Concept stock orphan, page-74

"I promised myself I would stop buying these types of businesses! No doubt the ride will be bumpy."

Actually, I think - provided some disciplined risk controls are put in place - that there is a place in one's portfolio (to a limited extent), for these sorts of situations where the future shape of the business is somewhat indeterminate, but for which the attainment of a few not-unreasonable, and reasonably-predictable, milestones could result in significant capital appreciation.

Genuine situations such as this are not overly common, I have found; I have probably participated in maybe 25 or 30 of them over the course of my investing life, and out of those, probably half have resulted in large pay-offs (+50% to +200%), while roughly a quarter of them have just washed their faces and I've lost meaningful capital (between 25% to 50%) on the remainder.

But, unlike established businesses with decent financial track records, and which are growing their Revenues and Profits (and therefore when to sell is not really much of a consideration), it is critical in the case of an investment like OMN to have a clearly thought-out exit strategy, and then to have the discipline to not waver from that strategy.
Risk control is crucial to preserving capital here.

The first risk control measure is quite self-evident: don't expose too much of one's capital to these stocks with unproven business models.
(For what it's worth, at the moment I have 3 of them on the boil: NEA (~3% of my capital) , ZNT (~1.5% of my capital), and now OMN (~1.5%); so that's around 6% in total, which is about the maximum I will tolerate.)

The second mechanism of risk control is is to set very clear operating and/or financial milestone expectations at various points on the future time line, and the minute those milestones are not met, to force oneself to exit the position.

Sell discipline when things aren't quite going to plan is probably more valuable than all the fundamental research leading up to the investment.


As for the bumpiness of the ride, I try to totally ignore what the share price is doing (because spending time watching the share price of an immature company like this is sure to be bad for the health!)