Trade the Trash, Don’t Invest In It

Too many people treat trades as investments.

They’ll buy some trash stock with momentum and on hype, not knowing what they own.

They might have some quick short term profits, but they ignore the warning signs and keep holding.

Eventually their unrealized gains disappear, yet they still bag hold believing it will “come back.”

The serial diluter $GNUS was a perfect example of this last year. It rocketed from $1 to $10 on cartoon network hype.

People bought at 3, 4, 5, 6+ believing the hype. They held, not knowing what they owned and not taking profits.

It’s now back close to 1.

Trade the trash…don’t invest in it.

The Market Can Stay Irrational Longer Than You Can Stay Solvent

“The market can stay irrational longer than you can stay solvent.”

John Maynard Keynes

Here’s a couple examples. Hertz Global declared bankruptcy on May 26th. causing the stock to plunge to 40 cents.

Bankruptcy usually means that common shareholders get nothing. The stock becomes worthless and is eventually delisted.

Yet today Hertz has rocketed to over $3 …. above where it was before it declared bankruptcy.

Part of this is likely a “Robin Hood” effect. There’s been record numbers of account openings among many brokers including Robin Hood, and people have been piling into any stock that moves. Robin Hooders indiscriminately buy anything that looks cheap or is moving. I don’t use Robin Hood, but I’ve heard that when you log on it will show you the most popular stocks…which likely just leads to people piling into them without understanding what they’re buying.

Second example. GSX has been accused of massive fraud by multiple reputable firms, with very good evidence. Evidence continues to be uncovered. Yet the stock has climbed from around $30 (around when the fraud was exposed publicly) to over $40. It is likely that there is an SEC investigation going on (SEC doesn’t announce that it is doing investigations) and there’s a high probability that the stock will be halted and collapse just like the recent fraud exposure of Luckin Coffee (LK). But people just keep buying it.

These conditions create great shorting opportunities as these moves aren’t sustainable and eventually collapse. However, you need to pick your spots carefully and make sure you’ve got good risk management and appropriate position sizing. Otherwise you’ll find yourself run over by the herd.

I’m Pissed

I was pissed today.

Not because of any bad trading decisions. Overall I made good decisions.

I was pissed at things beyond my control.

I’m pissed as I write this.

The Humble Beginnings of My Pissiness

I’ve been in the process of moving my trading from my personal trading accounts to an entity account. There are a number of benefits to doing this if you trade full time. You can learn about those benefits here.

It takes time to open new accounts and move money over. Missing trading days because of that can cost me profits. To minimize disruption in my trading, I decided to move it over in chunks. I would move over some to the entity account while keeping some in the personal account to continue to trade. Once I could trade in the entity account, I could finish any remaining open trades in the personal account, close it out, and move the remaining funds over.

Thanks a Lot, Chase

The entity account was ready on April 20th. However, to move money into an entity account, you need to have a business checking account under the name of the entity. I was in the process of opening one with Chase. For some reason there was a nearly two week delay. I had called Chase repeatedly and kept getting different stories. Finally after two weeks someone told me there was a glitch in their system for people who applied for multiple products (I applied for checking and savings) and I would need to withdraw my application and re-apply.

Needless to say I was already frustrated, but it didn’t interrupt my trading as I hadn’t even had the opportunity to move any money yet. I got the entity checking account open on Friday May 1st. I wired about 2/3 of my money from my Vision personal trading account to the business checking account (I couldn’t do a direct wire from the personal account to the new entity account as they have different names). I then tried to get a wire back out to fund the entity account before the cutoff time on Friday. However, when I put in the wire info, Chase had a message that the wire recipient would need to be reviewed.

So much for the capability of wires to send money quickly.

Et Tu, Sterling?

Monday morning rolled around and the wire recipient was approved. I quickly wired the funds from the business account to the new entity account. I notified my account manager at Vision that I had wired the money and they could start getting my Sterling Trader Pro login set up for me. In the past, the login setup as usually been fairly fast…usually by end of day. During this time, I had a couple open positions in my personal account, and some remaining capital in my Tradezero personal account if I needed it. I figured I’d be up & running by early this morning at the latest.

Well, it’s now almost the end of the trading day and I’m still not set up. I contacted my account manager and he had tried to get Sterling to put me at the top of the priority list but not no avail…apparently they’ve had system issues and have tried to prioritize those. I couldn’t trade anything in my personal Vision account as all the funds were tied up in a couple trades I had held over from Monday. My funds in my Tradezero account weren’t enough to take full positions in the trades I wanted to take today. I’ve missed trades in LBTYB, MTP, and MVIS…all which would’ve been very profitable trades.

The strategic plan to avoid any delays didn’t work, and it cost me thousands of dollars in profits.

That’s life, though. No matter how well you plan, shit happens. The market will always be there and there will be plenty of more trading opportunities.

I’m still pissed though.

No matter how well you plan, shit happens…