Warning: Don’t Trade Markets on Irrational Ignorance, Only Caution
We’re a crazy bunch, investors. We love risk. We eat data for breakfast. We are constantly scanning lists of names and numbers that to ordinary folk are utter gobbledygook.
But we love it, we live for it. Investing and trading in markets is exciting, exhilarating. It can deliver the highest of highs, and the lowest of lows. It’s an emotional rollercoaster.
And of course, it’s bloody hard to do well. But day after day we all come back for more.
Suckers for punishment. But also eternal optimists.
I’d argue that every kind of investor is an eternal optimist. At the end of the day we’re all optimistic that we’ll be able to make money, build wealth via our different investment strategies.
That’s optimism. Of course, within that is fierce tribal defence of various strategies and tools to make money. But at the end of the day, you might love stocks, hate stocks, love crypto, hate crypto, love property, hate property, love gold, or hate gold…and yet we’re all still in it for the same end result.
It’s just so bleedin’ obvious
No one wants to lose money. We want to grow it, make it, and protect it from those who want to take it from us. And we use different strategies to achieve that. But the fierce tribalism from one strategy to another can become tedious.
What you should realise is that having an open mind to all strategies is the smart play. But that’s hard. Most people have a natural scepticism to something they’re not already doing.
This is also known as confirmation bias. It often leads investors to dismiss something they’re not already doing.
But in the investment world you have to be ready to look at alternative strategies. And really be open to ones that are so bleedin’ obvious, you’d kick yourself for not taking a good look at.
That’s why I want to give you a heads up about something that I think is so bleedin’ obvious that every investor should check it out.
Soon you’ll hear from Shae Russell. Shae and I go way back and as far as I’m concerned she’s one of the most astute investment editors in the country.
We both agree the world as we know it will change as we move out the back of this current crisis. What’s happened in the last few weeks has been so game-changing, there’s simply no going back from the damage that’s been done.
However, with great change comes great opportunity.
Now, this crisis is like nothing we’ve seen before. But the government and central bank response to it is from a playbook we’ve seen several times before.
Easy money, piles of debt, rampant money printing, mass currency devaluation — that much we’ve seen before.
And this response leads to two potential outcomes. One is jam-packed with massive opportunities. The other could lead to untold economic devastation.
What Shae is going to show you soon is a way to help you guard your wealth, and possibly even profit, from whichever outcome we end up living through.
That’s why I think it’s imperative to hear what Shae has to say. Keep an eye out for a special note from her coming Friday.
Irrational Ignorance of the Markets
Now if you were to look at most global markets in the last week, you’d think the way out of this mess was jam-packed opportunity.
And to a certain degree, I agree.
However, you must approach markets right now with great caution.
I can’t stress this enough. You need to be far more careful than you perhaps are right now.
The worrying trend that’s starting to become a far too common occurrence is the blind-folded person throwing a dart.
Without seeing the dart board, without a target, it’s wish and hope stuff. Just throwing out the dart, hoping that it lands on something good. Chances are it won’t. And chances are you’ll miss the board altogether.
This is the approach far too many investors are taking to a volatile, uncertain, and highly risky market right now. And it’s going to lead to further devastation.
We know this is happening because investors are trading stocks that aren’t even the stocks they think they are.
During lockdown you might have been working from home. You might have made a few video calls to work people, to friends, to family…
So I’m going to assume you’ve either used, or at least heard of Zoom Technologies? Maybe you’ve also seen that Zoom Technologies stock has been booming off the back of all these new video call users.
Well it has, but there’s something not quite right about it all.
Zoom Technologies, that’s the company that has that video calling app that everyone’s using, right? Why wouldn’t investors be flocking to the stock?
Well, if you think Zoom Technologies has a video calling app, you’d be very…very…very…
Zoom Technologies is a cyber security training company.
They have absolutely nothing to do with the video calling company, Zoom Video Communications Inc [NASDAQ:ZM].
But that hasn’t stopped ignorant and irrational investors from piling into the unrelated Zoom Technologies thinking it was Zoom Video Communications.
When the stock jumped from this rampant ignorance in the last few weeks the US Securities and Exchange Commission (SEC) even had to suspend trading in Zoom Technologies.
The stock had exploded from around US$2.10 at the start of February to an intraday high of US$60 on 20 March. That’s a lazy 2,757% rise for the wrong stock.
All because investors didn’t bother to even properly check they had the right ticker and the right stock.
But that’s not it. This week Virgin Orbit released some good news about a successful test and a multimillion-dollar contract win with US Space Force.
It sent the price of Virgin Galactic Holdings Inc [NASDAQ:SPCE] through the roof on Tuesday.
Only one problem. The two companies are completely separate. Virgin Orbit’s success is irrelevant to Virgin Galactic.
Virgin Orbit spun out of Virgin Galactic in 2017. It now sits under the privately held Virgin Group, made up of all the Branson family holdings in various Virgin companies.
But again, this is a perfect example of irrational investor ignorance. When you look at Zoom Technologies, there were some suckers that clearly got crazy FOMO (fear of missing out) and bought Zoom Technologies right up there at the peak before the SEC put it into a halt.
And they won’t get to reverse that trade because they thought it was something else.
What this also highlights is investors really couldn’t give a stuff about proper research. They are happy to trade on a name without any look deeper into a stock.
They don’t read announcements. They don’t look at the strategy. They don’t care for the P&L, the balance sheet, the cash flows…they wouldn’t know what an annual report appendix was if it smacked them in the face.
These are just some of the things we look at when doing a deep dive into a stock. And that’s regardless of the markets booming, crashing, or being ruler-straight sideways. It’s the kind of knowledge of a company you need to have before deciding to pull the trigger.
To trade blindly on a name and assumptions will end in ruin. Don’t be one of those people. Don’t suffer from irrational ignorance. When the market is on fire, there are many great opportunities, but it’s not as simple as blind man’s darts.
If you think it is, you’re in the wrong game.
Editor, Money Morning
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