You can't fight human nature

I’ve been thinking a lot about a quote from Citrinitas Capital’s James van Geelen. He was on the Odd Lots podcast talking mostly about new weight loss drugs, but the conversation spent a lot of time talking about thematic investing and riding waves.

The quote…

In one sense, this looks like a direct shot at me and everything I write here. In another sense, he is right.

Fortunes have been lost ignoring themes and avoiding waves. My net worth would be a lot higher right now if I wasn’t such a sticker for Tesla’s fundamentals and the realities of the auto industry. Newsletter writers who told you to go all in on AI earlier this year served you much better than this newsletter did. And while perhaps I can be snarky about Tesla, Nvidia is a real company with real products and real success that also happens to have a valuation curve that is tough for me to justify.

At the risk of sounding like I am saying “Have fun staying poor,” it is hard to argue that me sitting alone in the corner with my arms crossed huffing at the insanity of the world around me is neither fun nor financially rewarding.

Of course, the hard part is seeing what is coming early enough to get in, and knowing when it is time to get out. But as van Geelen notes even if you don’t get the timing exactly right there is still ample opportunity to profit just by getting the timing kinda right. Which is, admittedly, a lot more fun than staying poor.

If you sense sarcasm in those last few paragraphs, it was unintentional. As fate would have it, I am going through my own mini-wave right now on a stock that I really ought sell, if I am to listen to myself at all. And for the life of me, I can’t figure out what I’m going to do with it.

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I’m sure everyone reads the disclaimer at the bottom every time, but I feel a need to add a disclaimer here and say the following references to a stock is for discussion/information purposes only. Of all of the stocks I have discussed on this newsletter, this is the biggest non-recommendation I’ve ever discussed.

Rekor Systems came onto my radar last summer using the Koyfin screening tool. It’s a nothing little company in the business of smart traffic management using cameras and machine learning. There’s some potential there, but it is what it is.

Last year, the company was in the process of changing the way it accounts for revenue. That created near-term choppiness and big year over year declines. Those declines decimated the stock. Although I wasn’t a true believer I could see a case where a thinly-covered stock was hit with an overreaction from algos that saw the comparison numbers but had zero context, and if so, the reaction would likely be short-lived.

This isn’t really my style of investing, but as we have discussed before I am a stock junky and I like to experiment/explore sometimes using amounts far smaller than the overall nest egg. I bought in late last Fall at an average price of $0.83 per share, significantly above the $0.56 52-week low.

The stock trades at $3.67 per share as I type. I probably was at least somewhat right about the algo-driven overreaction. Rekor is also at least somewhat caught up in the AI mania (I mentioned the whole machine learning thing). You win some, you lose some. This one looks like a win.

By all measures, assuming I’ve even bothered to read this newsletter, I should sell those shares and take the gain. It isn’t life-changing money, but it isn’t insignificant either. It is borderline boat money. Or perhaps my 16-year old’s desired car money. Out of thin air. In a matter of months. Say “thank you” and walk away.

To make matters worse, Rekor suddenly after its jump has a bit of a cult following. To wit, on Twitter…

Just for the sake of argument, Wall Street expects Rekor to grow sales by 75% in 2024. To $74 million (with an “M”). Should the stock 10x from here, and should the company meet that pretty impressive revenue target, the stock would be valued at about 32x sales. Which is… a lot. Color me skeptical about the price target. (And just to be clear, IMO the odds that this is a zero are higher than the odds it 10x in twelve months just based on the numbers.)

Every fiber of my being is telling me to sell this stock.

Yet… With friends like Yariv playing cheerleader who’s to say it can’t hit $10, or $15, or who knows what? It does happen. I know a lot of good value investors who made a ton off of GameStop just because something stupid happened. And at some point, that would make it real money in terms of gains.

If, going into this “trade,” I thought of it as money that could likely be lost playing a hunch, what’s the downside of standing pat here and hoping for the best? After all, the real nest egg is sitting in boring old investments, unaffected. Regardless of what happens to Rekor, up or down, it will not impact when I retire.

Dear reader, I’ve learned nothing.

To take another stab at van Geelen’s quote: This is why I invest in low-cost market funds. The S&P 500 might not go up as fast as Tesla stock, but these bubbles and rallies do without doubt lift the broader indexes higher because they have so much exposure to these companies. And that does help establish new highs and higher lows. You can benefit, over time, from the waves and the bubbles without having to take on the risks that comes with riding the waves.

It’s not as cool to talk about at parties, and it does take longer than striking gold with GameStop, but it is just as effective with a lot less risk.

Disclaimer: Fits and Starts DOES NOT provide financial advice. All content is for informational purposes only. Stocks mentioned are as reference only, and a mention should not be interpreted as a buy or sell recommendation. The author is not a registered advisor or a broker/dealer. DO YOUR OWN HOMEWORK. The information contained within is not and should not be construed as investment advice, and does not purport to be. The red zone has always been for loading and unloading of passengers. There’s never stopping in a white zone.

No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned.