Mr.Market Making Unicorns, Winners & Losers Update 10/7/17, incl: $SGMS $TTWO $CTRL $SQ $ANET $KEM TROX $WTW $EXAS $FCAU
Mr. Market has brushed aside just about every worry thrown his way this year and past since the end of the 2008/9 crisis. One does wonder just when does “enough is enough” come back into the collective consciousness? Perhaps when the last holdout gives in and joins the party or when the last standing “Unicorn” goes public. For the purposes of Rooster360’s speculative focus, there is plenty of time and room to get out of the way if and when the inevitable correction arrives.
A “fintwit” friend, Jon Boorman, who has an approach very similar to my own, has made the following observation about the S&P 500 index and I think it’s a good way for many speculators to manage their concerns about where Mr. Market is headed and what to do about it.
S&P could pull back 5%, twice as big as any move so far this yr, and just be to its 200-day w/o damaging l-t trend. pic.twitter.com/t3QBcK7r7I
— Jon Boorman (@JBoorman) October 7, 2017
That said, I do not wish to present a willful and brazen view when it comes to animal spirits. Right now an increasing number of speculators and investors are in an ebullient mood. It feels like “Standing Room Only” sometimes. It doesn’t hurt to be mindful of one’s surroundings and to be ready, watching and waiting for what actually happens.
2. Great Expectations — a story of stockmarket excess… #ThingsYouSeeAtTheTop h/t @JLyonsFundMgmt $SPX $SPY pic.twitter.com/EzlHhnPDpN
— Callum Thomas (@Callum_Thomas) October 7, 2017
Yes, the dreaded “magazine cover indicator” fear at work.
I found this great post from another “trend follower” Larry Tenterelli,
https://trendtradingsignals.com/blog/i-will-absolutely-be-long-top-heres-why
Larry says: “rest assured I will be long and holding the bag and giving back that last 5–10%… when my price-based exit is hit, I will be out.”
Regular, long-time readers of my notes have read the words “risk management” over and over. It’s kind of like the phrase “You can do anything you want in life, but not everything.” I think my risk-taker version goes like: “You can trade anything, make any kind of bet, but you can’t (or shouldn’t) bet everything on that one trade — unless of course you want that to be possibly the last bet you make.”
(Some people do manage to make that one and done in a good way and disappear into trader urban myth. There was one guy who did do that in the 2008/9 housing market crash and then he wrote a great letter about it and ended with some interesting thoughts about hemp.)
Mostly, however, others crash and burn. I refer to the “outside passive, minority investor”, a phrase used by Martin Whitman, distressed investor, founder of the recently bruised but recovering Third Avenue Funds. Let’s think about the realities facing “OPMI” which most of us are. We are going to be OPMI and fodder for both a handful of pros and the equivalent of drunk, late night card players who play maniacally, and after walking blind-folded through the casino/minefield, amazingly depart with a pot of money and leave town.
Those who are not fodder are interesting — they are the opposite of OPMI. They are what I think of as “Inside Active Control Owners”. If you are an Inside Active Control Owner (like Jeff Bezos or Warren Buffett) then you are likely betting it all on one company and you run that company — but even that is not a completely accurate or complete description. Buffett manages his risks and has made sure he has enough “farms” to bet — sometimes they are not even his farms in actuality (hello “float”) — and stands ready for when an out-sized risk-reward opportunity comes wrapped up in someone else’s calamity. And Bezos has always made small bets that could lead to big wins as part of Amazon’s “Flywheel” — as noted in Amazon’s 2006 letter:
“For Amazon, that history is fairly fresh and, fortunately, it includes several examples of tiny seeds growing into big trees. We have many people at our company who have watched multiple $10 million seeds turn into billion dollar businesses. That first-hand experience and the culture that has grown up around those successes is, in my opinion, a big part of why we can start businesses from scratch. The culture demands that these new businesses be high potential and that they be innovative and differentiated, but it does not demand that they be large on the day that they are born.”
“Betting the farm” and animal spirits husbandry:
If Farm Bet #1 zigs hard and into the red, then make sure Farms #2 through #99 and etc. are busy helping to crank out goodies for Gen Z, offer crypto-celebrity as a service, or do other things which zag the other way from Farm #1. The connecting thread between trend-following, Buffett and Bezos is about adhering to a process or system - for making bets that have good potential upside with a doable risk-reward. A good process or system also acknowledges that not all bets are worth taking and not all worthwhile bets work.
Just ask Buffett about his original intention to “turnaround” a textile business, Dexter Shoe, US Air, or about how he made money on equities like Capital Cities shares (or was that Disney?) only to buy it back at much higher prices. How about Amazon’s original attempt at a phone or the countless other projects which were short-lived? Regular blog readers of mine already know about Rooster360’s constant trial and error with every week’s updated Stopped Ideas reports. All around, there are enough examples even that systems and/or a process can capture winners which are large enough to subsidize the going concern of betting AND losing a farm or two.
The Top 20 long charts as of this week, drawn from their inception dates (the week they were added to the Rooster360 Master Ideas List) are shared below. The average for the Top 20 leaderboard is 100+% and now some of the Top 5 ideas are in the 200+% zone. The collective notional P&L for the Rooster360 Master Ideas Universe continues to grow. The Top 10 ideas tucked within this list have done quite well so far, up about 137%. $SGMS $TTWO have racked up 200+% as of this week. $CTRL $SQ $ANET $KEM TROX $WTW $EXAS $FCAU each follow up with returns of 153% down to “only” 93% as of this week. Each and every idea should be just one farm risked out of an estate made of 100, 200 or more farms.
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Originally published at www.rooster360.com on October 8, 2017.
