The Stock Market in 2012 – Hackers and Chasers

Mark Cuban has long been worried about the state of the stock market.

We talked a lot about it in this interview a while back (the second video from the top).

It’s not just HFT that should have people worried. There have been some gynormous scams by the big banks (a Rolling Stone must read) that have gone largely unpunished. The big banks continue to get bigger.

Personally, I dislike chasing that I see, but I know from watching this happen over 13 years, what comes next. On Stocktwits, the chasers come and go. Lately it has been around the biotech stocks, which I started to cover on June 19th with $ARNA.

Phil did a great follow up post on June 22, warning about the rampant speculation. Phil and I noticed how much was coming from new sign ups. I would call this the late chase.

Today, $ARNA (up 600 percent at one point since May) awaits an FDA decision about their weightloss pill/drug. The options market has a 50 percent move factored into the price as we trade Friday.

It is frustrating to see all the speculation in the stream, but it is part of the cycle of the markets.

The way I see it right now is if $ARNA really has the greatest weight/loss drug in history, the stock will be cheap at $20 once approved and there will be other moments for all types of investors to start a position. But, if the drug is disapproved, chasers will face a 50 percent plus haircut. You should not be stacking the odds this way, especially as a novice.

Back to Mark Cuban and the hacker problem. He is dead right. As Marc Andreesen says, Software is eating the world. As my pal Brad Feld says, computers are winning. It is what it is and the rules of engagement around stocks have changed. They will likely need to swing much further before some very smart people with lot’s of capital start to rebuild a market platform that has a different set of goals and objectives.

In the meantime, do the opposite of the machines. Avoid the penny spread trading and the HFT’s and the hot stocks and sectors of the day. This applies to beginners and ‘professionals’.

Follow some big thinkers that do not care about stocks or stock prices, but consistently share. Here is an example of one article that was shared by @jdrive last night called the ‘Top 10 technology Changers for The Next Decade’. Lean back and think about the possible trends and the industries and finally tickers that could benefit most. Look them up, watch them, think about the catalysts that will make them go. Ask some questions and buy a few stocks. You will have all the information you need to know to find the next great stocks.

Will you buy it right, hold it and sell it properly?

That is the skill worth learning. Start today.

9 comments

  1. Steve says:

    Great article Howard. I keep glancing at the $ARNA thread and, unfortunately, I lose 100,000 brain cells every time I do. I can actually feel intelligence leaving my body when I read the tweets. Not trying to be rude, but where are these people coming from? I know you guys are probably cringing at the thought of people leaving the Yahoo! message boards en masse and creating StockTwits accounts. Yuck.

    • it will pass. and the crowd was mostly right this time. we will clean it up within days and the pumpers get bored quickly. hang in and remeber its a sign of something bigger. The REAL money is flowing out of momentum.

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