Blog Posts

Even The Professionals Can Be Wrong

I’ve never been much of a hero worshiper.  The fanboy gene just doesn’t seem to be a part of my DNA.

I’ve eaten dinner an arm’s length away from Lindsay Lohan and the Hilton sisters.  I once gave Justin Timberlake directions to the men’s room.  I’ve even cracked wise in Ellen DeGeneres’ living room (she laughed but Anne Hecht stood there stone faced).  Despite the star power present, none of these encounters seemed extraordinary to me.

There are however some public figures whom I find “interesting.”  People who I wouldn’t mind picking their brain for a couple of hours over a few pints of fine craft beer.

Anthony Bourdain comes to mind.  Neil Peart of Rush definitely.  And in the world of finance, Carl Icahn and David Einhorn would be at the top of my list.

On the surface these two couldn’t seem more different.  Icahn is a street wise kid from Queens who is known for saying exactly what’s on his mind.  Einhorn on the other hand grew up in Wisconsin and exudes a quiet, confident, and reserved nature in interviews.

Yet both attended Ivy League schools – – Icahn at Princeton  and Einhorn at Cornell – – both run hedge funds, and both are wicked smart.  To me, Einhorn, out of all the current crop of “star” fund managers, seems most likely to have a long and profitable career like Icahn.

But even a pro like Einhorn can be wrong.

Einhorn has been shorting $GMCR ever since unveiling an hour-long presentation two years ago that criticized the company and what he believes is their fraudulent accounting.

Even as recently as last November he reiterated his position on CNBC’s Fast Money.

Paraphrasing Einhorn he said…

There are many ways to win short on this stock.

I have questions about their numbers and how they have been disclosed.

The company has lost the patent on K-cups. 

The have earned monopoly type margins in the past, but as more competitors come in, price will fall, along with margins.

The day of that interview $GMCR closed at $70.57 per share.  Yesterday, after $KO announced that they were taking a 10% stake in the company, the stock soared 45% in after-hours trading to $117.33 per share.

Though it’s not clear if Einhorn still has his short position or if he had hedged it, I think it is safe to say that he was wrong.  And really the only type of wrong that matters, price action wrong.

David Einhorn will no doubt survive this setback and live to short another day, but this is a good reminder to those of us that don’t run multi-billion dollar hedge funds, that, in the words of my friend Brian Shannon, price is the only thing that pays.  No matter what we think the script is or how it might play out, we always have to respect and obey price action, as it is never wrong.

The “There Is No Way” Market

Unless you have been living under a rock, you know that the game has changed this time.

There is something a bit more ominous about this latest market sell-off.  Nothing concrete yet — no definitive chart or stat you can point to — that tells us this might be more than the standard 4-8% mini-correction we have experienced numerous times over the last few years.

But something in the tone and tenor seems different.  Sometimes when the indexes are down big, a closer look still finds winners among the leaders.  All the former leaders have been taken out to the woodshed this time.  The losses seem broader, more across the board.  The only stock showing strength is $MSFT, which is cold comfort.

A prized thoroughbred naturally has different types of gaits; walk, trot, canter, and gallop.  They may not be discernible to the crowd, but the trainer who handles him daily with love and respect can distinguish them, and can tell when something is amiss.  He knows that pushing his horse when his underlying health is suspect can have dangerous consequences.  Seasoned professionals know the same thing about the markets.

For some reason, markets like the one we are in right now seem to attract soft money, not repel it. Investors and traders who should be doing nothing more than sitting on their hands and re-reading the Market Wizards series are rushing to “take advantage of the volatility.”  Meanwhile, smart money is standing aside, waiting for more information, a clearer picture, and a better diagnosis of the market’s health.

Regardless of whether this is “the big one” or not, we have definitely entered into a dangerous type of market, what I like to call a “There is no way” type of market.  It’s hallmark is the cry of “there is no way,” which comes from those with some, but not enough, understanding about how markets work.

There is no way it can go lower.

There is no way it won’t bounce here.

There is no way $AAPL won’t come back.

There is no way I can sit on the sidelines while this is going on.

There is no way I am wrong on this stock.

There is no way I went full margin on that position.

There is no way I could have lost all my money.

There is no way I am going back to working as a used car salesman.

The irony of the “there is no way” market is that, “Yes!” there is a way.  It is precisely when you start believing that there are things the market just won’t do, that it in fact does them.

Markets like this are the exact type in which you have to put your biases away and keep your mind open to what can happen.  You also need to alter your strategy.

If you are a trader, resist the urge to catch every bounce.  Trade less.   Trade smaller.  Trade smarter.

If you are an investor, pare down your losers and raise cash.  Find the stocks that hold up best during this turmoil and put them on a list.  That is your shopping list, the one you will use to buy from when things settle down and the smoke clears.  Those stocks will be the winners in the next move up.

Brilliant stuff like this rains down like..well, rain, on my stream during the week.  If you want to get wet, follow me on Twitter and StockTwits.  You can also pick up my book Trading – The Best of the Best: Top Trading Tips For Our Times by clicking here.

How To Avoid Over Trading During A Losing Streak

I tend to look at the world through market colored glasses.

If I have to wait in a ridiculously long line at the grocery store because there are only two registers open, that’s an order imbalance to me.  Too many buyers and not enough sellers.

Recently I took a much despised transcontinental flight.  The day of my flight there was one first-class seat open, costing an upgrade fee of seven hundred and fifty dollars.  When I boarded the plane it was still available — three fifty I estimated as long as the cabin door remained open.  Forty-five minutes into the flight it was down to a buck ten.

A polite request to the flight attendant and a smile, and it was mine for eight dollars.  It hit my target and I hit the bid.

So when I got an agitated call from a good friend of mine last week regarding a domestic matter, I naturally framed it in terms I could related to best.

My friend and his wife both make a good living, but by the end of each month they always seemed to be in the red.  The root of the problem appeared to lay at his wife’s feet, as she seemed to be the one draining the bank account on a regular basis.

Note: This is not meant to be some sort of gender biased comment; it’s just happens to be how the facts lay out in this case.

In order to find some sort of mutually agreed upon solution, he and his wife decided that they would not make any purchases over one hundred dollars without checking with each other.  But despite the plan, by the end of the next month, they had still gone negative.

A quick look at their monthly statement told the story.  His wife had indeed stuck to the rules of their agreement; but not the spirit.

There were almost fifty individual charges on her debit card ranging from forty-five to ninety-five dollars a piece.

What I saw was over trading.  And possibly a stint in couples therapy.

I have talked at length on this blog about the importance of a methodology and using position sizing to define your risk, but you can still blow your account out if you use “respecting your max loss rules” as a rationalization for over trading when you are running bad.

There are a couple of ways you can avoid that.

One option is to limit the number of trades you make in a given time period.  For a day trader that might be two to five trades a day. For a swing trader that might be six to ten trades per month.  

A second option is to set a maximum cumulative dollar loss for your account in a given time period, regardless of number of trades.

But no matter which method you use, the important idea is that it is based on tying individual position losses to your overall account equity.  That way you have created an objective criteria to let you know when you are over doing it and need to dial things back.

Brilliant stuff like this rains down like..well, rain, on my stream during the week.  If you want to get wet, follow me on Twitter and StockTwits.  You can also pick up my book Trading – The Best of the Best: Top Trading Tips For Our Times by clicking here.  All proceeds go to fight pediatric brain cancer.

What A Venture Capitalist Can Teach You About The Stock Market

Fred Wilson is a venture capitalist.

And despite his decidedly generic name, he is far from a generic VC.  Perhaps “premiere VC of his generation” is a more apt description.

Through his firm, Union Square Ventures, Wilson has been an early stage investor in a wide range of companies, including Zynga, Tumblr, Foursquare, Coinbase, Lending Club, Kickstarter, Etsy, and a little thing called Twitter.

Recently he gave a presentation at LeWeb tech conference in Paris, where the moderator asked if he was interested in making investments in more extreme type ventures, a la Elon Musk.  He answered as follows;

Fred Wilson: The kinds of things that Elon does, the electric planes, and the Hyperloop, and the SpaceX, and the Tesla; those aren’t things that that interest me, and those aren’t things that interest our firm.  They are great things, and I wish that more people would do those things….

Moderator: Why not? Too far away?

Fred Wilson: (shaking his head) We don’t have a view, we don’t think we have a unique view – – and point of view – – about those things.  And you know, the venture capital business is very competitive, like the business of entrepreneurship is a very competitive business, and the only way you win is by knowing what you are good at and what you are not good at, and sticking to what you are good at.  That is my feeling anyway.

For market participants there is a very important lesson in that last statement.

Successful VC’s live or die on their deal flow.  Because they only want to invest in the deals with the best opportunity for a successful exit, and because those deals are few and far between, they need to sort through a lot of opportunities in order to find the winners.

Wilson probably sees more deals than any other VC out there, but by his own admission, he only invests in one, or maybe two, each year, and only in areas he has a unique view.  That unique view gives him an edge over his competition and has no doubt contributed to his record of success.

Let me put that through the “VC to investor” translator.

Deal flow in the world of investing emanates from different equity classes, sectors, and instruments.   Every day that flow – – those opportunities – – present themselves in each of these areas, and your job is to sift through them, casting aside those that don’t offer a favorable risk/reward, choosing to act on only those with the best chance of success AND that are in your area of expertise.

That Wilson, with all his success, only stays in areas he knows he is good at, is a lesson in patience, focus, and not letting ego into the mix.  And understanding how his statement “knowing what you are good at and what you are not good at, and sticking to what you are good at,” relates to the markets is the key to your success.

 My Talk At LeWeb Yesterday (A VC)

Brilliant stuff like this rains down like..well, rain, on my stream during the week.  If you want to get wet, follow me on Twitter and StockTwits.  You can also pick up my book Trading – The Best of the Best: Top Trading Tips For Our Times by clicking here.  All proceeds go to fight pediatric brain cancer.

You Can Lead The Investing Public To The Market, But…….

Last week I kicked off a new writing gig over at AOL’s DailyFinance.  It will be different from what I do here on the blog in the sense that I’ll be writing less about trading and more about the markets, personal finance, and business in general.  I’m very grateful to have to chance to write for a broader audience, but already I have been reminded about how the individual investor can be their own worst enemy.

Case in point; a reader by the name of “Valerie,” who decided to comment on my piece “How to Improve Your Market Returns in 2014”.

The piece is about how a good market service can analyze thousands of stocks and distill them down to a manageable list of candidates for you to consider.  I asserted that subscribing to such a service was an efficient and cost-effective way to use  technology to your investing benefit.  I went to great pains not to suggest any specific services, nor to paint them as a panacea for investors, but just one of the tools they could add to their arsenal.  I also warned that there are scammers in this field and that you should always go with a service that offers a free trial first to make sure they are legit and that they fit your investing style.

So here is how Valerie weighed in on the subject (emphasis is mine):

Individual investors should be very VERY wary of anyone who claims to be able to “predict market moves”. The best minds in the investment field (who manage multi-billion dollar funds) can’t do this, consistently, and neither can these so-called “services” claiming to be able to pick the next big stock winners.

One aspect that the writer of this article conveniently glosses over is that paying 99 bucks a month for this questionable “advice” is almost 1200 dollars a year, PLUS the cost of trading stocks added to that. It’s hard to generate profits, if you are shelling out that much money for expenses. Potential taxes on all that trading should also be an important consideration, and that isn’t even mentioned in the article.

And what is going on with the writer’s belief that an internet chat room is the best place to get investment advice?? It isn’t. “Interacting with other traders” in chat rooms isn’t a good way to improve your investment returns. They will brag, endlessly, about their few big winners, but they will NEVER tell you about their many big losers.

The best advice?? If someone wants you to pay for their “stock picking service”, get a firm hold on your wallet and run. (Want to double your money quickly?? Fold it over and tuck it back in your wallet. LOL)

If you absolutely can’t resist the lure and excitement of stock trading, set aside just 10% of your investment funds for this as “fun money”. For the other 90% of your portfolio, stick with the proven long-term stock winners. Those “dull and boring” blue chips aren’t exciting to brag about to your friends, but their dividends and appreciating stock prices will make you rich over a period of time.

After reading this, I made a rookie mistake and decided to get into a good ole’ fashioned “flame war,” something I haven’t done since the Money Talk BB’s on Prodigy back in the early 90’s:

Hi Valerie,

The only problem with your argument is that you have absolutely no idea what you are talking about.

Nothing you say has anything to do with the ideas in the article. It is not about “predicting market moves” or a “stock picking service,” it is about streamlining the process of finding good stock candidates for a fee.

How much is your time worth? Is it worth $0.68 per hour? Because if you are paying $99.00/mo for a service where they spend 40+ hours a week watching and analyzing the market, then that is what it costs. And for that minimal fee, you get the 8,000+ stocks in the market boiled down to a list of 5-10 that you can consider. That to me is the most efficient use of money vs. time that I can think of for an investor.

And I even went as far to indicate that “yes” there can be some shady operators out there, but that most legitimate ones offer a free trial.

So, you could try a service for free, see if it works for you, and if they know what they are doing, and if so, subscribe to them for pennies a day to make your life easier….

OR…..

You could just dismiss the idea completely.

You made your choice.

Thanks for reading.

-B

Valerie then came back with a seven paragraph, five-hundred word retort, which I will not be so cruel as to burden you with here, but suffice to say, I quickly remembered why you don’t get into arguments with anonymous people on the internet — because they actually have the time to write seven paragraph, five-hundred word retorts.

Still, I can’t say that I wasn’t frustrated.  I felt like I was trying to introduce punk rock in the 70’s, or rap in the 80’s, to someone who felt musical perfection had already been achieved in the form of Foghat.  And no matter how much I tried to show them something different, cutting edge, and thought-provoking, they just wanted more of the same — double-live albums filled with twenty-minute guitar solos.

Interacting in the financial blogosphere and on StockTwits as much as I do, it is easy to forget that I’m living in a bubble in terms of market knowledge, and to those on the outside of the bubble my ideas and insights, no matter how normative I think they are, seem like the ramblings of a naive lunatic at best; and a financial charlatan at worst.

That makes my job over at DailyFinance more difficult, but also more challenging, which I like.

Check out my first two pieces for DF, The Man Who Saves CEO’s Billions in Taxes  &  How to Improve Your Market Returns in 2014 and let me know how I am doing.

Brilliant stuff like this rains down like..well, rain, on my stream during the week.  If you want to get wet, follow me on Twitter and StockTwits.  You can also pick up my book Trading – The Best of the Best: Top Trading Tips For Our Times by clicking here.  All proceeds go to fight pediatric brain cancer.

The New Rules Of StockTwits: 2014 Version

Way back in 1975, I remember a conversation I had with Howard Lindzon and Phil Pearlman, or H-Lindz and Psquared, as I affectionately called them at the time.  We were all sitting around, stroking our long, long locks of shiny, full hair, discussing the merits of various conditioners, when Howard first suggested the idea of ABBATwits, a community dedicated to the Scandinavian pop Gods who were tearing up the charts.

“H-Lindz,” I said.  “Pop music is too fickle.  You need to create something with lasting value.  Something that will stand the test of time.”  And that was the genesis of StockTwits.

Fast forward to (almost) 2014.  Now I may not be one of the Big Dogs like Greg Harmon (38,211 followers), Brian Shannon (with 38,039 followers), or some unnamed dick from the panhandle state with 38,026 followers, but I think I have been around long enough to throw some new rules out for 2014. So here they are.

Avatar Protocol

Look, I have covered this issue ad nauseam, most specifically in my post The 5 Worst Avatars For A Trader To Have, but for those of you who haven’t read that Keats-like post, here is the gist of it…

Load up a goddamn picture!  The generic StockTwits logo is not cool.  Nor is it dope, fly, jake, or the bees knees.  We all want to engage with you, but staying anonymous is not mysterious or deep; it’s just annoying.  Show us something about who you are as a person, or in social media terms, as a “brand.” Fill out your bio too.  Skip the “serial entrepreneur,” “market crusher,” and “student of the market” crap while you are at it.  Just be honest, tell us a bit about yourself and you will be welcomed into the fold like one of the hot Kardashians.

Cool The Angry Young Man Stance

Sometimes I marvel at the vitriol that goes back and forth between members on such globally important issues as “Is $AAPL a buy or a sell?”  You would think that they were arguing about whose diabetic child should get the last vial of insulin in a post-apocalyptic, zombie infested world.  Just chill.  Or better yet, cold-chill.  These are just stocks folks.  It’s okay to have an opinion, but not cool to treat someone with an opinion different from yours like they are Hitler.  Or Stalin.  Or Bieber.  Let’s all just try to get along shall we?

Chicken Littles

News Flash.  The S&P is not going to zero.  Gold is not your savior.  Roubini, Faber, Zero Hedge, and company are wrong.  Why don’t we say it Electric Company style….

WR……ONG………WRONG!    D…..ICKS……DICKS!  LO…..SERS……LOSERS!

Let’s say, for argument’s sake, that tomorrow space aliens come down to Earth and blast the NYSE and all world stock exchanges with their super-blaster rays, and the markets crash. After all the smoke clears, our new extraterrestrial masters will review the recent timeline and determine that the perma-bears and their ilk missed out on one of the fattest moves in market history.

So, barring any Independence Day shit happening, just give the “sky is falling” jag a rest.

Perpetual Crushers

You are crushing the markets.  You are in before every move.  You bought the bottom, shorted the top, and re-bought the bottom.

No you didn’t.  You didn’t even come close.  The Lord-God-Shiva Paul Tudor Jones himself only claims to catch 50 or 60 percent of a move at best, so cut the crap.

Let’s make a deal? Post every time you get stopped out for a loss along with every time you get a “four bagger.”  If that ratio is at least 5:1 then we will believe you.

I want something, and then something else, and them something else, for nothing

Hey, I was just thinking about something.   How much did it cost you to join StockTwits?  What?  How much? Oh, nothing…..you mean nada, zip, zilch, bubkis, the big donught?

So why the fuck do you think you are entitled to berate, challenge, quiz, query, berate again, and castigate people who are giving their time, knowledge, and expertise for free?

Play nice, and you will find that StockTwits and it’s members are the most valuable asset you will ever find regarding the markets.  But be a dick in tone or temperament, and you will quickly get shut down.

So, there you have it.  My rules for 2014.  Do they seem bitter?  Or course they do, and of course I have issues, but they are hard-won issues from years in the trenches.  I, and most of the recommended people on StockTwits will be more than happy to help you out in any way we can in the coming year. Just be cool and remember that behind the avatars are real people, who if treated with respect, will return that respect to you in spades.

Brilliant stuff like this rains down like..well, rain, on my stream during the week.  If you want to get wet, follow me on Twitter and StockTwits.  You can also pick up my book Trading – The Best of the Best: Top Trading Tips For Our Times by clicking here.  All proceeds go to fight pediatric brain cancer.

Putting Context With Your Candlesticks

Here I explain why a candlestick doesn’t mean anything without context.

(Enlarge when video starts to watch in Hi-Definition)

Brilliant stuff like this rains down like..well, rain, on my stream during the week.  If you want to get wet, follow me on Twitter and StockTwits.  You can also pick up my book Trading – The Best of the Best: Top Trading Tips For Our Times by clicking here.  All proceeds go to fight pediatric brain cancer.

How The Stock Exchange Works – Eurotrash Edition

Since our market is closed today and theirs is open, here is a Euro version of how the stock exchange works.

Brilliant stuff like this rains down like..well, rain, on my stream during the week.  If you want to get wet, follow me on Twitter and StockTwits.  You can also pick up my book Trading – The Best of the Best: Top Trading Tips For Our Times by clicking here.  All proceeds go to fight pediatric brain cancer.

5 Stocks Ready To Break Out Of Massive Multi-Year Bases

As my friends over at High Chart Pattern Group say, “The base is everything!”  Here are some stocks getting ready to come out of massive multi-year bases.

MSFT
$MSFT

A guy who’s name I can’t remember–but seemed pretty smart–gave a presentation at Stocktoberfest asserting that $MSFT was the next $AAPL.  This was based not on Windows sales but some other tech area they are set to dominate (maybe it was enterprise services).  If his theory is correct, then this might finally be a real move out of a 13-year base.

CME
$CME
ICE
$ICE

At the end of last year I was asked what industry would be hot in 2013 and I answered “the brokerage industry.” I was really referring to the retail brokerages like $SCHW and $ETFC (which by the way have been en fuego), but $CME and $ICE technically fit in that group as well.

BID
$BID

Fifteen years after Antiques Roadshow premiered, the major auction houses are starting to use algorythmic logic and big data to maximize their returns.  $BID is at the forefront of this trend and the chart looks like it is about to break out of a massive cup and handle-ish type pattern.

ZUMZ
$ZUMZ

Skateboarding, surfing, Snoop Dog (or Lion), that’s what $ZUMZ is all about.  Yeah, whatever.  None of them were even born when Lonnie Toft was doing  full-coping grinds on his signature 8-wheel Sims board.  Whatever.  Stock is not there quite yet, but this 6-year ascending triangle is starting to look bitchin man!

Brilliant insights like this rain down like..well, rain, on my stream during the week.  If you want to get wet, follow me on Twitter and StockTwits.  You can also pick up my book Trading – The Best of the Best: Top Trading Tips For Our Times by clicking here.  All proceeds go to fight pediatric brain cancer.

Ever Wonder How Much Your Favorite Billionaire Made (Or Lost) Today?

The folks at Bloomberg have created a neat tool for tracking the daily ebbs and flows of the top 200 billionaires personal wealth.

Untitled
Bloomberg Billionaires: Today’s ranking of the world’s richest people (Bloomberg)

If you want to learn more about investing, trading, and the markets, all while helping to kick pediatric cancer’s ass, check out my book, Trading: The Best Of The Best – Top Trading Tips For Our Times.  It includes over 200 market tips from 60 active traders and investors, and all proceeds go to the McKenna Claire Foundation to help support research for a cure.  Just click the banner below or go directly to Amazon by clicking here.

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About Brian Lund

About Brian Lund

Great father. Good friend. Decent writer. Lacking husband. Solid drummer. Sometimes funny. Often A-hole. Terrible poker player. Too smart. Punk rock. Work in an ice cream shop.

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