For me, the game started when I was in kindergarten.

At some point in the afternoon we had nap time.

We had these plastic tri-fold mats that always seemed to come apart around the edges. I think mine was green on one side and blue on the other, with “Adams” written in permanent ink.

They totally made you sweat when it was warm, and when you were wearing shorts your bare legs always stuck to them.

For some reason, no idea why, my memory isn’t that good, I was a pretty popular kindergartener.

So, when nap time arrived several of the other kids wanted to lay their mat beside mine to nap. There were only two spots, one on each side of my mat, and there were more than two kids that wanted those spots.

What would your kindergartener self do?

I did the only thing that made logical sense to me. I opened an auction.

Whichever 6 year old could pay the most money won a spot. Bang, money making opportunity identified. Of course that wasn’t the end of the story, more on that below.

Issue Spotting 101

One of the key ideas you’re taught in law school is “issue spotting”. Before you can apply the law you have to know what the issue is you’re applying it to. You can argue for either side, but if you don’t first identify the issue, you’re going to go off the rails.

I was really good at issue spotting. It just made logical sense to me. Cutting through the clutter and zeroing in on The Thing that was important.

Issue spotting is what you do before you bust out your spreadsheet and run the numbers.

In trading it’s often the thought, “Something’s not right here,” or “If this one thing happens it could mean a huge move in this stock,” or “The market has this wrong.” Most often it’s just a “this could get interesting, I should keep an eye on it.”

Some might call it a gut feeling. But I think most gut feelings are born out of experience.

If you can get good at spotting issues, or seeing catalysts that could impact a stock, you can make great returns.

A key part of issue spotting is being able to narrow the time frame of the impact of the catalyst. This is one of the reasons I love the beach ball trade, you can make great returns with a lot less risk than simply being “in the market.”

If you can identify the time frame when the catalyst will arrive, you have a major advantage. The less time you are in the position prior to the catalyst, the lower your risk.

Really good issue spotting (especially combined with finding patterns) can make you rich. Whether its managing your own money or that of others. Spotting patterns and issues (catalysts) is how Ray Dalio of Blackrock invests his client’s money.

Some of you may have seen the 60 Minutes piece a few weeks ago on how Dalio employs an army of “pattern spotters”. His analysts aren’t there to pour over PE ratios and free cash flow numbers. They’re focused on finding major patterns that the firm can then match companies and investments with.

Let me give you a quick example of issue spotting that we have discussed here.

I’ve written a LOT in the past few months on Phunware and the Phunware warrants (PHUN, PHUNW). There was:

• the stock going crazy, moving from $10 to $550
• the SEC being closed which delayed the registration of shares
• the potential for a warrant call by the company
• the ins and outs of a cashless exercise
• the beach ball trade setup, even without an expiring warrant
• the fact that the company does business in a hot industry
• the appearance that the management team seems to be competent
• and on, and on, and on

Those of you who followed my posts should have made some great money from the warrants (like I did), and I’ve heard from several of you who did, congrats, that’s awesome!

Sidebar: I absolutely love the emails from you guys who are taking what you’ve learned from me about warrant trading, applying it, and making money. I’ve gotten several emails about beach ball style trades along with emails, and even a guest blog post, about the Phunware trade.

My philosophy is one of abundance when it comes to making money. There are plenty of opportunities to go around for everyone and I love to share information and see you guys making money. It’s awesome to see people coming back to me with new ideas expanding on what they’ve learned from me. Very cool. End Sidebar.

Looking back on the whole story, I go back to my original post in which I talk about the value of the warrants given the fact that the stock was trading in the stratosphere.

The ISSUE was that the warrants, even though they were not exercisable, should not have been trading at $.50 with an $11.50 exercise price.

Just taking that one piece of information alone, and never reading or researching anything else, would have made a trader a great return on the warrants. (Not saying don’t do your homework, but pointing out the importance of identifying that initial “there could be something here” moment.)

Practice Issue Spotting with Rights Offerings

One place to practice your issue spotting is in rights offerings. Rights offerings can offer outsized returns with small risk in the right situation.

And, in some cases, you can get a combo rights offering and warrant.

Check out this proposed offering in OptimumBank Holdings (OPHC), based in beautiful Fort Lauderdale. The offering is still a ways off, if it ever happens. It may or may not be a good deal at the time of the offering. But right now it looks interesting.

If you’re sophisticated in your trading you can put it in your watchlist, capture the terms in a spreadsheet, and track the potential offering using whatever process you have in place.

But, there’s a great way to track the offering without even entering it in a spreadsheet and having to remember to track it.

Just buy one share of OPHC and forget about it until you’re notified of the offering. You’ll spend $4, the cost of the stock, plus another $5, or whatever your commission is with your broker. That’s one and a half visits to Starbucks.

This is the simplest identify and track method I know of. Once the offering is announced, you’ll get a notification from your broker and you can check out the deal then to see if it makes sense.

Oh, and what happened to my kindergarten nap money? Did I invest it in a stock and make a killing? Nah, once my mom heard about my little business venture she made me give all the money back.

We didn’t have a lot of money growing up, and neither did the kids who were paying for nap space. My mom thought it was more important that they eat lunch, or get ice cream, than snooze near me. Ah, what could have been.

Two Big Announcements

First, the Warrant Observer membership now includes an exclusive database of warrants trading in the U.S. The database is up and running and ready for you to start slicing and dicing your warrant tracking.

Originally this subscription had been just for the newsletter, but I wanted to expand it to something much bigger and provide more value for the membership price. The database is the first big addition.

I’ll be adding more exclusive content for members as well. (Don’t worry, if you’re already a member you’re getting everything for the price you’ve already paid.)

The membership now includes The Warrant Observer newsletter (next issue coming out in a few days), the SPACfolio (a list of SPAC warrants I believe deserve attention), the warrant database of all U.S. warrants, AND coming exclusive content that will only be available to Warrant Observer members.

Second, the current price of the annual membership is available until Friday at a massive discount to the monthly membership.

The current $189 price is a 68% discount to the monthly subscription price, which I was running until the database was up and running, and I was out of beta mode for the newsletter.

While I had planned to ditch the annual subscription altogether, I’ll now still have that as an option, but the discount to the monthly plan will be reduced to a more reasonable 20%. That means the annual membership price will move from $189 to $469 on Friday, a $280 difference.

So, if you’ve been on the fence about getting The Warrant Observer, or have been asking for the database (which a lot of you have), now is the time to take advantage of the beta pricing before it disappears. I look forward to seeing you in the membership area!