It’s the time of year for reflection and resolutions. After putting about a month of thought into the exercise, I’ve landed on a few themes revolving around preparedness, agility and serendipity.
Invest in yourself. Do the things that can get you closer to your goals and dreams. It wont come from a brokerage commercial. It will come from preparing yourself , working hard and standing apart from your competition. You Inc is the best stock you can ever buy…if you are willing to do the work. —Mark Cuban
So the question you need to ask is simple: is your annual take home pay, after taxes, really enough for you to justify the status, albeit it potentially fleeting, quo? I’d argue for many of you that the answer is NO by a long shot. And you taking your paycheck and deluding yourself to think that this too will pass is dangerous and short-sighted.
In 2008, I split my investment between infrastructure, upgrading some equipment and skills (learning a little about the markets.) In 2009, the investments move more towards the skill side of things, as the scarcity of time and attention, and the value that can be created through focus and deliberate practice (pdf) point towards a greater ROI for your attention than for your capital, especially as we look to enter a long economic recovery.
Along these lines, my 2009 skill investments are:
Learn Objective-C and Cocoa development for the iPhone.
Create one screencast per quarter.
The learning has already started, thanks to the great Stanford Cocoa Programming course targeting iPhone development. I’ve tried in the past to get started with Objective-C and didn’t have much luck finding an easy path through the weeds; so far, this class looks to be a great guided tour balancing instruction with personal achievement. And it found me through Twitter.
As for screencasts, I learned in 2008 the power of a multimedia presentation style from Giles Bowkett. You may not like Ruby or programming, but his presentation at a Ruby conference is worth watching simply to understand how to win a crowd at the rate of around a slide every six seconds. Short screencasts, backed by transcripts and supporting materials, are to long term social influence for change as Twitter messages are to ephemeral, in-the-moment connection.
Building a decent screencast involves developing at least three new skills I don’t have. But thanks to the Creative Commons, it’s possible to start this learning from a much better vantage point than ever before.
Invest in Social Capital
Gary Vaynerchuk struck a chord with me with the insight that “social equity trumps private equity”. “I’d rather have a million friends than $10 million in capital,” @garyvee says. Seeing this with Twitter-era eyes, I don’t necessarily need them to be friends as much as I need them feeding the intake valves of my social filters so that the great ideas find me. Go long serendipity.
Being too small to fail means staying lean, not overcommitting, focusing on skills, finding efficiency of purpose, and looking for the highest return with what you have on hand and can build with your own hands. And in 2009, it also means survival, developing options and thinking about alternate income streams.
This is an ongoing process, and to be agile will require adjusting what it means to be too small to fail throughout the year. But for starters:
Get something in the iPhone App Store.
Follow through on a couple of StockTwits oriented projects I have in mind.
In terms of writing an iPhone app, I have no idea yet how much of a commitment it will take to complete even a simple one. If it’s on the order of a few hundred hours of spare time, I could pull it off. More than that, then it shifts more towards personal needs.
The StockTwits idea is simple (if not dull): make one trade a week based on ideas gleaned from StockTwits, and transparently document and blog the results. StockTwits seems to be proving its value to daytraders and swingtraders; this project would seek to answer the question of whether it can be used for gain by someone who can’t sit in front of a trading app during market hours. I have a chunk of my too small to fail portfolio to use for this purpose—with the extreme volatility of the last three months, I’ve managed to increase this small amount significantly, with some small props to StockTwits for help and ideas.
At scale, prognostication is a con game, and while we kid ourselves that the social filter makes finding gurus easier, simple probability says that in a million-voice field of 50/50 pickers, there’ll be one voice that through nothing more than luck hits 20 in a row, and there’ll be thirty who are sitting on 15-trade winning streaks on luck alone. What does that leave us with? The lesson is not to look at trades, but to look for ideas, the serendipitous connection that pushes you closer to your goals, whatever they are.
So in 2009, I’m going long serendipity, building social capital, developing skills and staying too small to fail.
Sadly, the short term monetary answer is “not yet”.
However, the long term answer from an educational perspective is “yes”. Because as obvious as it sounds, while StockTwits is great for idea generation, ideas are $0.008333333 each, and ideas are no substitute for doing your homework.
Case in point: I buy the premise of most of the folks I follow on StockTwits that commercial real estate is hosed in 2009. And the ticker that is most mentioned when determining how to play the plunge in commercial real estate next year is $SRS. Makes sense. Go UltraShort Real Estate if you want to dial in profits, right? All the cool kids are doing it.
The short version: these are horrible vehicles to hold for any kind of intraday trade, let alone as part of any kind of buy and hold hedging strategy. Go read those posts before investing in any double or triple ETF, or in any inverse ETF. As TraderMark puts it bluntly:
I am beginning to wonder if due to the structure if all these ETFs are destined for a near $0 price in the “long term”.
But is my use of StockTwits to blame here? Absolutely not. I plunged into $SRS trusting a premise and voices I agreed with, and even had one good short term trade on $SRS. I was the one who didn’t fully understand what I was investing in before jumping in. I was the one who didn’t read the prospectus. I’ve learned my lesson (and I’m stubbornly still long $SRS at cost basis of $97 and change). But here’s the happy ending. The very insightful blog posts above (TraderMark’s and Fortune8’s) came to me through StockTwits participants including Fortune8 and TradeFast. So I wouldn’t have learned my lesson without getting references to their more detailed analysis that explained what was going on.
My only regret is that they didn’t tweet that stuff in the beginning of December rather than at the end. The good news is that I’m up enough from my $AAPL and $AMZN trades this year that I can tolerate this $SRS pain as I look for an exit (take it now and treat it as tuition? Or hold it and hope for more irrational exuberance to take hold?) and look for a more suitable proxy for a commercial real estate collapse.
So in the end, I paid for a couple of lessons this year. In this one, I not only got reinforcement on doing homework, I also traded up voices I’ll listen to: Fortune8, TradeFast and possibly TraderMark (if this silent twitterer is the same TraderMark from the blog.)
My observation over the course of December is that StockTwits currently holds much more value for the daytrader than it does for the buy-and-hold investor, or for the casual intra-day trader. In fact, I’d say 95% of the value of StockTwits accrues to day traders. There was money to be made in $SRS this week by through the use of StockTwits, but to make that money required a day trader’s level of attention. One of my goals for 2009 (which I’ll detail later this week in a kick-ass post for the ages) is to learn how to exploit StockTwits in 2009 as a tool for someone who isn’t a day trader, someone with periodic, limited attention span. In short, A StockTwits User Guide for the Idiot Retail Investor.
The real story here is that NBC gets about four different things: first, as ad revenues fall, they get a cheap-to-produce air-filler. Second, and perhaps more importantly, they buy time. By locking up Leno, they prevent him from directly competing with Conan O’Brien out of the gate, and all but ensure that a quick Leno flameout marks the jumbo-jawed one as damaged goods for long enough to let O’Brien settle into the new time slot. Third, they get to keep Leno around as an insurance policy if O’Brien’s humor doesn’t capture an audience. Finally, Leno’s shtick has a short shelf-life, especially five nights a week in prime time; by forcing it to play itself out in a single-season overload, they can make it even more difficult for Leno to go elsewhere, as other networks won’t want to take on a broken format and a big salary whose career has no third act.
I don’t see much upside for Leno short of the money and the option of riding in to save the network should Conan fail miserably.
When the DJIA fell over the last couple of months from 14000 into the 7000s, one thing you didn’t see on CNBC was the “Curbs In” graphic, an indicator that NYSE had halted program trading temporarily due to excessive volatility. Why didn’t you see it?
Two reasons. First, in November 2007, the NYSE did away with the NYSE Collar (Rule 80A), the curb on program trading that kicked in when the NYSE Composite Index rose or fell 2% from the previous close. The NYSE cited the curb as ineffective in stemming volatility. Most of the time when you saw “curbs in” on CNBC, Rule 80A triggered the curb. As the curb applied to moves both up and down, you were most likely seeing it more often due to rallies than due to declines over the past several years.
The second reason you didn’t see the curbs in graphic is that the NYSE circuit breaker (Rule 80B) is far more difficult to trigger. In the event of a 10%, 20% or 30% decline in the DJIA, the rule goes into effect, halting trading based on the magnitude of the decline and the time of day the index crosses a threshold. If, for instance, a 10% decline occurs late in the day, trading continues. Other triggers can close the market entirely. And unlike Rule 80A, there are no curbs on the upside.
The rub is that the 10%, 20% and 30% declines aren’t dependent on the previous close—they’re dependent on the average closing value of the DJIA for the month prior to the beginning of the quarter. For Q4 2008, that was 11000, meaning that curbs won’t kick in this quarter unless we hit losses of 1100, 2200 or 3350 points.
So when the DJIA was scraping 7550, the market could have declined 14% and still not have triggered the curb.
Looking forward, let’s say that over the course of December, the average close of the DJIA ends up at 7500 due to more bad news and more de-leveraging. When the curbs are set for Q1 2009, the 10% curb will be at 750. Most of the huge daily drops over the last month have been in the range of 7% to 8%. If the DJIA gets to its 7500 average by lurking for most of December in the low 7000s and finishes strong at the end of the year at say, 8500, then rises a little more on New Year’s optimism to 9500, we could be in a situation where the same volatility we’ve been seeing (8-11% positive or negative days) could make it more likely to see curbs kicking into effect early next year, particularly if there are the kind of inter-week swings like we were seeing in October.
What will be the psychological effect of seeing a 750 point drop combined with a one-hour market halt to the average idiot retail investor?
UpsideTrader and Howard Lindzon see the CNBC Octabox respectively as a joke and a contrarian signal. The idiot retail investor, after a few months of routine 300-700 point changes sees a 750 point drop as old news. But trading halted, combined with a Deca-box of CNBC tools opining, AND a Curbs In graphic?
Chaos.
What I haven’t found a good source for is an estimate of the amount of de-leveraging that funds still have to accomplish, and whether or not the bulk of that is already done (or will be done) before the end of the year. From what I’ve read on the topic, it used to be common for program trading to take into account the effect of curbs going into effect, and adjust strategy accordingly; a number of times this fall, we seemed headed for 10% drops only to pull back at the last minute. Luck? Or could it be that no one really wanted a “markets halted” headline when they were sitting on piles of assets they couldn’t unload?
Regardless, most scenarios I can envision involve a negative feedback loop that involves continued high volatility and rallies that can’t be sustained. For the market to unwind in an orderly fashion, a buffer is needed. Since I’m a self-proclaimed idiot retail investor, I can make ridiculous predictions and look back at them and laugh. So my predictions:
DJIA curbs for December based on 8900 average (890 points)
Major January 2009 and February 2009 sell-off continues, finishing February at 7400
Minor March rally back into the 8000s, with a Q2 set of curbs set at around 790
If the conventional wisdom is that you wait until hundreds of stocks are hitting 52-week highs before getting back in for the next bull rally (figuring you can afford to miss the first 6-9 months of a true bull market and save yourself getting burned by these false recoveries in the meantime), then I think the earliest one can safely jump back in will be sometime in November of 2009, and very likely it could be February 2010 if the scenarios above play out. For instance, AAPL hasn’t closed above $100 since November 3; for most of September it was above $120, and barring any rallies this spring, it’s 52-week high will be $107 on October 1, 2009, but only $91.86 come November 15, 2009. And it will very likely be a leader in the rally.
Is this just a retail investor’s capitulation, and the rally’s already begun? Possibly. Meanwhile, I’ll be making quick in-and-out hits and keeping most of my powder dry until I see some real strength.
I don’t get a ton of traffic from search engines, but when I do, it’s entertaining. By far, the most traffic I get is related to my Tuesday Night Football post. And then there was that period of time when Joe Frazier swimming sent me rocking to the top of some keyword chart:
(You gotta love Johnny Bench being disqualified for “walking”.)
But the phrase that made me the happiest, simply knowing that some putz out there besides me has the words of Dick Enberg so indelibly etched in his brain that he must resort to Google to purge the demon echoes is that fateful line from Mattell’s Talking Football: “trap up the middle for ten uh oh penalty”. Such a dramatic turn—you were all set, had the trap play going right into your opponent’s prevent defense, it looked like you got the first down—and then you lose.
