through Google searches of a certain sector.

Now, most of my tips come from this blog. I originally started this blog because I had a group of friends who got into the investing game and rather than repeat my DD over and over, I just posted here the stock that I was looking at and my reasoning as to why I liked it. As time went by, more and more people started posting their own tips and ideas and now this blog is a great source to start DD because other investors are posting their favorite stocks.

However, just because someone did their own DD on a stock should not fool someone into thinking that they shouldn't do their own. Everyone has their own "Smell Test" and a stock tip is just a starting point.

For instance, CSUH passed my smell test because America - for all its greatness - is a fat nation, and many Americans enjoy taking the easy way out. Even if the product just became a temporary fad, I figured that enough people would love the idea of burning calories just by drinking a drink to make the investment worth it. I also saw the consumer starting to go healthy, and a product full of vitamins, such as Celsius, was a great alternative to sugary sodas and energy drinks. In fact, I kicked the sugary drinks completely out of my life after my first Celsius, aside from the occasional vodka mixer, and I felt that many others would also change their habits once the product became known.

Many of my cancer picks (AGEN, CVM, ONTY) were a result of my initial 'gamble' with DNDN back in 2007. I had read about Dendreon (DNDN) in a newspaper, if I remember correctly, and bought a few call options that paid off significantly. From there I started researching the cancer immunotherapy sector and liked what I saw. I felt that I was getting in on the ground floor of what I considered to be a groundbreaking new cancer treatment and those initial investments led me to others - by word of mouth.

I hope this helps a bit, but my suggestion is to keep your eyes open for others with similar interests as yours. I fell in love with the bio-pharmaceutical sector because the gains in that sector tend to be a lot bigger than gains in other sectors. I'm a risk reward guy, and the high risk/high reward stocks are easy for me to stomach because I've burned through so much cash making memories and counting hangovers in foreign countries.

The point is, I don't think that there is one source for finding speculative plays, but use all of your resources - friends, like minded investors, the Internet - and you're sure to find something you like.

All potential investors should remember that one should NEVER buy a stock based solely on someone else's opinion of that stock. Any service that says "Buy this stock because I said so" should be ignored, in my opinion. If your using someone else's DD, then use it as a starting point for your own DD because every investor has a different tolerance for risk, a different comfort zone, different opinions of speculation and different indicators of which to base an investment.

Thanks for the comments, appreciate it and good luck!