← Gary Vaynerchuk, Meet Rose McCoy: A Spiel on Performance and Crushing It

This Market is Like 10,000 B.C.: StockTwits for Idiot Retail Investors Week #9 →

Postmodern Investing: StockTwits Experiment Week #8

March 1st, 2009 | $srs bby FAS INTC investing ma postmodernism stocktwits

In this week’s StockTwits for Idiot Retail Investors, I wanted to talk about postmodern investing.

Louis Menand had a great review of Donald Barthelme’s writing in a recent New Yorker. Early in the piece, Menand gives a lesson in the two meanings of postmodern. The first meaning of postmodernism comes from the belief that “modernism won” (i.e., “mission accomplished”) and that a postmodernism movement is a declaration of victory. The second meaning comes from the sense that modernism is over, and we’ve moved on to something entirely new.

I thought about these definitions quite a bit with regard to the market and the economy. In which sense does the whole investment ecosystem rising up around social utility services such as Twitter, StockTwits and disqus feel postmodern? It’s not as easy an answer as it seems.

First, we need a definition of what modernism is. I’ll define modernism in investing as the disintermediation of layers and the reduction of friction between investors and markets. It started with Schwab and the rise of the discount brokers, continued as discount brokerages drove down transaction costs, the progression in access to data from the Wall Street Journal through O’Neil’s Investor’s Business Daily and Bloomberg terminals on through to the AOL-era Motley Fool and Yahoo Finance, fueled by the market of the 1990s, cresting with the internet bubble.

Given that definition of modernism, you can think of postmodernism (in the first sense of “mission accomplished”) as what’s going on when social networks and investing intersect. Schwab began the disintermediation of the broker, the internet continued the process, reducing friction, the intersection of advertising models and the internet disintermediated access to market data, and sites like the Motley fool disintermediated the need for paid analysts and blew up the mystique around mutual funds. Modernism won, and now it’s time to see what’s next.

The second sense of the term would indicate that there’s something beyond that modernism, that what’s going on with social networks is truly something different, that it’s not just a continuation of those initial changes.

My take is that the first sense is a better fit. As transaction costs have fallen, and information has become more free, the last pillar is the demolition of the illusion of expertise.

What struck me this past week, reading the wide variety of wisdom available for free on the internet, is that the notion that anyone can charge for a newsletter or trading model or any kind of educational material for any significant period of time is over. Blogs and crowd-sourced financial services provide for free what paid portals and paid expertise did in the past.

Over on Gregor Macdonald’s site, I put it this way:

E.M. Forster: “How do I know what I think until I see what I say.” Your last sentence seems to convey the same sentiment.

I have a blog post that I’m working on that proclaims the death of the newsletter. My basic theory is that as more voices emerge, for every paying newsletter writer, there will be 10 up-and-coming analysts giving it away for free to make their marks, devaluing (in the long run) the paid analysts. This cycle will repeat, and names will continually turn over. The social filter will replace the editorial filter; there will still be value in finding the new and relevant voice instead of relying on the previously relevant established voice.

The good news is that the right voice at the right time, properly amplified, can capture value for the content creator, but only for a limited time before circumstances and competition displace it. The numbers are against any single content creator having a long run.

What may happen then, if you can’t amplify that value into other venues (e.g., books, paid media appearances), is that your last observation in the post also becomes the primary value to you, the author—that the clarity of thought of working in the open results in the production of personal clarity of action, and you end up profiting far more from the direct use of your better (and more honest) thinking than from selling it.

And that evolved into the eventual conclusion I posted the other night about the free content creators and people like Gary Vaynerchuk having to move from just producing the ideas to becoming the performers that amplify their free content.

With Cramer launching his VIP service, you see him on the wrong side of it. He’s a performer who has amplified to 11 who’s now running in the wrong direction. Instead of giving more away for free and focusing on amplification (can Cramer really go to 12, one higher than 11?), he’s attempting to cash in directly on his voice, which I guess is all a fading star can do. It’s time for some turnover. That voice has run its course.

When it comes to learning about investing and where to invest at any given point in time, cost-effectiveness for the consumer comes down to whether you can learn—and I mean actually learn—these lessons better and in less time from a course or subscription or book than you can from any of the bloggers and tweeters giving it away for free.

The challenge now is how to deliver the best stuff in a way that reduces the cost for the consumer. How do you quickly find the good stuff? We’ve got the reduction in friction on sharing ideas, we have crude tools for filtering, but how are we going to ride the wave and find the ever-changing set of experts?

StockTwits is one tool that can help…but there are others out there. If you’ve got any kind of entrepreneurial itch at all, you’ve got to be thinking about these postmodern investment problems and postmodern investment tools and opportunities that the StockTwits ecosystem is enabling.

Exciting times.

Week #8 Trades

Three trades this week. On Monday, I got averaged down on INTC July $17 calls, bringing my cost basis down to a little over 35 cents. I had a limit sell of a portion of the overall position which partially filled on Thursday at 0.50, for a 40% gain. My current INTC long position in the calls is about half the size of an average unit, and I may try to average down again as it gave back a lot of the gains this week.

On Tuesday, I established a small position in SPY September 64 puts which were up and down over the course of the week. I tried averaging down during the rallies, but didn’t get my price, so I’ll stick with the small position.

Finally, on Wednesday, I flipped FAS for 10 pennies, in a wild ride. On the short term chart, I bought in as it started to break out at 5.55, held it as it went to around 5.67, then rode it down to the low fives where I just about got stopped out, and finally settled for a 10-cent gain (even though later in the day it could have been a 50 or 60-cent gain.) Once again, messing with financials, day-trading, but learning. Unlike past failures, I did show a little more discipline here, but instead of an “F”, I’d probably grade my performance on that one as a D+.

Other Positions

I still have NDAQ and BBY puts that are slightly profitable, although I had sells in for those that didn’t fill during the week.

I should have sold my failed MA puts when the stock dropped early in the week, but didn’t. I’ll most likely punt those this week and chalk up the big loss.

Still long SRS, which I will most likely kick part of this week on any spike up. Since this has been my primary hedge (for all the wrong reasons) during January and February, I’ll need to replace it with more SPY puts once I take it off.

And finally, I still have a long-running BBY short that I’m about to give up on due to the stock’s strength during the turmoil of the last few weeks.

Viewing 7 Comments

    • ^
    • v
    I use payed newsletters and free blogs. Looking at this in terms of ideology is dogmatic. Remember, it's not about philosophy, or sociology. It's about making money.
    • ^
    • v
    It's okay for pay for performance, audited performance. The problem lies in services that starts as a hype and remains a hype - nothing more and nothing less. Next, what values do the services provide that you cannot already easily obtain.

    Providing recommendations is easy. I can do that. The more difficult part is trading the same recommendations. Hence, eating your own cooking.

    Trading is not difficult if you dedicate the time and willingness to learn.

    There are plenty of free resources out there and plenty of mentors.
    • ^
    • v
    Auditing is important.

    I suspect that sustained performance is difficult to find and achieve, and that who is relevant at any given point in time changes. If someone happen to catch market conditions where your skill is strong and you have a knack for self-promotion, then converting that luck into another revenue stream as the context changes out from underneath you is important. A permabear is useless during a bull market, but when the tide turns, they may be a great student of how things go bad and therefore may be much more important to listen to. Yet as the context changes, that voice that is now the loudest is far less relevant.

    The question is how to find voices that fit the context that you might be investing in at any given point in time.

    At the end of the day, it is perhaps more profitable to be a student drawing from the best of a variety of teachers (each relevant for a variety of contexts) than it is to be a teacher who might be tempted locked into a particular context and ideology. Agility triumphs over ideology.

    As for eating your own cooking--great point. Cramer and the typical CNBC pundit would be far more credible if they were allowed to trade and tout all they want but only if they were willing to lay bare their entire trading history in return for this freedom.
    • ^
    • v
    Yes, Cramer realizes that he can make a lot more money, and be a lot less accountable, by just making recommendations. He is especially aware of this since he used to run a hedge fund where he had to actually take responsibility for his recommendations/trades ("eating his own cooking"). When he's wrong about some pick, people tend to forget, but when he's right, CNBC and Cramer never let you forget. Of course this is what makes something like StockTwits exciting, since you have people laying bare their trading soul for all to see. It will be interesting to see if any of the tweeters on StockTwits are able to monetize what they are expressing now for free by "amplifiying" their message and, if so, how they are able to accomplish this.
    • ^
    • v
    What I'm struggling with tonight is the difference (and relationship) between a site and ecosystem like StockTwits and its bazaar of independent voices vs. the more trusted and walled-garden approach of Covestor.

    I hadn't really explored Covestor much until tonight and was pretty confused to see a penny stock trader like Timothy Sykes up 2000% in the last year at the top of the leader board. Then you find out he's trading with around a low-five-digit account, yet is pulling in $50K-$60K/month from his site, which ends up being about 10x his trading profits.

    I'm one to believe that filtering the unwashed masses triumph in the end and that while Covestor removes the transactional and data-entry friction, it introduces a lot more psychological friction (in terms of linking your account, deciding to share your trades, etc.) But seeing a penny stock trader and chronic self-promoter winning over there falls into that "too good to be true" category that doesn't seem to do either Covestor or Sykes any good to have atop the leader board.

    It will be interesting over the next year to see if StockTwits ends up as part of someone's walled garden, or if it stays true to the crowd-sourced roots and a series of related services spring up that are perhaps less "trusted" than Covestor, but maybe more practical and useful to the unwashed masses.

    I don't bet against the internet, ever, and therefore I'm in the StockTwits camp for the long run. But if you truly believe that verifiability will be the determining factor for the winners, then no matter how much insight passes through StockTwits streams, it's going to be amateur hour compared to Covestor.

    (What really intrigues me is what percentage of StockTwits users are on Covestor, and for the ones who aren't, what are the reasons why they're not?)
    • ^
    • v
    Even Covestor is not fool proof because most traders have more than one account and not all accounts are on Covestor. For my family, I trade 8 different accounts. I am wary of the cheer leader traders who doesn't attach a price to the trade and always seem to have winning trades. Seriously, how difficult to say you bot POT at 75.80 versus bought POT? One is verifiable and one is not.

    I think when a room gets crowed, the quality diminishes.
    • ^
    • v
    I agree on the multiple account thing. The dimension that Covestor and StockTwits miss is the trades in the context of overall risk profile. Trading aggressively with 1%, 5% or 25% of your net worth and winning are different animals, and even if the trades are published, you're lacking vital context. I've had some success with a portion of my portfolio, but hesitate to share or advise others because my risk profile is likely to be completely different. Sykes hanging his hat on a $12K stake yet raking in 60x that annually from other services seems completely irrelevant to me. It's like Immelt buying 50k shares of GE...meaningless.

    On the crowded room: I've seen two communities that originally offered a lot of value in the early days completely get overrun within a two year timespan. I fear for StockTwits reaching this same point. However, the chance of that is lower because the value is in the relationships established--even if it turns into a noisy channel, I have about a dozen good voices I can turn to which will survive whatever happens. The relationships cross-cut the actual service itself and are portable.

    But I've seen an uptick in spam followers recently (e.g., people who are following 8000, followed by 8000) who have almost no value to me. Following more than 400-500 or so is almost a guaranteed no-follow; their motives are elsewhere.
 
close Reblog this comment
Powered by Disqus · Learn more
blog comments powered by Disqus