Ep 117: Trading Hot Stocks: FRAN
Today, Stephen Johnson and Tim Bohen are talking about FRAN. No, that’s not Stephen’s long-lost girlfriend …hot stocks that just had an incredible run.
“Welcome, brothers and sisters and children of the night!” That’s host Stephen’s jubilant welcome to the episode. He’s been away sick for the past few episodes. But now he’s back, he’s craving pints, and all is well with the world again.
In this episode, Tim and Stephen talk about FRAN’s stock performance between September 10–16. So if you want to follow along with the chart, pull up these dates.
Note: This episode features plenty of screen shares and great chart examples — be sure to check it out on YouTube!
The Setup
While Stephen was sick, a particular ticker caught his eye: FRAN (7:00). The company behind the stock? Francesca’s Holdings Corporation, a nationwide chain of apparel and jewelry boutiques.
Technically, this was an earnings winner, but it had a super low float. And it was up from $5 to about $9 based on earnings. That’s a big gain … What gives?
Tim and Stephen talk about tips for figuring out when a stock might run based on earnings, like looking at insider buying (stock purchases by company employees).
With traditional non-junk, low float stocks, company-insider and C-suite investing can be a great sign. In theory, it means that the people who know the company best are confident about the future.
Also, if people inside the company are investing in it, it seems pretty unlikely that the company’s headed for bankruptcy tomorrow.
How FRAN’s Run Unfolded
Tim and Stephen discuss how they both got in on this stock and their specific entry and exit points (9:30).
Stephen’s approach was different than Tim’s. Learn about his errors and missteps as talks about what happened when he “broke all his rules” in what he says is an “idiotic way to play” (12:20).
Stephen goes on to share the lessons he learned with FRAN, including this biggie: “Don’t try to be a hero and buy the spike” (16:08).
Following the Market
Even with earnings winners, there’s never a sure thing in the market. Tim and Stephen cover some of the “safe” approaches to stocks like this. After all, the market can be cyclical (17:45).
You’ll learn how to make savvy decisions with earnings winners by looking at the highs, setting an appropriate risk, and looking at your potential upside. They also discuss how to look for your risk-reward … You can struggle to be profitable with the wrong risk-reward ratio.
How the Market Has Changed
Ten years ago, the same stock might have performed differently. It’s not necessarily because business models of companies have changed. It’s more because the stock market has evolved and grown (23:59).
The market was much quieter 10 years ago. You’ve got many more players now than you used to … That may be in part because of traders like Tim Sykes who have brought more interest and attention to low-priced stocks.
Even bigger industrial investors and hedge funds have changed how they handle finances over the years.
Tim and Stephen go over these market changes and how they make it necessary for traders to change their approach to stocks like FRAN as time goes on.
A Changing Pattern
Going back to FRAN … Stephen shares how on day three of the run, the pattern changed with a first red day classic pattern (27:40).
Stephen took a gamble, but did it work out? He discusses what happened and how he knew when it was time to get out.
Top Lessons from FRAN
To close out the episode, Tim and Stephen share their top lessons from the FRAN experience (44:05), including:
- Anticipate danger and be prepared to react wisely. Don’t put yourself in a situation that you can’t get out of.
- Know what you can and can’t control. The only thing you can control in trading? When you get in and out.
- Don’t blow up! Don’t gamble too much on any single trade — ever.
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