Good Riddance October

No wonder they call this season ‘the fall’.

This has been the worst October for the stock market since 2008. I don’t think Fat Nixon will put that on his list of accomplishments.

Unless the selling stops Monday, the S&P 500 is about to experience something it has only done once since 1960- two separate 10% drawdowns in one calendar year.

How bad is it right now? Check this graphic:

While the momentum I love has died, my day job is investing in highly motivated founders who do not care what the stock market is doing.

I continue to be inspired by the founders Social Leverage has backed and the community of people hanging out all day on Stocktwits.

This bear market might just be getting started, but the other side of the bear market is now one day closer.

PS – Fred says it is an exciting time to be a crypto investor. I agree.

Should You Buy This Dip? And A Special Edition of Momentum Monday – Howard in Turmoil

It was another ugly red day in an ugly red month.

The price action is absolutely pathetic.

The S&P is now down in 2018.

The last time Amazon traded below it’s 200 day moving average was March 2016.

The #MAGA trendline that Fat Nixon was using to time his positive market tweets is now broken:

We are now into a second CNBC ‘Markets in Turmoil’, with tonight’s version called ‘CNBC Special Report: Market Sell-Off’. Two markets in turmoil in a year with the S&P basically flat. You can always count on financial media being pathetic.

So why are stocks and markets going down?

Charlie has a great post.

What should you do?

I asked Ivanhoff to go through the markets with me and we put together this video of me doing my homework this afternoon. Click here and you can see us rip through tickers and indexes.

For those that just want the end results…I have decided to do literally nothing.

There are some enterprise stocks like $TWLO, $OKTA and $TEAM, as well the Nasdaq 100 index itself, that I may peck away at and trade. You can follow along on Stocktwits if you like.

This is a great time to make sales calls and catch up with loved ones!

The markets will heal.

In the meantime, cash is yielding 2 percent.

PS – Be careful out there or else…and:

Invest Like The Best – A Podcast With Patrick O’Shaugnessy

Last week I sat down with Patrick O’Shaughnessy as a guest on his podcast.

Patrick has one of the most popular investing podcasts which I have linked to here in the past.

I am grateful for the time he gave me to discuss my style and point of views on investing and glad I got to make him laugh.

In Patrick’s words:

My guest this week aspires to be the Larry David of investing, and we discuss why. Howard Lindzon is hard to categorize. He’s primarily an early stage investor right now, but he’s participated in all types of investing. He describes himself as a trend follower and always has a unique take on popular topics.

In this conversation, we cover his investing history and his take on the fintech investing landscape. What I’ll remember most is the idea that we should focus on what is happening versus what we think will happen or might happen. There is a Peter Lynch-like quality to some of Howard’s thinking, and a willingness to embrace the weird that I find very appealing. The few times I’ve met Howard, I’ve smiled or laughed most of the time, which is about as nice a thing as I could say about someone.

He’s a good example of why I like this podcast format. His investing style bears literally no resemblance to my own, but it got me thinking about a lot of new things. I hope you enjoy our chat.

I think we covered a lot of ground and I hope you enjoy listening.

In our dive into the ‘Larry David’ of investing philosophy, I forgot to point out the alpha to be found by walking the streets and simply using your eyes and ears (our internal quants). There are edges to be found just trusting your own style and instincts and it can come from world travel or just knowing the neighborhood that you have never ventured from.

You can click here to listen.

If you want the summary topics discussed in the podcast…here you go:

0:00 – (First Question) – Why he wants to be the Larry David of investing

0:18 – Why his investing style is best described as trend following

2:23 – The biggest inspirations/influencers on Howard’s investing

4:57 – What made his second mentor, Fred Wilson such a great investor

8:10 – Formation of WallStrip

10:51 – Why weird is so important in his investment philosophy

13:14 – Understanding his investment philosophy through his investment in Rally Road.

19:20 – His assessment of the fintech space

27:12 – Why fintech pushes away from human nature

29:08 – Major trends in fintech that have his attention

33:20 – What stands out about the teams at these companies he invests in

34:55 – Thoughts on fractionalization plays

35:02 – Capital Allocators podcast episode

35:12 – Venture Stories Podcast

38:21 – Any major trends that are changing and worth attention

40:24 – The Tipping Point: How Little Things Can Make a Big Difference

41:44 – His take on the media landscape

43:28 – Kindest thing anyone has done for him

Momentum Monday – Lower Prices Ahead

It is Monday which means Ivanhoff and I are talking Momentum, or in this week’s case the lack thereof.

I would love to be sharing 100 great new ideas, but the market is not offering them up, so I am in capital preservation mode.

One of the best looking charts right now is Verizon, which is like the stock market saying ‘I give up’.

Ivan and I do find some strong stocks to talk about, but they are not the type of growth stocks I care to own.

Here is this week’s episode.

If you need a second opinion, and much more top down technical, check out my friend JC’s post titled ‘These Divergences Are Pointing to Lower US Stock Prices‘.

I love this thought from JC:

We need to reevaluate the market constantly as the data comes in and understand that we have no idea what the stock market is going to do. In fact, I’m willing to bet that it will do something it’s never done. You know why? Because the market does something it’s never done all the time. There are only 100 years of history. It’s easy to do something that’s never been done with such little data and such an irresponsibly small sample size. It’s not just different this time, it’s different every time.

Grizzled veteran Peter Brandt also does a good job of technically walking through the rolling over of global markets.

As a reminder, Marketsmith (by Investor’s Business Daily) is now a sponsor of the weekly show. All the charts you have been seeing in the videos and will continue to see are from Marketsmith. They are offering my readers a three week trial for $19.95. Click this link if you would like to try it out.

Tide Pen …The Google of Stains

I am a fast eater and a stain machine.

That is why I LOVE my Tide pen…

Last April it was cool to make fun of the giant consumer product companies like Procter and Gamble and Johnson and Johnson. The stocks were going down everyday and Amazon was going up every day.

I was not as skeptical and wrote this post titled ‘Proctologist and Gamble‘ and said their demise was a little overdone. The stock was at $72.50. Friday, the stock closed at $87.

I chose to add Johnson and Johnson back in April because of their drug division and the fact that is one of my 8 to 80 stocks. That has worked out well too as the stock has rallied from $122 to $139.

I have no idea how well these stocks continue to do going forward and the trade war will not likely help in the short term, but it is hard to bet against these companies for long periods of time. They have the distribution and the cash to buy their way out of jams.

As for the Tide Pen, it is just one of those must have travel products. I keep one in my car as well.

I imagine if they put a Vape pen on the other end of the Tide Pen, Proctor and Gamble stock would pass $100.

What Are We Gloating About?

The S&P is now down 5 percent from it’s all time highs.

I really don’t know what is next, but the rest of these world ETF’s were once 5 percent from their all-time highs (thanks Charlie). Look at them now:

Manhattan is a rich ghost town.

Speaking of retail, it won’t be Bed, Bath and Beyond, picking up the slack.

Homebuilders are at 21 month lows.

I could share more sector charts and country charts, but take my word for it, it is ugly.

Meanwhile…Americans spent over $80 billion on lottery tickets last year, more than on movies, books, video games, music and sports tickets – combined.

The Curse of Some Talent

My friend Ben Hunt launched a premium subscription service for Epsilon Theory. I am a customer because it is fantastic. If you love investing and want a great mentor for just $20 a month, make the investment.

I spent some time with Ben at the Stocktwits HQ last week. I introduced him to the avocado slurping millennials on the Stocktwits community side and was happy that they were fans of his just like me. I always share his content, but had no idea that millennials read longer financial essays that have so few GIF’s and pictures.

Ben let me whiteboard some of my bigger ideas and investment strategies at the Stocktwits HQ last week and it was great to get feedback from a fresh pair of eyes.

In a post explaining why he started his new subscription business, Ben explained:

Here’s a lesson I learned in my early start-up days. It was told to me by a very successful entrepreneur and occasional angel investor, and I didn’t believe it at the time. Now I know it’s the Truth with a capital T.

“Ben,” he said, “I’ve got a lot of money and I’ve got a lot of rich friends. We could probably fund this idea of yours for a long time with the 3 F’s – family, fools and friends. But that would be a big mistake. You need to know if a professional VC will invest in this. You need to know if real customers will pay you money for this. You need to know if dogs will eat the dog food you’re serving up. Because if dogs won’t eat the dog food, you shouldn’t do this, even if you’ve got funding secured for years, even if you can fund it all yourself.”

Like I say, this didn’t make me happy at all when I heard it. I thought this was the angel investor’s way of blowing me off, and maybe it was. But he was absolutely right.

Entrepreneurs should fully expose their ideas to the steely gaze of real investors and real customers as soon as humanly possible.

And if your great idea dies under that steady stare, it dies.

Be grateful for that.

Why? Because the great tragedy for an entrepreneur is NOT a failed idea. You will have other ideas! No, the great tragedy for an entrepreneur is a zombie idea, a business that has no chance of growth and vibrancy, but is kept alive through some witch’s brew of too much friendly capital and too much misplaced hope.

Stealth mode? 99 times out of 100 it’s a crock, a smart sounding excuse for hiding behind a non-competitive curtain. Self-financing? Ditto. The courage of an entrepreneur isn’t risking your own money. Of course you’re doing that. That’s the necessary condition, not the sufficient condition. The sufficient condition is risking your identity in the very public arena of competition and capital.

It’s the Curse of Some Talent, when you’ve got an idea or a venture that seems great to you, but isn’t quiiiiite great enough to make it in the cold cruel world. But you remain convinced it’s SUCH a good idea, you remain convinced that you really really do have the talent to make it big, and you’ve got the resources to keep going. That’s how one year turns into two. That’s how two years turns into ten, a decade of meh, all because you didn’t listen to what the world was telling you, all because you couldn’t bring yourself to put down the merely good idea, all because you never forced yourself to dream the NEXT idea.

This is some great advice for any founder and wannabe entrepreneur.

I’m thrilled to be back West. I am in need of some rest but inspired by all the time spent with founders, friends, investors and the Stocktwits team.

Have a great weekend.

Global Macro…To Care or Not to Care?

I’m headed back west this afternoon. I have been grinding away in New York the last three weeks, but as always, it was worth it and I had a great time. Today I did a long podcast with Patrick O’Shaunessy and that wore me out. He says it will drop next Tuesday.

Next week is the 8th, 9th or 10th Stocktoberfest on Coronado and I am excited to see some old friends from the financial community and make some new ones.

Onward…

My friend Charlie outlines the end of ‘End of Easy Money‘ and with that I have been catching up on some global macro research.

A global macro strategy is a hedge fund or mutual fund strategy that bases its holdings — such as long and short positions in various equity, fixed income, currency, commodities and futures markets — primarily on the overall economic and political views of various countries or their macroeconomic principles.

I have a lot of smart global macro friends who write on the subject (and trade) and they are excited. They believe the conditions are set for the return of global macro excitement.

Should you care?

If you are a startup founder I say continue to care about your next 10 customers, your runway and recruiting the best team. Let your venture capitalists worry about interest rates and politics.

If you are an investor, you are welcome to care, but I think you should read this post from Morgan Housel.

I long ago cut global macro worrying from my portfolio and started focusing on prices and trends I could really touch, see and feel.

As Charlie mentions in the closing to his post…’no one really knows because we’ve never been in this situation: over 9 years into an expansion with the Fed just now moving to a neutral policy. This is the end. But what comes next is far from clear. There’s simply no precedent’.

I will say that I think one trend that will accelerate in this global macro environment is decentralization, so you might enjoy the two articles I have linked to below…

I really liked this post from 13D that takes a nice dive into the subject with ‘Why decentralization could prove the most disruptive tech megatrend of the next decade‘.

I also loved this read titled ‘The Long Shot‘ which chronicles Augur’s beginning and the attempt at creating the next big orediction market…this time decentralized.

A Post Seed World

I made my first angel investment in 1994.

I have been a ‘professional’ seed investor since about 2008.

Bryce Roberts dropped this great post about the evolution of seed investing. He recalls:

I can’t recall who was on the thread, but I can distinctly remember the subject. It was 2005 or 2006 and there was an issue brewing in the emerging market of a new niche of early-stage investing.

The issue?

What do we call this thing?

At the time, the two leading contenders (super angels and micro VCs) rang hollow for the 4 or 5 of us on the thread working to help this model emerge. After a hearty back and forth, we settled on the Seed moniker. In talking to the press, to founders and other VCs, we agreed we’d use Seed as the standard we’d rally around.

But, the branding of Seed and the standardizing of it as a “series” of financing was only one of the many factors that allowed this new form of finance to have an outsized impact on the startup world.

There were many other factors that contributed to Seed scaling from the 4 or 5 of us on that thread nearly 12–13 years ago to the 500+ established seed funds in the market today.

Now Bryce has a firm called Indie.VC which is really smart and focused on what he believes is the future of the category if investing.

Indie.vc fills a similar gap that sits squarely between lifestyle businesses and monopolies in the making; yet, the ecosystem around supporting these kinds of companies is not nearly as well established with the venture community at the time Seed emerged. VCs don’t seem to see the same “too early” opportunity in the “too small” opportunities (i.e. not obviously a billion dollar business today). Though it is improving by the day, the funding landscape for these Real Businesses remains a mish-mash of lenders, Angels, and private equity firms with far less overlap in their methods and models for deploying capital and supporting founders than that of the traditional VC community.

As I continue to make seed investments with my partners at Social Leverage, I too see gaps in the ecosystem, alpha that can be capitalized on, and problems that need to be solved by both money and people.

It continues to be exciting time for the ecosystem as it evolves and a great time to start a company.