It's Not Easy

I am big fan of Stocktwits, I uncover a tremendous amount of great information there, and I get a many good ideas of the traders, investors and generally good people.

That said, let me rant just a bit:

 I bristle when anyone says making money via any particular trade is easy, or simple, or a no-brainer (at least unless maybe it is coming from Carl Icahn.)  Nothing about the market is easy and even if the person gets the trade right, it’s not because it was easy.

If I see someone call a trade easy, I figure they are arrogant, a newbie, or both.  Experienced and savvy traders don’t call anything about the market simple.  

The Bull Market is Intact!

Sorry for the hyperbole in the title.  Neither I, nor anyone else knows if the bull market will continue another day.   This post is a follow up to one I wrote on the weekend.  In that one, I looked at the $VXX performance after it had gone up by 15% over three days. 

For the last three years, every time the $VXX met that criteria, it dropped back on the fourth day.  Nine out of nine.

What does that have to do with the bull market?  In a discussion on Stocktwits, another member @allgoodtrades remarked that we were in a bull market, and the $VXX wouldn’t continue to spike like it did in 2011.

And lo and behold, what happened on August 4th?  The $VXX did drop, a substantial amount, actually. Ten out of ten now.  Leading me to conclude the bull market is intact, the SVXX should keep dropping and all is right with the world. 

OK, that’s a stretch, and I intend to remain cautious. But from this indicator, I see no reason not be optimistic, or upbeat, about the market.

   

Nothing in this post is meant to be a solicitation to buy or sell any security.  

It Works until it Doesn’t

I recently owned some $VXX puts and sold them on Friday.  It was a sort of continuing trade over the last few weeks of puts and short positions which I finally closed out.

$VXX is the iPath S&P 500 VIX short term ETN.  The VIX is a measure of volatility in the market.  Simplistically, the VIX generally goes up when the overall market is falling, and vice versa.   

In response to an inquiry, I had a civil discussion with @allgoodtrades (Gavin) on Stocktwits about where the $VXX was going next.  He thought it would fall, and I was concerned about it spiking higher if there was a correction (crash) on Monday, August 4^th.  I was staying on the sidelines.

Gavin challenged me to look at the chart and find another time in the last three years where $VXX rose as much as it did in the last three days.  It’s very hard to see that in a chart, so I ran the historical prices in Yahoo! Finance.

Over the three days ending 8/1/14, $VXX went up 15%.  In running the numbers, I found nine times where the $VXX went up 15% or more over the last three years, actually a little less than three years, more on that later.

Although this wasn’t as unusual as Gavin thought, I did something interesting.  In each of the nine times the ETN ramped over a three day period, in closed lower on the fourth day.  Nine out of nine.  It’s hard to beat those odds.

The VIX in 2011

Unless you go back the full three years.  In August 2011, the $VXX had a spike that kept on going.  Check out the closing prices from that period.

8/22/2011	43.86
8/19/2011	42.55
8/18/2011	40.47
8/17/2011	33.53
8/16/2011	32.87
8/15/2011	32.18
8/12/2011	34.13
8/11/2011	33.78
8/10/2011	35.17
8/9/2011	31.26
8/8/2011	34.78
8/5/2011	30.31
8/4/2011	28.89
8/3/2011	24.08
8/2/2011	23.97
8/1/2011	22.41

So, which do you believe?  Nine out of nine times during a great bull market, or the one time when it looked bad for equities?  Do you think the market we have now is the same as the last three years, or are we in for the rough ride like we had in 2011? 

Honestly, I don’t know, but the risk is pretty great, and for me, worth watching from the sidelines. The point is that if you find something that works every time, it’s still not guaranteed to work the next time.  The situation may be different.  It works until it doesn't.

And by the way, the $VXX wasn't around in 2008, but you imagine what would have happened to $VXX or it's more leveraged cousin $UVXY when the market really crashed

Good luck.  We’ll know shortly.  Nothing in this post is a solicitation to buy or sell securities.    

My Investor’s Toolkit

I am not really a technical trader, although I do think there is some benefit to watching the moving averages.  I just think the rest of TA is overdone. 

I am looking for an edge, either the best ideas or news that will allow me to be more proactive.  So, my toolkit is mostly bloggers and news providers.

Listed in the order that I generally use them.

Twitter – I follow all the big name traders, you know, the Fast Money guys, JC Parets, Jon Boorman.  Mostly professionals in the stock biz.  Also TV people like Becky, Maria, Mandy, Trish, Jane… well, you get the idea. 

Stocktwits – I have people I follow, generally not those that I follow on Twitter.  These are mostly amateurs, or hobbyists.  It’s more of a social thing  You can see who I follow there if you click on my name.

CNBC.com – Generally business news and stock quotes.  Works best on my phone, an HTC One, which I don’t recommend. 

Yahoo Finance – More news and quotes.  I also like their charts, which allow you to compare multiple symbols, and are easy for a non-chart guy like me to follow.  I also use the historical price function which allows me to download daily prices to excel and manipulate them.  Did you know it is better to buy Apple on Monday vs. Friday, over time?  I don’t know if that knowledge is worth all that much, though.

There are a few bloggers I follow when I can.  I usually see the entries when they post a link on Twitter, but these I will actually look up:

thereformedbroker.com – Josh Brown

ritholtz.com – Barry Ritholtz

crossingwallstreet.com – Eddy Elfenbein

I don’t care for Business Insider because it’s a bandwidth hog.  I will sometimes read the articles. 

I don’t watch much business TV any more.  If I can, Fast Money and once n a while that Cramer guy. 

Props to 1nvestor for the inspiration

Why I Post my Trades on Stocktwits

Stocktwits is a site founded by Howard Lindzon that allows just about anyone to comment on most publicly traded stocks.  Many people use it to ask questions, share their opinions, or plug their newsletters or websites.   I like to post my trades there, with entrances and exits.

I started with the goal of posting all my trades, but have decided I don’t have the time, or the interest in sharing every detail of my trading.  Still, I do find it helpful to share not only what I am thinking at a given moment, but also the actions I have taken.  I may post what I buy, and I try to give an idea of the price I paid or sold at, and a vague I idea of the size of the trade.  One thing I don’t do is give the number of shares or options.  How much I invest is really only my business.

Why do I share this? OK, first, this is NOT why I post my trades:

1.  I don’t post to gloat on my winners.  Investing is really difficult, and no one needs to know how smart I am, or that I pretend to be.  If I see someone gloating, it’s a real turn-off.
2. I don’t post to sell anything, because I am not selling anything.  No newsletters, websites, or books.  Yet.  You can’t buy my ideas on stock trades, because they aren’t for sale.  I don’t know that anyone would pay for them anyway.

So, why do I share them?

1. Someone may get some benefit, or education.  I have gotten nice notes from people who did say they learned something from what I am doing, usually from a follow up question.  I have gotten some nice (and some not so nice) responses from people who take the other side.  That’s OK, it’s what makes a market.
2. The biggest reason I post is that it keeps me honest with myself.  If I know that I will be sharing my trades, it is a lot harder to take a risky, unjustified position (a “flyer”).  Like buying options before an earnings report, or shorting a momentum stock.  I may still do these dumb things, but if I plan to expose my thinking to the world, I would like there to actually be some thought to expose. 

Best of luck trading.  Nothing here is a solicitation to buy or sell securities.  

The Big Mistake I Made in 1999

The 1995 to 1999 period in the stock market was known as the dot com era, when the internet exploded and money poured in many stocks which had no profits, little revenue and depended on "eyeballs" as a metric.

As a young (well, younger) investor at the time, my main interest early on was building a retirement nest egg and making a fair return on my available cash, which wasn't all that much.  I had been trained to think of investing in good companies that paid a safe dividend.

It was a good strategy, and early on, I did pretty well, swelling my meager retirement account into a nice bundle and making a few bucks for play money.

Scansoft 

Then one day, my boss at the time, introduced me to a bit more risk.  He gave some advice on a company named Scansoft.  I didn't know what they did then, and don't now.  But in few days, I made $1,000, a 20% return.  You would think I was hooked, but ah, I wasn't.  My training told me this wasn't right.  So, I backed off, and returned to safe investing.

All the while watching everyone making huge gains on stocks that no one thought had any value.  Names like Vertical Net and PSI Net are ingrained in my memory. Huge valuations with no sustainable business model.

Echelon

Then there was one called Echelon that was particularly annoying.  Someone I knew knew someone was had researched the company, and they had a real product.  The stock started at 3 and came to my attention at 6.  I bought it at $13, it went to 30, and I bailed, convinced that it didn't belong there and would come crashing down.

Of course, it finally hit 100 before it crashed.  I don't know if it's still around and I don't care.

My Big Mistake

My mistake, as it turns out was NOT getting caught up in the fever and ridiculous valuations.  If I had, I would have made a lot of money, and could have gotten conservative nearer the top, or after it had been reached.

I see this a lot now.  Some people have been fighting this bull market all the way up.  I try not to, despite my conservative nature.  Bring it on.  I hope to have enough time to bail on the downslope rather than the way up.

Please, please, do your own due diligence, and don't take anything I say as an offer to buy or sell securities.  Look at my track record.

My Best Advice for Stock Market Traders

I consider myself an investor, not really a trader, but like a lot of people, I do think I pick a winning trade from time to time.  Unfortunately, since my funds are limited, like everyone, it leads me to sell stocks in order to buy new ones. 

This leads to my worst performance.  I always think that my current holding is not going to as good as my next one.  I sell what I have to chase something else.  Generally, this is usually a bad move.  The stock used to own does just as well or better than the new one I bought. 

Add to that fact that in the process I paid commissions to go in and out of the two positions.  That’s just dumb. 

Comparison to Baseball

I’m a baseball fan, and if there’s one thing I don’t like to see in baseball, it’s overmanaging, particularly when a manager changes relievers repeatedly, multiple times in an inning.  As if the next pitcher is guaranteed to get next guy out.  Like the next pitcher is going to be better than the one that is already in there. 

Sometimes he does the job, sometimes he doesn’t.  In baseball, there’s no way to know how the other guy would have done.  In stocks, we do know.  They continue to trade even if we don’t own them. 

So, a little advice:  STOP TRADING SO MUCH.  Review not only your past trades, but what happens to stocks after you sell them.  You will likely find that you would have been just as well off, or better even with commissions, as if you just held the first stock.

If you feel you have to trade just to do something, then you have another problem.  You aren’t trying to make money; you are trying to fill some other need.  If so, just expect to continue to underperform.  Nothing is going to help that.