Good morning everyone. There is so much to unpack this morning as the markets have my full attention.
This post may make your armpits sweat but don’t worry, do what Mark Zuckerberg does:
Everyone manscapes so please don’t judge. In fact..join the club.
The last time I was writing this much about the markets was in December of 2018, when the government was shut down and the markets were in a panic. I was writing about the markets to keep me calm and make sure I was buying Apple.
Today the panic is to the upside. Everyday, there is a new ticker surging 50 to 100 percent. It is silly, but it is fun. Panics to the upside last much longer, so this could go on for months. I am writing to make sure I ride this part of the wave as long as possible. I have done my selling of my favorites stocks to a point where I will ride this wave until it crashes. I know that stocks will give up a quick 20-30 percent when the tide turns on this period but some of the stocks I own may first go on to much bigger gains.
Everyone is trying to figure out why this is happening.
The important point to me is to get more shots on goal while the getting is good.
In fact, this whole fantastic era of trading investing is likely due to the fact that tens of millions of people around the world have never had it easier to put shots on goal.
We have been living in an ‘every kid gets a trophy era’, but the real story is that ‘everyone can and should be taking shots on goal’.
Free commissions, social networks and fractionalization.
The experts are trying to value everything and like any new phenomenon, this one is unmeasurable.
Let me give you a prime example again of how markets have changed (for the better)
Today’s boom has NO SPLITS. In 1999 Tesla would be announcing a 40 for 1 split tomorrow and the stock would go up 20 percent. At the time I was furious, because I had an MBA and it made no sense. But, the splits made the stocks more appealing to retail traders who in a period with high commissions and no fractinalization could finally buy the stock.
Today, tens of thousands of new investors can put $50 on Amazon or Tesla instead of worrying about ‘shares’.
MORE SHOTS ON GOAL.
You can’t just learn by watching when it comes to investing. You need skin in the game. You need to be cut.
In fact, the same goes for angel investing but we are still in an era where this ‘street alpha’ (what I call seed investing) is not open to everyone. Maybe after we crash, the next boom will see this happen. Semil has a great post on the subject of ‘shots on goal and angel investing‘. My fave part:
These new investors need enough “Shots On Goal” in order to (in their mind) give themselves a chance to find one, maybe two, stellar investments in the lot. Of course, this randomness is most intense for those who invest at the early stages. There is simply no way to know the shape of a company or financial outcome when the earliest investments are made. Having enough “shots” is important because, at a primal level, newer fund managers or investors within firms need to demonstrate the ability to find a few good deals to parlay into the next fund or as evidence for promotion.
There is a cost, though.
Increasing “Shots On Goal” comes at the expense of concentration. As most early-stage investors eventually realize, obtaining and maintaining (or even increasing) ownership in a basket of investments is of utmost importance. The theory goes as follows — 1/ most startups don’t make it, no matter how smart the team and/or noble the effort; and 2/ given the high loss ratios of early-stage portfolios, and given that most portfolios follow a power law curve, an investor building a portfolio needs enough shots to find those 1-2 companies which will drive the returns. Therefore, investors care a lot about ownership, should a portfolio company be acquired or go public — maintaining high ownership can help smooth the harshness of the loss ratio in the event of a large exit.
While the old people on TV are yelling at us telling us that the markets make no sense, the mechanics of the markets have changed by such a great magnitude that the markets may stay in this state for an extended period.
Now, just because chasing stocks and writing angel checks at silly valuations has been working the last few months, does not mean it is a good strategy.