I’d guess the latter is the bigger factor. I’m pretty sure the research shows that the worst-performing individual investors are those who try to time the market and/or make trading decisions based on emotions.
Exactly, quite the contrary. I play without the expectation of winnings because it’s fun. I invest to achieve financial goals, and the best way to do that is to invest in a diversified low cost portfolio, not playing pick 'em with stocks.
I’ve often wondered about an anti-Cramer ETF. That guy is ALWAYS wrong.
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Master of the dump and pump.
I mean there are more than 5,500 stocks available to me through my brokerage and nine or 10 fit the bill right now. They share some similarities but the reasons they’re priced the way they are can vary a ton.
Is 0.20% a systematic mispricing? To me it’s more like they fell through the cracks.
Take APT for example. I bought them today for $4.55, they have a market cap of about $60M. They make building supply products like house wraps and roof underlayments to protect from the weather during construction, and they make some PPE for industrial or medical use.
They were trading at about $3.50 at the end of 2019, and $6.72 at the end of January 2020 as they were doing share buybacks. They announced they were going to start making N95’s on top of their other masks on 2/3/20 and they shot up to over $20 a share in a few weeks, and repeated this feat on two separate occasions during the pandemic because they were selling a ton of masks.
Their annual EPS from 2013 through 2019: 0.11, 0.15, 0.06, 0.19, 0.18, 0.26, 0.23. In 2020 they did $1.94, and in 2021 they’re at 0.45 through Q3 and haven’t reported Q4, but the forecast is about 0.06 to bring them to 0.51.
Obviously they were never worth $20 a share. A bunch of people just bought them cause they sold masks, didn’t do their homework, and drove them up dramatically.
However, they ARE worth more than they were worth before the pandemic, because they got what amounts to a cash windfall of $1.80 to $2.00 per share, which they plan to use for share buybacks. Further, new housing starts are significantly higher now than they were in 2019, so there’s a case to be made that they’re worth more than they were worth then even without accounting for the windfall.
I think a somewhat bearish expectation for them is annual earnings around $0.20 to $0.25 with slight earnings growth, so I got a company below book value, with a fantastic balance sheet and strong financials at a forward P/E of 18 to 23 that’s about to do a share buyback. If you subtract the cash that’s going to end up being returned to shareholders from the share price, you’re looking at a forward P/E of 10 to 14. Historically, pre-covid, they traded at multiples between 11 and 21.
A bull case is that their business could grow quite a bit due to the new housing starts being up around 20% versus 2019.
An unlikely but not impossible catalyst for an even better return would be a government contract to make masks in the next year or two. They got one from the US in 2020, so it’s not out of the question if the Biden administration decides to give away more masks in a future wave. I consider this extremely unlikely, because the major companies have ramped up their production, so I didn’t factor it into the valuation, but on the off chance it happens, the same clowns who drove it up to $20 a share before might send it in that direction again.
Was this a systemic undervaluing? I don’t think so. I think it’s a microcap stock that the institutional investors won’t even look at. I think that for the last couple of years most of the people buying it and valuing it did so on the premise that they were a mask/ppe company, when in reality they are primarily a building materials company that also sells some PPE. As a result, when the PPE sales dried up, they were undervalued due to the oversight of most of their (new) investors, and now they look like a great value stock.
On the other hand, one of the companies that came up through the screening process was a mining company that gets over 95% of their value from a mine in Zimbabwe. Zimbabwe has a track record of seizing property/resources from foreign companies and nationalizing the resources, and the government is going through some financial crisis as you would imagine due to COVID. So there’s a significant chance that happens to this mine. They look great by all the numbers, but I don’t have the slightest clue how to price the risk of nationalization. It’d take the stock from $11 to somewhere between $0 and $2 (they have some cash on hand, they own a couple other mines they are developing, but one of the others is also in Zimbabwe). So in theory it’s a simple math problem, just factor in the percentage risk of nationalization.
I don’t have the first clue what that percentage risk is, and couldn’t begin to guess, so I passed. Graham would have bought it, but he had 30-40 of these stocks available to him at a time (probably way more early in his career) and could just buy them all, take on all the risk, and fade the losers through diversification.
Another one I looked at is a subsidiary of a corporation that’s about to stick them with $2.3 billion in debt that isn’t rightfully theirs, in order to clean up its own balance sheet. Their market cap is $3.74 billion and while it theoretically should be more, I wanted no piece of that because even if I can factor in the $2.3 billion worth of fuckery, I can’t factor in that kind of ongoing mismanagement.
You can’t trade with donks, you trade with algo hedge funds.
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we’ve seen their results, same thing
He’s like this evil corporate shill, but he’s also a bit of a lovable loser. I’d love to have a beer with the guy, on one condition (I’ll get to that). Like every now and then he stans for the working class and the little guy. Rarely, but it’s endearing on those rare occasions and you can kind of tell that’s what he really thinks but he’s just a sell out.
The one condition would be that he has to stay put for like an hour so after a few minutes of friendly chit chat, I can just lay into him about all of his ills without him being able to walk away.
Depends what you’re trading. I’m pretty confident I’m trading against donks on APT. Another thing about these hedge funds is that a few important factors come into play:
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Success makes future success harder. The bigger they get, the fewer returns as a % of AUM they can get off the same-sized opportunities.
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In many cases the people making the decisions are incentivized to gamble. If I’m getting paid 2 and 20, and it’s September and I’m in the red 10% and expect to see a lot of my money walk at the end of the year if I don’t turn it around, I don’t care if I end up down 10% or 40%, so YOLO! Obviously if some/a lot of the managers own money is in the fund, that changes things.
Like I’m some combination of dumb/arrogant/curious/smart enough to think I can beat the markets with the types of trades I made today. If I crushed the markets for five or 10 years and somehow billionaires found out and someone came to me and asked me to start a hedge fund with them and start with their money, obviously I’d take the money and take a shot at it, but I would be about 99.9999999999999999999% sure I couldn’t beat the S&P running that kind of money for too long, because the profitable opportunities just wouldn’t be available at that size.
But there would be virtually no downside for me, and if I luckboxed and ran hot for a year or two and beat the market, that would be sick. If I failed to beat the market but still generated returns, that’d be fine too. I’d get fired but I’d still make a nice chunk of change.
(Edit: I’m not saying this is something I think there is any chance happens to me, I’m illustrating the thought process of the people who get a shot to run hedge funds and how the “succesful” ones are probably mostly just luckboxes.)
I wish I could buy tik tok stock on the Melkerson theorem. It is so good.
I’m pretty sure the stonk advice I have heard most frequently is to buy what looks cool or looks like is selling well as you go about your life. It isn’t his theorem.
I wanted to buy it like a year or two ago. Gary Vee is the man when it comes to social media stock picks. He was early on FB, Snap, and TikTok - just that last one wasn’t really investible. I haven’t seen him miss a big call on pop culture/social trends. He called sports cards and NFTs way early, too.
I bought a tiny bit (like I took the free money Robinhood gives you and bought SNAP) because of him, should probably sell it now that it rebounded a little. The idea in that account is to take the free money, gamble with it for 30 years at random times while I’m on the phone, and hope to turn it into a nice vacation when I’m 65.
They gave me $27 in free stocks, and I’m currently at $48. I think I was over $100 for a while, it’s such a shitty app the chart for your portfolio doesn’t have any Y axis numbers.
Got SNAP at $17, so if I bail next week it’s still a decent return. Just have to find the next yoloooooooooo move. The vacation or bust project is definitely more fun than whatever app game all the kids are playing these days.
This approach is commonly attributed to Peter Lynch.
I mean, in theory, it’s a great way to find ideas and then research them. But you’ve got to remain objective. Lynch was considered a value investor, so he was still looking at the balance sheets and earnings.
I do think that it is theoretically possible to have edge using just that strategy and little/no analysis, if and only if you are really good at spotting that stuff before others do. Reason being, most retail investors invest that way. So if you notice it six months or a year ahead of them, you can buy it and then pass the bag to them later when they start driving the price up.
But in order to actually have sustained success that way, you would have to be absurdly naturally gifted at identifying stuff consumers will like. I imagine we all get one or two opportunities like that in our lives through sheer happenstance. My Halo Top example would be a great one, if only they were publicly traded. But I would imagine that the number of people who could successfully do that on the regular, in a country of 330M, is probably < 500, and even that feels generous.
i swear i saw something on twitter about this. or maybe it was anti some other famous stonk donk
Fun’s over, says Bloomberg …
Adults Back in Charge of Stock Market as Fed Awakens Big Money
ByLu Wang
February 5, 2022, 8:15 AM EST
Institutional investors are striking back in stocks, upending the brief and kooky reign of the retail day trader.
So says veteran market-structure analyst Larry Tabb, citing a panoply of evidence including volume on legacy venues like the New York Stock Exchange as well as the quickly swelling value of shares changing hands each day in equities. Data from Morgan Stanley found big-money investment houses bringing increasing pressure to bear on the futures market, while prime brokerage data showed hedge-fund selling drove the selloff in speculative tech at the turn of the year.
Oh I feel so much better now.
this is my wild ass guess, but amazon isn’t invested in rivian for the market value. they might want the stock to get beat up and take it over for the IP alone. current profits are nothing compared to what amzn could do if it deployed its own electric trucks through its logistics business. this basically happened with a lot of their acquisitions. they sank so much money into prime video content, there’s no way to make it back on that content alone. but it helps their future content, and integration with twitch/fire/audible/etc.
something to think about, consumer is sitting on more money than they have in years. maybe decades.
Speaking of: