Like Buffett says: “You don’t know who’s swimming naked until the tide goes out.” Meaning: In a rising market– everyone looks like a genius and posts monster returns. It’s only during a crash do we see what separates the professionals from the amateurs.
And full disclosure– for the past three weeks since Feb 21, I have been positively reamed from every which way in my positions (long AMD & MU). I’d started day-trading Jan 2019 (after being inspired by the show, Billions) and had been doing pretty until Feb 21 but the past three weeks have been totally humbling and has revealed to me that I am a total amateur. If I get out of this alive, I’ll know now it was completely luck and that I’m totally not a genius.
All that said, I thought I’d take this opportunity to share some hard-learned lessons I’ve learned these past 15 months. This stuff more applies to active traders (as opposed to investors, which is why I’m not posting this in /r/investing).
Humble Advice from a Beginner re Active Trading
- Get proficient on the Quantopian platform. To be clear: I am in no way associated with Quantopian. I just use one of their free accounts for data exploration, pricing info, and analysis. But it’s really awesome; I regret not knowing it better before I started. Yes, you will need to know a little Python and Pandas (a programming language and a software library package) but it’s incredibly basic and easy to use. Eons ago, I was once a history major. If I can figure it out, so can you.
- The market is difficult to time. Here’s the stat that is always tossed about: “If you missed the ten biggest up-days of the past xyz years…” As consequence: Know your time horizon and always have an “investment thesis.” As the ol’ saying goes: “Bulls make money. Bears make money. Sheep get slaughtered.”
- Keep an eye on the VIX.
- Keep an eye on “Wall Street Week Ahead” posts on /r/stocks. (I can’t believe I didn’t know about this sub sooner… I guess you don’t know what you don’t know… /u/bigbear0083 is a national hero; someone give this person a Nobel prize.)
- And specifically– if you’re day/swing trading any specific stocks, follow the stock’s sub, if it exists. Eg. I just learned about /r/amd_stock a month ago and have been following it ever since. In particular– I wish I’d known about this post of catalysts last year.
- Go straight to the source. The next two economic indicators I’m most paying attention to are the US Labor Bureau Stats and ISM numbers on April 1 & 3. (More on that at the bottom.)
- Finally: (And again, just my humble 2c.) Get a wife. (Or a husband/life-partner, etc). YMMV on this one, but personally, it’s helped me tremendously. When you’re parked in front of your computer the entire weekend crunching numbers and scouring news, you need someone to feed you. Also, someone to periodically bug you to leave the apartment to go out for walks for fresh air. Marriage is net good.
Things I did Wrong
- Use the candlestick charts; not just the line charts.
- Deleveraging spills over, even into safe asset classes, during historic plunges. Three weeks ago, I kept huge positions in memory and semiconductors thinking, “Oh– if the market melts down from COVID-19, it’ll only be travel, movie theaters, dining out, etc. that plunge.” I had 100% erroneously thought that in a downturn, asset classes not directly affected would be shielded. I was totally wrong. What I know now, which I wish I knew three weeks ago, is that in a massive downturn, all asset classes will plunge. And here’s one major reason why: Investors, big banks are usually highly leveraged. When the pandemic hit, they took huge hits on the “losers” (airlines, oil, etc). In order to smooth out the losses from the losers, folks are forced to sell winners as they dramatically deleverage positions to cover margin calls/retain capital position. Therefore, even “winning” stocks/classes will be affected in a downturn. Maybe, in the long term, data centers/semis/memory/etc, may come out ahead. But none of that matters in the hyper-short term (on the magnitude of weeks). I made this mistake in my mental model. Never again. (If there is a next time.)
Things I did Right
- Use a Roth IRA as a “pace account.” Put ETFs and some blue chips in here and then just leave it. Having a pace account allows you to easily compare how you’re doing with your active trading against your passive strategies at any given point in time.
My Personal Future Outlook (aka, Guess)
- Again, I’m not a professional so take this with a grain of salt. But here’s where I think things are going: I agree with RBC: SP 2300 is the Maginot-Atlantic-Wall-Mason-Dixon-Rubicon. Either we hold this level (expecting a “garden variety recession”) or an utter bloodbath ensues. My personal belief (well, more like hope and prayer) is that we hold the line with intraday bottoms going as low as SPY (~232) which is the bottom we hit on Dec 26, 2018. (For reference, we ended Friday at SPY 269 but did sink as low as 248). We’ll find out next week; in particular, on Monday.
- Last Wednesday, Trump gave the single most catastrophic Oval Office address I’ve ever seen. On Thursday morning, markets reacted accordingly. Friday’s Rose Garden address was better. I am now praying/hoping for sideways action until the ISM report on April 1 and Jobs report on April 3. Everything hinges on these two reports. (Btw, February 2020’s job report was absolutely spectacular. In fact, BLS actually revised Dec 2019 and Jan 2020’s numbers upwards.) Right now, I feel raw utter panic has gripped the country. People see barren aisles at Whole Foods and Trader Joe’s. They see five-hour queues at Walmart and Target. People can’t buy toilet paper and water…. etc. Schools are closing, NBA/NHL seasons are canceled. Movie releases are getting postponed. (God, even the mighty Vin Diesel, King of Coronas, couldn’t hold out against the Corona virus…) Etc.
- My bet (hope and prayer) is the BLS and ISM numbers on April 1 & 3 won’t be as bad as people are expecting. If that’s the case, the market will absolutely rocket into the stratosphere. (I made this prediction several weeks ago and I’m holding to it.) I am personally guessing that we’re about to witness the shortest bear market in the history of bear markets and the fastest recovery man has ever seen. If there is contraction, I believe it’ll be very short-lived. (Maybe one quarter at most.) We’ll see. (I can elaborate more on my theory if anyone’s curious. But since this post is getting really long; I’m just going to omit that theory here.)
- My humble opinion is that this panic is 100% overblown and we’re in an emotional nosedive right now. People think the sky is falling and there is no guidance of any kind right now to indicate how bad things will be. So everyone’s bracing for the worst. I saw some guy on Seeking Alpha yesterday proclaiming Dow ~17,000… (No link for him as I think he’s a complete nut. But I guess we’ll see who’s the fool… him or me…)
- Futures open at 6p ET tonight. That’ll be the first indication of what next week may look like.
Good luck and Godspeed out there.