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Stock Squawk 🦜 - Investing or Gambling

Stock Squawk 🦜 - Investing or Gambling
By Parrot 🦜 • Issue #18 • View online
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Investing isn’t gambling. YOLO'ing on a hope & a prayer is not investing (or trading).
That said, there ARE shades of gray….
Investing
Investing isn’t gambling. You’re buying a piece of a business. You’re an owner. You should approach investing as an owner.
If you owned (or own) your own business, you wouldn’t care how much your neighbor would pay to buy it from you on a daily basis.
What you would care about was sales, revenue, expenses, profit, etc.
When you’re buying shares of a business, stock price is important. Once you own those shares, you own a piece of the business, and unless you’re planning to sell, the stock price is irrelevant.
Try to focus on the things that matter to an owner. Are “we” growing: market share, revenue, profit, etc…
Swing Trading (Light Gray)
If you’re swing trading, you’re likely looking at a short term disassociation between the stock price & a companies perceived value.
The thesis usually assumes the market always over reacts, and trading off the extremes in price can be very profitable.
It’s important to remember, you’re still invested (an owner) in the company, even if temporary. Knowing the companies fundamentals, and trusting their execution, is still an important part of swing trading, even if that isn’t your primary focus for investing.
The March 2020 Covid19 dip was a classic opportunity to swing trade many positions. Going into the summer of 2020, I made some nice profits on $CCL & $MGM among others.
Day Trading (Gray)
I hope I don’t offend any day traders out there for calling this “gray”. There is definitely a TON of work and skill that goes into being a successful day trader.
But similar to a professional poker player, it rides the line between gambling and investing in that it’s risking money on the known odds, and being disciplined in making the correct decisions based on those odds & statistics.
The volatility in China has made for some nice day trading opportunities in the past few weeks. I’ve successfully traded $BABA 3 or 4 times the past two weeks, but still a lot of risk for a longer term swing trade at this point in my opinion.
Speculating (Dark Gray)
Buying a potential bottom, before you actually see the bottom. Buying the IPO of the next hot tech company at a sky high valuation. Buying just about any SPAC. LOTTO options. A lot of micro-CAPS. And nearly all Genomics plays. (Okay, I’ve probably offended the rest of my readers by now) 😂
I’ve done all that (and more). But if you’re speculating, you absolutely need to practice risk management. No matter how confident you are that you’re right, you will be wrong. Maybe not the first time, or the second, but eventually you will have gotten it wrong. So position size is key.
To me speculative plays are a bit like Blackjack, it’s a gamble, but there are also some statistics that can help keep it an even playing field, and if you’re good at counting cards, you can make a lot of money.
My friend @Drowsyinvestor and I like to call it “Broken Clock Investments”. For me that means “because we’re always right sometimes! 😏 And really, that’s all you need to be right if your positioned correctly”. Drowsy takes a slightly different view “When the clock is right, it can change your life” ❤
We both agree, when speculating: Remember if the investment goes bad, a little is all you want, and if it goes well, a little is all you need.
I was speculating when I bought $MGNI @ $6 and $UPWK @ $13; amazing returns.
But I was also speculating when buying $ATER @ $11, $DMTK @ $66, & $SKLZ @ $17; -50% for the first two and -25% for the last. Interestingly 2 of the 3 could have been closed for large gains if I would have taken profits along the way. Poor risk management on my part for 2 of them, and borrowed conviction on the other, had me paying the price in the end.
But to the above point, of the 5 tickers mentioned above I had roughly the same starter investment in each (the 3 losers actually had a slightly larger allocation). Total gain: 55%
YOLO! (Black)
If you’re doing any of the above outside of investing in an Index or ETF without a plan, with no due diligence, with no understanding of the investment… you’re gambling.
If you bought $AMC because your buddy bought it, you’re gambling.
If you bought Dogecoin or Safemoon because everyone is buying it, you’re gambling.
If you give your money to a money manager or fund with no research or understanding of their strategy and philosophy, I hate to break it to you, but you’re gambling too.
This is not a knock on anyone. A lot of smart people gave money to Madoff. Some prominent investors have mentioned owning Dogecoin. The point is not to stop these investments, but to recognize what they are, and allocate accordingly.
If Elon buy’s a million dollars worth of Dogecoin, that’s 0.000006 of his net worth. So if you have $100,000 invested, by all means, throw down $.60 on Dogecoin.
Summary
I believe a long term strategy can have a blend of all the above.
There used to be a rule of thumb, based on years to retirement, that suggested what percentage of stocks to bonds you should hold in a portfolio. Although outdated in my opinion, you can take that same concept and apply it to multiple investment types (such as the above).
Just be honest with yourself. How much do you know about your investment/trade? Did you put in the research? If it drops 50% tomorrow, are you selling or buying more.
Take that knowledge and allocate accordingly. My highest conviction position $SE is pushing a 20% allocation in my portfolio. My LARGEST speculative position is less than 1%.
Be cautious when you see people posting big dollar buy’s of a stock. You don’t know if that’s an investment, a trade, or just a gamble. And you have no idea what the associated risk is to their account.
For example, when Elon throws down $1 million on the next crypto coin, you may think that’s a high conviction play when it’s more likely a fun little gamble for him. It’s $.60c to him, he could care less if it goes to zero.
Develop your own thesis, understand your own risk tolerance, and invest/gamble accordingly.
Weekly Portfolio Update
Weekly summary
If not for $UPST & $SE, last week would of been brutal. Luckily they both over delivered, and the stock prices were rewarded. The two pretty much propped up the rest of my positions that continued to drift lower.
Even green days didn’t feel very exciting. The dog days of summer are upon us. While a few large caps continue to prop up the whole market, the small and medium caps can’t seem to get a bid.
On the bright side, there are a lot of attractive prices out there, and when small/medium caps come back in favor, there should be a lot of room to run.
Trades
  • Opened $KBNT (50) Feb18 2.5C, will look to swing on a small cap rebound.
  • Opened $MGNI (10) Mar18 30C, sell-off on great earnings, expect a rebound with the rest of mid-cap.
  • Opened $PLTR (25) Jan21 25C, It’s due a breakout between now and next earnings IMO.
  • $BABA swing; closed for a small profit before the dump on Friday. Probably staying away from China for a bit… Probably
  • Tried a couple of $ARKK & $ARKW intraday hedges that didn’t really work out too well. They were both ill timed, and were stopped for a loss.
Additions
  • Added 500 shares of $PUBM (puts assigned, I took the shares)
Sold
  • Closed $UPST on the pop above $200 & the note offering. Booked gains in case the stock faded. It’s holding up pretty well so far, and I will consider adding back on any significant dips.
  • Closed $WIMI; my last China stock. As much as I love the opportunity, it’s just too hard to get information on them.
This Week
I’ve been over trading. Trying to hedge every loss, catch every dip, and time the bottoms & tops of every position. Maybe from a lack of trading the previous week, last week went to the opposite extreme.
This week I’m going to try and slow down and focus on quality over quantity. We’ll see how it goes.
Also, have a couple of travel days coming up for an out of town meeting on Wednesday. So I will be out of pocket a little more this week. For the newsletter readers, you guy’s get first warning to fire up those travel hedges 😉🤣.
Next Up!
Drowsy and I are working on a collaboration, but if it’s not ready, I’ll have something for you next week.
As always feel free to shoot me a message on topics or companies you’d like to see in a future issue. 😊
Where to Find me ...
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Thank You!
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Have a great week! 😊
Until next time! 🦜
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