I remember seeing Tesla’s stock price dip $50 a share because Elon Musk seemed to smoke a mad spliff on the Joe Rogan podcast. This move supposedly valued the company at about 15% less at the time because Elon Musk may occasionally get high. This price fluctuation ignored the fact that Tesla is one of the hottest, most-discussed companies around. Their tech is cutting-edge, their stores are always packed, and demand is high. Scenarios like this are ridiculously common in the stock market and should make casual investors like me realize that behind all those graphs and tables full of numbers that Wall Street is known for, the stock market is a fickle beast. Unfavorable press coverage into employees’ personal lives have almost zero influence on a company’s performance; however, it’s used as an “indicator” and price fluctuations happen.
Obviously with the Elon Musk incident, stock price quickly recovered and has only continued to rise as of this writing in January 2020. Take advantage of this fickleness. If bad press coverage of a key company figure sends the stock price down, there’s potential for a short-term gain if it’s a fundamentally strong company.
I owned a few shares of Ollie’s Bargain Outlet and remember seeing the stock price soar to near $100 (I purchased at $60) after about a year. It looked to be a winner until it dipped $20 dollars or so in one after hours trading session. Ah, the land of after-hours trading – where portfolios get fucked while you sleep. It was not the first time I saw something like this happen. It was then I realized that there is a Wall Street for casual investors and a Wall Street for the actual people pulling the strings behind the scenes. Of course, we should all know this because it’s been intimated in movies like Wall Street, The Wolf of Wall Street, and many more. It is, I suppose, settling to confirm that it’s in fact true. The point, I think, to take away from this is that there are stock market gods out there that can smite you. So, never think you’re fully in control.
Another strange phenomenon I see is big price dips after the publishing of positive earnings reports. This would happen on the same day as the earnings report released. Why the fuck would this happen? One would reason that the price should go up if earnings are on an upward trend. I finally concluded it’s so that shadow Wall Street can open positions in that stock at a discounted rate. Stock market press always claims price dips occur due to “missed expectations” or “new guidance.” However, I call bullshit and am confident it’s because of insiders wanting to get in at a lower price.
Time after time, I see the stock price quickly recover after the dip and continue to rise as it should. For me, it makes me pay more attention to when earnings reports are released, determine if there’s the strangeness of good earnings but stock price dipping, and evaluate if I want to get in.
To me, there’s nothing dumber than using borrowed money to gamble. The stock market, of course, is a gamble because it’s fickle and nonsensical. I would occasionally get e-mails from my online brokerage saying “Congratulations, you now qualify for margin investing. Call a representative to get started!” I always ignore them simply because my aversion to risk is stronger than my inclination towards greed. I, too, want to make mad money in the stock market. However, there is no sure thing. Also, I believe money that absolutely has to be profitable is not treated with the same objective thinking as money safe to invest. Emotions become too much of a factor. Though I’ve never invested on margin, in my early 20s I have unfortunately used money I needed for rent at the poker tables and tried my best to hide my inner turmoil as I watched it slowly go away. I had started to lose my stack and played recklessly knowing that I needed to get that money back. It would be a mistake I would never repeat.
I often read articles on the internet claiming that it’s almost impossible for casual investors to be profitable trading stocks on their own. I’m sure this is true for many because non-pros try to invest like pros do. Pros love to invest in high-cap stocks in huge volumes in companies that you’ve probably heard of. However, for a non-pro I don’t think this is the right strategy. The pros know way more than you do about those companies and can move enough volume to attach influence to their trading activity. Odds are that at every buy and sell, you’re going to be the last to get in or get out. So, I don’t bother with large-cap stocks at all unless I’m looking for a short-term gain based on press coverage or other factor.
I almost exclusively invest in growth stocks when they are small or mid cap companies with the hope that they become large cap companies one day. Name recognition is huge, I think, for most investors using 401ks, pension funds, mutual funds, etc. After all, if you’re some office worker picking funds for your 401k, odds are you’ll pick some invested in companies you know. I reason that funds in smaller companies are less capitalized simply because Joe Schmo investor never heard of most of the companies in them and doesn’t want to put his 401k distribution in them. So, my general strategy is to get in on a great company before the big funds get in on it. It is a very basic principle, but one that is at the core of how I trade.
Besides published earnings reports and press releases from the company itself, most metrics are meaningless in my opinion for stocks. I simply feel if you’re trying to find a value stock by analyzing P/E ratios and the like, your time is better spent elsewhere. Similarly, I think technical investing may have some merits but I’m not dedicated enough to pore over charts and the like to get into it. To me, it’s all boils down to whether the company I invest in makes stuff that is in demand and is growing at the right pace. Stuff like earnings per share and the like, I simply ignore. This is because stock prices are too dependent on the je nais se quois of companies. Tesla, for instance, is valued higher than GM despite GM dwarfing its sales figures. However, I would invest in Tesla over GM despite a much higher P/E ratio simply because I believe they are a better company.
Besides the obvious downsides of a potentially unlimited debt to your brokerage, I never want to sell short because I think it bets against human nature. Humans are motivated by potential failure and seek redemption and victory. So, to me it’s an added danger to bet against human nature. Ethically, it also feels wrong to me to profit off of the demise of a company which will undoubtedly have to lay off employees and the like. So, I simply don’t do it.
People tend to get attached to certain stocks and stubbornly refuse to sell. Stock holdings, especially in this era of commission-free trading, need to be treated as disposable. Much like a great pre-flop poker hand, one has to be ready to throw it away if the hand doesn’t develop. I personally set a goal of cutting my losses at 10% below the buy price. However, I’ve often seen stock prices go below that with me refusing to sell because I figure that the critical thinking that I used to lead me to buy the stock couldn’t possibly be awry. But, awry it often is and this is something even I need to work on.
Disclaimer: I don’t write the following claiming it to be true or that following this advice will lead to any specific outcome. I write this for my own note-taking purposes and to highlight strategies that have led to success as well as pitfalls that have led to failure for me. All claims I make are based on my own insight based on my experiences and not researched for statistical veracity. All prices I give are approximate.