It’s really only a little thing, this thing I did. Today I bought a little bit of one stock, GIG, the stock for the company GigPeak. Small actions can be big events when they signal a turn. I don’t know if that’s the case with this trade because I can’t predict the future; but it may be the sort of simple event that I’ll want to have recorded later. I paid myself by buying some stock, something I haven’t done in years. Years from now, we’ll see if it meant anything or nothing.
This blog exists for many reasons, but the main reason is as an extension of my book on personal finance, Dream. Invest. Live. Economics and finance are changing so rapidly that I knew there’d be more to add, and I have. As the book was published, the Great Recession (the Second Great Depression) hit. Programmed trading, quantitative easing, negative interest rates, and high frequency trading swept in and redefined the environment. At least within my portfolio, I’m seeing at least three stocks where the company’s revenues rise by 30%, 50%, 60%, but the stocks went down by 20%. The short term nature of the investment world apparently is paying less attention to business fundamentals. My hope is that the long term nature remains where accumulated value is eventually recognized with appropriate valuations. Sooner or later investors realize a good opportunity.
This blog exists for other reasons, too; but particularly as a prelude to the sequel to Dream. Invest. Live. My story of Triple Whammies, Mortgage Farces, Backup Plans, and hopefully eventual recoveries has been a ride I’ve described before as From Middle Class to Millionaire to Muddling By. I’ve been on a roller coaster ride through America’s classes – and yes, America is not class-less. The ways we value people based on their wealth is pervasive, discriminatory, prejudicial, and counter to We The People. These blog posts are the notes about events that I’d probably remember inaccurately if I didn’t publish them for public viewing.
Today, I bought shares of GIG; and spent about as much as many people will spend on dinner tonight. That’s easier lately because Seattle is amazing prosperous, except when it isn’t.
There’s a basic concept in personal finance called, Pay Yourself First. In my interpretation, it follows: Spend Less Than You Make. I usually follow that with Invest The Rest. At this point, I am on the knife edge of spending what I make. My two main clients plus an temporarily accelerated pension mean I can pay almost all my bills, everything except self-employment tax. There’s an irony there. If I was making this much from a regular job my taxes would be covered – thanks to the employer who would be paying them, or taking them out of my paycheck.
Recently, two things happened. A variety of side gigs means I’m able to either pay down my debt or save for my taxes. I’ve been paying down the debt because the interest rate on debt is about 12% and the interest rate on savings is – ah – oh yeah, very very low in this new economy. As I wrote several days ago, partly in memory of my parents, I took about 10% of my inheritance to Pay Myself First. I got new tires. I’m getting new glasses. But, most of the money has been going to paying down the debt. And yet.
I’m a short term realist and a long term idealist. Reality has been somewhat pessimistic for the last few years. Many may consider that to be a massive understatement. While there is plenty to worry about in the future (go to PretendingNotToPanic.com for news for people eager and anxious about the future), I’m willing to invest in it.
If I respect myself, I should act on what I’ve learned. The investing community dropped GIG’s price from $3.42 to $2.04 within the last year, even as the company has become profitable and is growing revenues at more than 30%. Take last year’s revenues, multiply by Price/Sales = 6, and get a market cap of about $240,000,000. The current market cap is $134,230,000. That’s a nice possible return, and growing as the revenues grow. The Price/Earnings doesn’t make as much sense yet because they are crossing the line into profit, which means an earnings near zero which means ridiculous P/Es. Within a few quarters, they should have financials that finally fit into conventional analysts’ spreadsheets. A return on investment of greater than 12% is easy to justify with 30% revenue growth and much higher earnings growth, relatively.
Respecting myself may be admirable, but a heavy dose of caution is advised. Investing in small companies has become much more speculative. Old rules don’t necessarily apply. What may appear to be a temporary trend of increased automation and ultra-short term action may become prevalent enough to become permanent within the larger financial institutions. That’s why my main strategy is to pay down my debt. My fundamental optimism, however, is finally also recovering – which is why I bought back in, at least a little.
My role model for GigPeak is f5 (FFIV). F5 builds essential equipment for the Internet. I bought them as the Internet Bubble burst, bought more near the bottom, bought more as they recovered, and eventually sold to make the down payment on my house. The stock did so well that if I hadn’t sold I’d be able to buy this house for cash now. GIG may experience a similar course, misunderstood, dismissed because it was too small, ignored as the techies bought the products, then becoming successful within the perception of the investment community.
My role model for my optimism is my history. My investments began with purchases that weren’t much more than the price of a nice dinner. Eventually the profits from the sales were the size of a six-pack, dinner, a weekend get-away, an extended vacation, a new car, and almost a house.
I don’t know if that is happening now, just like I didn’t know it was happening at the time. Maybe it will. Maybe it won’t. Probably, something unexpected will happen instead. In any case, I’ll celebrate this event because it means I’m no longer standing still. I’m moving thanks to buying a little bit of GigPeak.