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StockTwits for Idiot Retail Investors: Week #1

Okay, one week into my StockTwits experiment and two trades closed out.

Closed out about half of $NDAQ exposure

First, despite @alphatrends‘ chastisement expression of concern (see my mea culpa for why chastisement was mischaracterization) in last week’s comment thread about not paying close enough attention to his reportage, I managed to turn that failed trade into a good trade by selling all my $NDAQ put options on Thursday’s drop for a ~24% gain. In at cost basis of $2.47, out at 3.10.

The funny story here: I got props from @howardlindzon for the trade, but he said it was too early, teenager:

Only I spent half the day incorrectly thinking he was calling me a teenager. I prefer grasshopper. Or idiot retail investor. I was chagrined. Damn, I missed the insult @howardlindzon day earlier, when I wanted to give him crap about his inability to use apostrophes appropriately in his tweets, and here he was, bagging on me bailing out too soon. Schvitz-behavior-critiquing mofo.

Then I realized about lunchtime that he was talking about $NDAQ as being a teenager (meaning: eventually trading in the teens).

God, I’m a dork.

So I’m still sitting on my $NDAQ short with a cost basis of 23.50. I tried closing it out Friday at a $21 bid, but it didn’t hit. I’ll let this one ride, teenagers.

Sold Some $SRS Premium

Okay, this one worked out—sorta. I sold calls on half my $SRS position. The half (lol) with the $60 cost basis. $70 calls at $1.95 premium. My overall cost basis is $86, so if this gets called, I’m okay (although my cost basis will rise on the overall position to $101 counting these profits.) Not a huge position, so not a lot of premium, and not a lot to write home about.

The one thing I heard this week that intrigued me (on NPR’s Marketplace): commercial property owners are proactively giving retail tenants lease discounts in order to keep them as viable lessors. One example was a top-down mandate to a commercial real estate concern to slash in-progress negotiated leases by 20% to try to keep the retailers from folding. I’m not smart enough to know the best way to play this. It seems like there’s some long-term arbitrage opportunity here. It feels like this is a case of “we all go down together” and the play is to short $RTH and go long $SRS, but I haven’t thought through the game theoretical issues here. Intuition says that it is $SRS that gets hosed no matter what. They lose either way. They give concessions, and margins go down; they don’t, and retailers bail and close stores and they hurt. So despite being way underwater on my $SRS position, I’m liking my 5-6 month chances on turning this one around. The commercial real estate industry is panicking, and they’re counting on retailers of all people to save them. Show me some consumer sentiment and I’ll cover.

In other news: $COST, $AAPL

I just about covered my $COST (Costco) puts this week. They’re good to the tune of about 22% on paper, after Wal-Mart’s fade on Thursday. I’m letting these run a little bit more. While I haven’t disclosed position size yet on any of these trades (waiting for some of last year’s trades to close out before setting that up), if $COST drops to around $48 this upcoming week, I will bank a 45% gain on the puts and the profit will be roughly equal to my $NDAQ put sale this week. This is about 11% of my trading account (and the trading account is in turn is about 16% of my overall brokerage position), so you get the sense of how I view a lot of these trades as tuition in my learning process. In the big picture, I’m trying to stay too small to fail.

I’m still negative on $AAPL with the puts (April 80s at 16.86 cost basis) despite my household buying four $AAPL products over the holidays to the tune of about four grand. Win or lose, I’m going to need to close out this position soon due to the time factor. Right now, I’m down about 6%. While in the long-long term I’m bullish on $AAPL, in the short term I believe it is range bound between $80 and $100, with all the trends pointing to it hitting $65-$70 before it hits $110 (based on lack of transparency around Jobs’ health status). If you’re buying stock for your kids’ college fund, go long. If you’ve got a 12-month time frame, short it north of $90. They have quality management, they have an incredible coherent strategy and management team (second only to $AMZN), but they have the problem in 2009 of a down economy (which will cause them to hold back major innovations) and the doubt around Jobs health. At some point this year, all the bad news will be out (it’s not yet) and AAPL stock will fall and then you can safely load up. Just not at $90. (I expressed similar sentiment in the comments over on Fred Wilson’s blog, with additional info on $GOOG. Great post and comments all around.)

On this trade, the time factor is getting me, so I will look to cover soon and will take whatever profits I can find should it drop to the $85-$86 this week. Hoping for lots of volatility prior to expiration.

What I’m Watching This Week

If you want my play of the upcoming week, it’s going to be this: let’s assume that $PALM ascends another 10-20% Monday/Tuesday based on the announcement of its new Pre platform. And let’s say that $AAPL falls 5% because folks think it’s a zero-sum game and the iPhone is hurt because of this. Then then trade is to cover your $AAPL short on the dip and immediately flip into a $PALM short (or put) situation. I know jack about technical analysis, so I can’t tell you about support, but I sure like $AAPL’s management over $PALM’s, and it should be pretty straightforward to know who the platform winners are going to be. $AAPL and $RIMM we still talk about in a few years; $PALM is just delaying the inevitable. There’s maybe only a 1 in 5 chance this will happen or that I’ll actually go through with the trade, but it’s one thing I’m watching. I like to trade overreactions and irrational exuberance, and any love of $PALM to me oozes irrationality.

What I Owe

I really need to give you the blow-by-blow of my September through December experiences in the market (including my schooling in $SPY and $USO calls), as well as the long-term history of my trading experience and use of online intelligence sources. I’ll sneak those in as posts over the next couple of weeks. It’s important background if you’re trying to judge whether I’m a voice worthy of catching in your filter. And since my day job makes being a day trader (with the requisite attention span needed) impossible, I’ll detail how I trade with a limited attention span and time.

Who I’m Tuning Into

This week I’ve begun to follow @alphatrends blog more carefully, as well as @fortune8 (appreciate the rationality of another part-timer) and @BuyOnTheDip (because I’m bearish as well). Haven’t decided yet on @mandelbrot though—love the art but not sure I can read the correlations between free text tweets and stock prices.

One of my resolutions for 2009 is to figure out how to make better use of StockTwits as a tool for the part time intraday trader. I realize it’s pretty ludicrous to be using what amounts to a day trading tool for a strategy of intraday trades in this kind of market, but my intent is to learn. In fact, when your blogging ad revenue is measured in the millicents per year, the learning is the only thing of value you can glean from doing this in the open.

My going in premise on 2009 is that we’ll see a shallow rally of the S&P 500 to about 1000 on low volume, followed by a continued fall throughout the year to around 770 and possibly lower. I’m more inclined to follow through on ideas that I come across which fit that philosophy.

I’ll try to post once a week on the ideas that have caught in my filters, and the trades that resulted. As we stand before the first full trading week of 2009, I’ve inherited a number of StockTwits-inspired trades that I need to close out before I can fully embrace the one-idea-per-week goal for the year.

The current open positions (and the source of inspiration):

Short NDAQ

I entered this in stages. Short NDAQ common at $23 and $24.50 for a cost basis of $23.50. Long June $20 puts with a cost basis of $2.47.

I found this one via @alphatrends’ post. This was probably a bad idea—the theory really makes no sense from a Madoff perspective, but may pay off if my bearish sentiment is realized early in 2009. As with most of my options-related failures, the timing is key. In the fall, timing mattered little when there were DJIA swings of 1000 points in a day; now that swings have slowed down, timing matters more.

Selling SRS January premium

I’m trying to sell some premium here on my open $SRS position at a basis of $86. Selling a January $70 call tomorrow on any early pop.

$COST Puts

Found this one in two places. While I don’t believe that the payment form limitations cited by @BuyOnTheDip will prevent people from shopping there, I do buy the EarningsBreakout channel check that people are going to focus on staples rather than on premium electronics. Therefore, I’m going short with the puts. Long the July $40 puts with a cost basis of $2.10.

Short BBY

Went in to buy an iPhone this weekend. They were out of what we wanted, so we left. I can’t decide if that’s a good channel check or a bad one, but it signals to me that they are retrenching. Short the common with a basis of $26.45, and also sitting with June $20 puts at $3. Not looking so good with $BBY up to $30 today.

Long $AAPL April $100 Puts

Cost basis $16.86. I still hold that $AAPL is range bound between $80 and $100, so this is sort of neutral. I was simultaneously long and short last week, but closed out my open call positions. I have a tight leash on this into a rally. I may have to hold this until the post-show return to earth.

So far, only the $COST move is in the money. As I close out one of these others, I’m scanning for other opportunities. And trying to stay too small to fail.

If I didn’t mention it before, this BuyOnTheDip tips for 2009 post rocks:

Read it here.

I can only hope to strive for such discipline.

A late day rally and gains of around 5% on 12/31 in both Buffalo Wild Wings (BWLD) and Berkshire Hathaway (BRK.B) propelled me to second place in the 2008 Family Stock Picking Contest by the thinnest of margins.

Berkshire Hatha Class B Ord Shs	-32.14%
Mindray Medical International Ltd	-57.27%
PowerShares Water Resource Portfolio	-32.57%
Buffalo Wild Wings Inc	+10.47%
Mueller Water Products Series A Ord Shs	-10.71%
Central European Distribution Corp	-66.08%
Cognizant Technology Solutions Corp	-46.79%
Grant Prideco Inc	+3.39%

Overall, my 8 picks were down 34.47% on the year, edging out Mrs Firebones (down 35%) but trailing Firebones’ Niece-in-Law (down 30.6%) and crushing Firebones Jr (down 45.88%) and the Nephew (down an amazing 65.18%). Overall, the aggregate picks were down 42.23%. Worst picks: the Nephew’s VympelKom OAO (down 80.02%).

The only winning stocks picked this year? The Niece’s PetMed Express (PETS) up 45.7%, Buffalo Wild Wings (BWLD) up 10.47%, and Grant Prideco, which managed to be acquired earlier this year for a 3.39% appreciation.

My real portfolio was down 26.72% this year. I would have been down around 33%, but starting in mid-September, I became a much more active trader, executing a number of swing trades in AAPL and SPY puts that made up a lot of ground.

Currently, I’m insanely short and hedged; a January rally is probably going to hurt me more than a January panic will. I have the suspicion that this year, we’ll see a very thinly traded zigzag rally up about 10-12% in the first quarter, followed by a much higher volume decline over the remainder of the year, as much as an additional 25-30% off that high.

This year’s contest picks, being submitted as we speak, will be up shortly.

The Vision

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.

Here’s my 2009 game plan.

Invest in Skills

In early 2006, Mark Cuban gave his investment advice for the upcoming year. The moneyshot:

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

Lazerow hits the same theme again at 2008 year’s end:

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.

The 2009 plan to start down this road is simply:

• Contribute one thoughtful comment per day.
• Construct one reasoned blog post per week.
• Make one insightful tweet per day.
• Write one review (book, movie, tech) per month.

Invest in “Too Small to Fail”

Howard Lindzon said it best: I am TOO small to FAIL!

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.

(photos used via CC:SA licensing from William Hook and Lisa Brewster)

I mentioned before that I love StockTwits. But has it helped me this year?

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.

Wrong. $SRS is one of the inverse ETFs that is only really useful to hedge for a day, and it exhibits the fundamentally broken tomfoolery that TraderMark highlights, with the added negative of being susceptible to the sawtooth effect for eroding gains over any period of time that that Fortune8 demonstrates.

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.

Stay tuned.