Lover of trading, tacos, 3D/AR/VR, cryptos, and most things Japanese

What a month! July was the month I took the next step forward in my trading journey and started SMB Capital’s “DNA of a Successful Trader” program. Trader DNA is comprised of 14 self-paced modules covering every aspect of professional trading – prep work, setups, PlayBook trades, entries, profit targets, exits, position sizing, psychology, and mentoring. I’m only a few weeks in, am halfway through Module 5, and am loving it!

Two of the big benefits I’ve experienced so far, apart from the wealth of information provided from a large swath of professional traders, are the daily morning meetings and access to SMB’s proprietary technologies. The morning meetings are done each day before the open, where co-founder Steve Spencer reviews the overall market activity and presents three or four “Stocks in Play” for the day. These stocks are the ones he’s selected that provide the greatest potential trading opportunities for the day. While my full time job doesn’t afford me the luxury of trading most of the day, a large number of moves happen within the first hour of the market open, and I’m seriously considering adjusting my work hours so that I can trade the open each day. This would mean that I’d trade 7:30-8:30am, then work 9-5, and hit the gym from 6-7. Eat, talk with Christine, and study from 9-11. I’ve been gradually adjusting my schedule to do just that, having gotten spoiled by my short commute and sleeping in until 7:30. Since joining SMB, I’ve been getting up at 6:30 to attend the morning calls, and falling asleep around 11, so it shouldn’t be too big an adjustment – though I have spent the last two years going to work early and getting done at three, so that’ll take a mindset adjustment.

Another cool thing about the Trader DNA program is access to SMB’s proprietary trading tools. These include the SMB Stock Screener and SMB Radar. The Screener allow me to set about 15 different variable criteria and then returns a list of all stocks that meet those criteria, along with relevant data. I’m still learning to use it, and often my criteria are wrong and the stock I want to explore isn’t listed. The Radar is another tool that shows what stocks are in play, by SMB’s criteria, and it is looking to be worth the price of admission alone. As traders, we need stocks to move to make money on them. These tools provide refined lists of stocks with potential. Then all I have to do is explore the charts of each one until I find one or more that set up to match my trading style. I’m digging it!

So far I’ve done three trades. As Mike Bellafiore, Managing Partner of SMB Capital, says, “Your goal is to make One Good Trade. Then One Good Trade. Then One Good Trade.” Of my three trades, I consider two of them “good”, although both could have been better. That said, the FNKO trade I did yesterday put me in the black, which is a great feeling. My studies are paying off and I’m learning how to do this stuff!

My goals for the next month are to take more trades and to get bigger in my A+ setups. Right now I’m focused on Funko ($FNKO) – my good trade from yesterday, that reports earnings this Thursday. I’m going to sell my underperforming position in PTC and add to the FNKO position Monday morning. This will bring the position up to 30% of my trading capital, which is about the limit of risk I’m willing to take on it before earnings. Since I have therapy Friday morning and won’t be able to trade the open, I’m considering taking half my position off Thursday if it continues to run up. This is because the CPI report comes out Friday and could shock the market if the numbers aren’t good. That’s one of the lessons I’ve learned from my reading – don’t be in a position where an exogenous event could wipe you out. Obviously, I wouldn’t get wiped out if there’s a big selloff on Friday, but I’m likely going to take the conservative route and lock in some profits Thursday, just in case. Besides, I think FNKO’s 3rd and 4th quarter results are going to be even better with the holiday buying. And, if there is a selloff, I’ll have more capital to put to work at lower prices. 🙂

#HowGoodCanYouBe

This morning I did three trades: two “good” ones and one “bad” one.

The first trade was the “bad” trade in AMD, where I FOMO’d in to buying near the ATH after a pretty big run whose energy was starting to wane. I tried to play the bounce, but set my stop too tight and didn’t stick to plan to buy if broke 19.2. Missed it and tried to grab on the way up from 19.68, finally bought at 19.75 and it peaked at 19.88 before trading back down and stopping me out.

The second trade was also in AMD where I got in at VWAP and was playing for a bounce that didn’t happen. I got stopped out just under VWAP, where I had set my stop too tight, and it ran up a bit over before returning to VWAP.

I set the first stop at a good point, confirmed the downtrend, but the second stop was set too close to VWAP where it pipped and popped from there. I didn’t have my indicators on when I jumped in – no VWAP, TTM, RSI – because I was too eager to get in. 🙂 The market was trending down, SPY/WIM/QQQ were all down, and I should have reversed my position and gone short. I also couldn’t trade AMD again for 4 days because I don’t have a large enough balance to be considered a pattern day trader, and TDA would have locked my account.

The third trade of the morning, NCR, was in play from the SMB Radar screen at 8.2. It had been there for an hour or so, with TTM levelling off about 8 up bars and bought at 28.49. It hit a consolidation phase, with the uptrend continuing, and I set my stop at 28.35 looking for a pop. I got a little one, with the RSI at 58 and fairly flat. The play was right, the move was right, and I was holding until Reason2Sell. NCR was trending up slowly, pulling back to higher lows and pushing up to higher highs in a tight range. TTM was staying postive, pulling back a bit but fairly flat too. I was being patient, sitting back and watching as NCR continued to stair step up. Volume decreased to less than 10k, flat chart, flat TTM. SPY at LOD at 282.75, and NCR started slowly trending down. I moved my stop to below VWAP as SPY started to turn around at 9am MT, approaching lunchtime in NYC on a summer Friday. NCR was fighting going down, with flat flat flat bars, volume under 5k, and no liquidity. SMB Radar still had it at a 7.5, #4 on top, when I stepped away to go to the bathroom.

When I got back, the dam had broken, and NCR had tanked fast, hitting my stop below VWAP. The SPY/QQQ/IWM were all up, so the move didn’t correlate with the larger market. In hindisght, I could have gotten out at with a small profit which felt like the top in my gut at the time, but I stuck with the trade to see how it developed. It was a good trade, a good exercise, and good for patience, which I still need to work on. However, I didn’t take profits when I sensed the turn in the stock, mainly because they were so small, and I need to remember that small gain is better than a loss. That said, I was working on practicing staying patient, which I did pretty well, and so I consider this a “good” trade – I set my target and stops and waited for it to develop.

Funko Inc ($FNKO)

Background

Funko is a pop culture consumer goods company serving the United States, China, Vietnam, and the United Kingdom. They create the very popular “Pop!” action figures with stylized, oversized heads, that have been extremely popular with collectors since debuting in 2008.

Funko IPO’s in November of 2017 at $5, opened at $7+, and ran up to $9.41 in quick order. A few weeks later, it dropped down to $6 and has been steadily growing up to $16 most recently.

Stats

Market Cap: $778M
ATR: 1.82
Short %: 4.03
Institutional Ownership: 78.81%
Avg. Daily Volume: 266K

Strengths

In addition to its licensing contracts with over a thousand entities ranging from the NFL, to the Marvel Universe, to Disney, to Pokemon, to WWE, Anime, and more, one of the key advantages Funko has is its speed to market for new products. Funko can bring a new product from concept through design and approval to production in as few as 70 days. This gives them a unique ability to capture and capitalize trends in pop culture. For example, when Game of Thrones unveiled a new character in its season finale, Funko was able to show HBO a printed and painted concept, get the go-ahead, and get the figures on the street in less than three months. Contrast this with giants like Hasbro or Mattel, which not only do not specialize in figures, but also usually take at least 12-18 months to get a new product to market.

In addition to the action figures, Funko produces whimsical pop gear such as tee shirts, purses, bags, pen toppers, and more. Their unique design look allows them to charge a premium for their items, yet they keep the price point of their action figures at under $10 for most. Their exclusive runs, such as the 10″ Thanos from Infinity War, were hugely popular at a higher price point.

Funko’s retail strength lies in its partnerships with big brick and mortar stores like Target and Walmart, where they are expanding their retail shelf space. Funko has developed a “pop store within a store” that leverages many of their properties in an expanding retail space. Years ago, they only had a three-foot end shelf at target, now they are positioned in five different areas of the store. In addition, Funko’s partnership with Target has produced “Funko Fridays”, and eight week exclusive sale that allowed Target customers to buy exclusive gear on consecutive Fridays. This resulted in a jump in Target’s site traffic of over 6500%.

Funko has created a platform, like Lego, that is not fad-dependent. They have a distinct style that is globally enjoyed. They are expanding their footprint in Europe. They had 59% growth in the Pop! figures last quarter, with 39% growth overall, and are guiding toward a high teens to low twenties growth rate for the year. The low volume indicates that this is a relatively unknown newcomer, perhaps having been forgotten by the street after its IPO.

Funko has also acquired an animation studio with the aim of creating content for social media and perhaps even following in Lego’s footsteps and ultimately creating feature films. While the feature film idea is pure speculation on my part, Funko has reported over 40 million views of its animated content last year. By the end of Q2 this year, they had over 50 million views, signaling a double in impressions for their video content.

Risks

Funko is a fast growing pop culture consumer products company. The stock has pulled back from its ATH and when I looked for possible reasons, I discovered that there are at least two pending class action lawsuits against them for misrepresenting their growth rate to investors in preparation for the IPO last November. I didn’t learn much more than that, and the market seems to either not know or not care about the lawsuits. I suspect, though do not know, that these types of filings may be commonplace when investors do not get the price they wanted or expected during the IPO. That said, this does cast a question over Funko’s reported earnings – at least prior to the IPO. From what I’ve learned listening to last quarter’s earnings call, the anticipated growth rate is strong. I am looking forward to the next earnings call, in a few weeks or so, to shed more light on what is going on as I’m sure the lawsuits will come up during the Q&A session after the report.

Summary

I like Funko products and I like their stock. I wish I had thought to look into them earlier, as I would have likely gotten in last year at a lower price point. That said, I like the prospects and will be initiating a small position soon, with the possibility of adding to it after reviewing their Q2 earnings call.