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Tuesday, October 9, 2018
Thursday, April 26, 2018
The Changing Economy
I am an avid follower of Howard Lindzon, founder of StockTwits and an early stage investor on a level I just cannot comprehend. This week was the Stocktoberfest East conference in New York and, despite my usual discomfort and dislike for the city, it was well worth the trip in.
Howard talked about all sorts of trends as they related back to investing - both public and private. Robots, artificial intelligence, social and transactional themes carried over from previous years. What was a bit new, at least to me, was the deepening of the millennial theme. It seems that they like cities and prefer experiences to things. Maybe I knew the latter but the word "density" was used to describe the former. Density means that everything is right there. No waiting. No traveling.
While I knew about decentralization - blockchain and the sharing economy - they used a new term, fractionalization.
I actually have some experience with fractionalization. A company called Motif Investing presented at Stocktoberfest (West) a few years ago and they allow investors to create a portfolio of stocks using fractional shares. If you can't afford even one share of Google at $1051 (stick it Alphabet), then how about 1/15th of a share. And a quarter share of Facebook, for good measure.
It's like a personalized mini-mutual fund. And Motif is not alone. A quick check of the Google shows Stockpile, Acorn, Folio and more.
Stocks themselves are not tangible but this concept spread to the physical world. There was a vendor at the show called Rally Road that bought classic cars and sold shares to the public. It's not a time share where you get to use the car for one week in the year but rather you own a fraction of that car all the time.
You just can't drive it. The car stays in cold storage, nice and safe.
The point is that you can invest in this exotic asset on a retail investor level. If it goes up in price, so does your share.
It's not a brand new idea. I already mentioned time shares and mutual funds. How about limited partnerships on oil rigs, real estate and more?
The difference is that everything is completely transparent. You can even plot the price action to see how you're doing over time. We technical analysts love that. Although the data is monthly, only :-(.
Next, we'll probably see shares of jewels, space ships and maybe even brothels.
Finally, there was a company called StockX that offers bid/ask on high-end sneakers and few other products. Again, I love that you can track the prices but even better you don't have to deal with the other party. As with a stock, you deal with the exchange who guarantees you'll get what you expect, whether the real product or cash.
At first, I thought this was a ridiculous concept. Maybe that is because I think paying $200, let alone $700 for sneakers, is PT Barnum's dream. But then the CEO explained how it is transparent, safe and efficient in terms of establishing fair value.
Unlike eBay, where you can find your bargain using multiple pages, not knowing for sure if you had a good price. Think about bringing all those prices together on one page. It would force everyone to respect a fair market price.
For now, the business depends on the company fulfilling orders, which does not seem scalable. But then again, Amazon fulfills plenty of orders. If I can buy a car or some other asset that depends on salesmen then they'll have something. There would no longer be a sales person to mistrust. And unreasonable markups would be a thing of the past. What a boon for small manufacturers of any kind!
The times they are a changing, for sure. Some for the worse - like the crypto scam. Some for the better - like remote health monitoring.
See you next year at Stocktoberfest.
Howard talked about all sorts of trends as they related back to investing - both public and private. Robots, artificial intelligence, social and transactional themes carried over from previous years. What was a bit new, at least to me, was the deepening of the millennial theme. It seems that they like cities and prefer experiences to things. Maybe I knew the latter but the word "density" was used to describe the former. Density means that everything is right there. No waiting. No traveling.
While I knew about decentralization - blockchain and the sharing economy - they used a new term, fractionalization.
I actually have some experience with fractionalization. A company called Motif Investing presented at Stocktoberfest (West) a few years ago and they allow investors to create a portfolio of stocks using fractional shares. If you can't afford even one share of Google at $1051 (stick it Alphabet), then how about 1/15th of a share. And a quarter share of Facebook, for good measure.
It's like a personalized mini-mutual fund. And Motif is not alone. A quick check of the Google shows Stockpile, Acorn, Folio and more.
Stocks themselves are not tangible but this concept spread to the physical world. There was a vendor at the show called Rally Road that bought classic cars and sold shares to the public. It's not a time share where you get to use the car for one week in the year but rather you own a fraction of that car all the time.
You just can't drive it. The car stays in cold storage, nice and safe.
The point is that you can invest in this exotic asset on a retail investor level. If it goes up in price, so does your share.
It's not a brand new idea. I already mentioned time shares and mutual funds. How about limited partnerships on oil rigs, real estate and more?
The difference is that everything is completely transparent. You can even plot the price action to see how you're doing over time. We technical analysts love that. Although the data is monthly, only :-(.
Next, we'll probably see shares of jewels, space ships and maybe even brothels.
Finally, there was a company called StockX that offers bid/ask on high-end sneakers and few other products. Again, I love that you can track the prices but even better you don't have to deal with the other party. As with a stock, you deal with the exchange who guarantees you'll get what you expect, whether the real product or cash.
At first, I thought this was a ridiculous concept. Maybe that is because I think paying $200, let alone $700 for sneakers, is PT Barnum's dream. But then the CEO explained how it is transparent, safe and efficient in terms of establishing fair value.
Unlike eBay, where you can find your bargain using multiple pages, not knowing for sure if you had a good price. Think about bringing all those prices together on one page. It would force everyone to respect a fair market price.
For now, the business depends on the company fulfilling orders, which does not seem scalable. But then again, Amazon fulfills plenty of orders. If I can buy a car or some other asset that depends on salesmen then they'll have something. There would no longer be a sales person to mistrust. And unreasonable markups would be a thing of the past. What a boon for small manufacturers of any kind!
The times they are a changing, for sure. Some for the worse - like the crypto scam. Some for the better - like remote health monitoring.
See you next year at Stocktoberfest.
Friday, March 2, 2018
The Wisdom of the Talking Head
When I read the comments made to anyone's website articles, I can only conclude that the commenters believe the quoted pundit to be either completely ignorant or really evil. I know from personal experience that I substitute financial Ouija board wisdom for useful analysis.
That's why I stopped reading comments on free mass market websites altogether. If I want to learn about how dumb and out of touch I am I can just ring up my kids. That's too bad, because the 95% of the comments calling me an idiot swamp the 5% of commenters with legitimate questions or constructive disagreements.
Let's break down what a TV (or substitute your favorite media) talking head is really doing. First, I truly believe that most of them are just working stiffs trying to further their careers by donating their analysis for free on a news program. They think that they need to be right in their calls. Well, at least mostly right. If they blow it all the time then they will not be asked back again.
Don't gloss over that word "free." They are not paid for their appearances and at most get a free limo ride from their office to the studio. The real value is more intangible - exposure. The more times you see a so-called expert the more you come to trust him/her. They hope that translates into book sales, newsletter subscriptions and new clients for their firms.
Let's say Talking Head X says the stock market is going to go up and banks will lead the way. You make a mental note and go about your business.
Within a week, the stock market goes down and the news of the day sends bank stocks reeling. Was the pundit a moron? Or did they want you to buy so they could sell into the bump?
Either way, you wonder how they still get the big bucks, let alone still have a job after such a boneheaded call.
But what was the pundit's responsibility to you? He/she was just interviewed for their opinion. You did not pay for it. And even more important, you were not privy to when he/she put out an alert to clients saying that things changed and they should not buy bank stocks, or at least get out immediately.
You judged Talking Head X on one moment in time that was, admittedly, incorrect, but not necessarily a money loser. Remember, none of us are in this business to be correct. We are here to make money. Similar to baseball, if you get one third of your calls right and use proper money management (cut losers and ride winners) then you get very rich.
Here is my favorite quote in the comments sections - "If this analysis had any value he/she would be trading it and not talking about it." Therefore, this pundit is a huckster.
Do you think the same thing when you see an advertisement for an engineering training course or a set of ratchet wrenches? After all, if you can train people to engineer something then you should already be applying it to build a driverless car that runs on bitcoin.
Just because you learned to swing a hammer does not make you a master carpenter. Therefore, just because you learn to read a chart or a balance sheet does not make you Warren Buffet (and I mean that to emphasize the "oracle" part of his nickname).
You can learn plenty from TV talking heads but don't take what they say as fiduciary trading advice tailored to your unique situation. If you do, it is you, not the pundit, who is the fool.
That's why I stopped reading comments on free mass market websites altogether. If I want to learn about how dumb and out of touch I am I can just ring up my kids. That's too bad, because the 95% of the comments calling me an idiot swamp the 5% of commenters with legitimate questions or constructive disagreements.
Let's break down what a TV (or substitute your favorite media) talking head is really doing. First, I truly believe that most of them are just working stiffs trying to further their careers by donating their analysis for free on a news program. They think that they need to be right in their calls. Well, at least mostly right. If they blow it all the time then they will not be asked back again.
Don't gloss over that word "free." They are not paid for their appearances and at most get a free limo ride from their office to the studio. The real value is more intangible - exposure. The more times you see a so-called expert the more you come to trust him/her. They hope that translates into book sales, newsletter subscriptions and new clients for their firms.
Let's say Talking Head X says the stock market is going to go up and banks will lead the way. You make a mental note and go about your business.
Within a week, the stock market goes down and the news of the day sends bank stocks reeling. Was the pundit a moron? Or did they want you to buy so they could sell into the bump?
Either way, you wonder how they still get the big bucks, let alone still have a job after such a boneheaded call.
But what was the pundit's responsibility to you? He/she was just interviewed for their opinion. You did not pay for it. And even more important, you were not privy to when he/she put out an alert to clients saying that things changed and they should not buy bank stocks, or at least get out immediately.
You judged Talking Head X on one moment in time that was, admittedly, incorrect, but not necessarily a money loser. Remember, none of us are in this business to be correct. We are here to make money. Similar to baseball, if you get one third of your calls right and use proper money management (cut losers and ride winners) then you get very rich.
Here is my favorite quote in the comments sections - "If this analysis had any value he/she would be trading it and not talking about it." Therefore, this pundit is a huckster.
Do you think the same thing when you see an advertisement for an engineering training course or a set of ratchet wrenches? After all, if you can train people to engineer something then you should already be applying it to build a driverless car that runs on bitcoin.
Just because you learned to swing a hammer does not make you a master carpenter. Therefore, just because you learn to read a chart or a balance sheet does not make you Warren Buffet (and I mean that to emphasize the "oracle" part of his nickname).
You can learn plenty from TV talking heads but don't take what they say as fiduciary trading advice tailored to your unique situation. If you do, it is you, not the pundit, who is the fool.
Wednesday, January 31, 2018
Unmasking the VooDoo - Michael's Rules
This post is a little different than the others where I usually take a deep dive into one bit of technical analysis or another to expose what's really going on beneath the hood. In this post, I'll simply list my rules for dealing with the analysis in the real world and not in some idealized trading lab.
Sorry AI. This is your daddy, RI (real intelligence). This is what you are trying to be when you grow up.
Follow these rules. You may not make big bucks trading but you will up your win rate. Plus you will definitely avoid misinterpreting the market's message and taking bonehead trades.
I've got some comments below the list, as well.
on point 6 - This is a pet peeve. You cannot count the trend as part of the pattern. The pattern must be a separate chart entity. Also, cup-with-handle patterns are continuations, bottoming reversals. Call the latter something else, please!
on point 9 - RSI and MACD are essentially the same thing. Look at something that covers volume. Look at something that has some sort of sentiment component. Look at something with a time component.
Sorry AI. This is your daddy, RI (real intelligence). This is what you are trying to be when you grow up.
Follow these rules. You may not make big bucks trading but you will up your win rate. Plus you will definitely avoid misinterpreting the market's message and taking bonehead trades.
I've got some comments below the list, as well.
Michael’s Rules
- If you cannot see trends and patterns almost instantly when you look at a chart then they are not there. The longer you stare, the more your brain will try to apply order where there is none
- If you cannot figure out if something is bullish or bearish after three indicators then move on. The more studies you apply to any chart the more likely one of them will say “something.” That something is probably not correct.
- You can torture a chart to say anything you want. Don’t do it.
- Be sure you check out one time frame larger than the one in which you are operating (a weekly chart for a swing trader, a monthly chart for a position trader)
- Look at both bars (or candles) and close-only line charts to see if they agree.
- Patterns must be in proportion to the trends they are attempting to correct or reverse. I like the trend to be at least three times as long as the pattern.
- Patterns should have symmetry. A triangle should look like a triangle and not a mile high and an inch wide (or vice versa). A head and shoulders should look like a central peak with two smaller but equal peaks around it.
- Price rules but it is better when volume, momentum and structure (patterns) agree. Sentiment is a luxury.
- Always confirm one type of analysis with another type. For example, confirm RSI not with MACD but with on-balance volume or relative performance.
- Don’t get hung up if all your indicators do not agree. They never will all agree and you will end up missing every opportunity. Therefore, pretend you are a trial lawyer gathering a preponderance of evidence, not guilt beyond a shadow of a doubt.
Comments:
on point 5 - In other words, get different charting points of view. They don't have to be in lock step but they cannot tell you radically different things. If they do, find another thing to trade.on point 6 - This is a pet peeve. You cannot count the trend as part of the pattern. The pattern must be a separate chart entity. Also, cup-with-handle patterns are continuations, bottoming reversals. Call the latter something else, please!
on point 9 - RSI and MACD are essentially the same thing. Look at something that covers volume. Look at something that has some sort of sentiment component. Look at something with a time component.
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