SUCCESSFUL TRADING BOILS

down to good decision-making. There are thousands upon thousands of publicly traded securities, and with one click of a mouse an investor can bet on any one of them.

When putting money to work, I concentrate on those situations in which I think there's a shot of grabbing the first harvest of gains. Stocks will always fluctuate, but for my money, it's those precious early moments when an investment theme is just being discovered by the market that present the best chance for actually making money.

The first harvest occurs quietly, before the news breaks and before the fundamentals become clear, sending the herd crashing through the door. A speculator must be able to look ahead and become bullish on a theme that appears to be working without a clear understanding of why it's working. Some investors wait for certainty; I simply look for strength. The news and confirmation most people wait for almost always come after the fact.

Like most professional traders, my portfolio has its share of losers. But on those rare instances when an idea actually starts to make money, aiming for the first harvest means you're one of the few already in line with a growing, winning trade. It's a position of true strength: You're in the black in a winning hand while everybody else is just beginning to learn the ticker symbols.

An excellent recent example is gold stocks, which experienced their first harvest back in 2001 and 2002, long before the falling U.S. dollar was on most investors' radar screen. Although gold is now perceived as a perfectly legitimate part of a diversified portfolio, it's worth noting that it was before the volume erupted, before the inflation threat loomed, before the metal jumped from $300 to $400 an ounce that many of these stocks truly moved, some gaining more than 100%. That's the kind of first harvest an investor wants to exploit.

Last week, I highlighted a few of my investing ideas for 2005. While one never knows with certainty where a profit will be found, I try to avoid situations where the odds aren't on my side, where the first harvest has already been taken. Right now, I believe Sirius Satellite Radio presents just such an example.

It seems as if everyone I meet has been in and out of Sirius over the past few months. Whether it's because of its low share price in dollar terms or its high profile or both, this stock continues to capture the attention of everybody from institutional investors to the fast-moving message board set. And although I'm excited about the company's innovations, I just can't get too jazzed about putting money to work in its stock. For me, the shine is off, the appeal has waned, and I've moved on to hopefully greener pastures.

What keeps me away is my nagging suspicion that, despite the company's promise, the first harvest of gains has already been carted off. In its decade as a publicly traded company, Sirius has traded in a range of roughly 50 cents to almost $70. With the stock at $6.50 recently, both the bulls and the bears have a case. So while there's no doubt that this volatile stock could be significantly higher or lower, the probability of another 1,000% gain such as the one the stock has seen since 2003 seems rather slim, I think.

From a fundamental perspective, another indication that the first harvest is gone is that the investment "story," at least for the time being, appears to have peaked. As has been widely publicized, Howard Stern, unquestionably the biggest name in radio, will soon be moving his wildly successful show to Sirius. And because I believe that the stock market anticipates the news rather than reflects it, I can't help but think that the prospect of big Stern ratings has already been priced into the stock. The company might end up making gobs of cash, but, lest we forget, the share price of many old-school Internet stocks was never higher than before they earned a dime of revenue, let alone profit.

Finally, given the unavoidable buzz over Sirius, it's hard to make a case that the herd hasn't already arrived in full-force. This stock is on everybody's lips and in just as many portfolios. Just take a look at the activity on its message board. For most stocks, a dozen or two new posts each day isn't uncommon. For Sirius, investors are opining at a rate of one or two new posts a minute, for hours on end.

To make money off the first harvest, one must be able to think and act independently. It's often tougher than it seems. When people are faced with uncertainty, it's often more comfortable to be part of a larger group acting in a similar fashion. It's no coincidence that, according to data from the Investment Company Institute, many people finally bought into the tech bubble in the second quarter of 2000, just as the market was peaking and the promise of information technology finally became crystal clear.

To find the first harvest, the trick is to avoid today's headlines and imagine what next year's might be. As a trader, I'm in the business of speculation. When observing the market, I try to extrapolate today's price action into what might be making news at a minimum of three months in the future.

It also means having the patience to let a move run its course. So when I'm looking at reinsurance stocks, like Aspen Insurance, ACE or Max Re for example, it's because I think many have the potential to run up 50% from their current prices not merely pop a few points higher.

You can bet on anything in this game. But for my money, I think the best course of action is to focus on reaping an investment thesis' first harvest of gains. By the time the news breaks and the crowd starts moving in, the odds for profit rapidly begin to contract. To that end, investors should try to identify a trend, participate in the move and move on. While markets will often consolidate and continue higher, it's that initial move that provides the highest probability of success.

Jonathan Hoenig is managing member at Capitalistpig Hedge Fund LLC. At the time of writing, Hoenig's fund may have held positions in securities mentioned in this article.