Investment principles
Some principles for new analysts - want to get forum view or pushback.
1. losers average losers
2. good stocks have good looking charts. bad stocks have bad charts. good stocks go up to right, bad down to the right. generally true over time. buy good charts, short bad charts.
3. you need momentum. great stocks have good momentum, tend to outperform on good days in market and go down less in bad days. who cares if you think the business is great when it goes down every day, means there are sellers and it will keep bleeding
4. narrative is critical to momentum. investors like BIG stories. AI, GLP1, EVs. they HATE unknowns. what does crypto do to banks? if the company is beating earnings and has great valuation, it doesn't matter if the narrative is not positive. who will step into it?
5. you don't get rich on nuance. market thinks x but you think y. it doesn't matter. thats why SOTP don't work until company starts doing wlel. instead think what happens to stock if x happens, because that is how stock will get priced by new investors unless y is proven otherwise
6. find companies that are crushing it. management sounds awesome. data is accelerating. don't long companies because "temporary headwind, stock cheap." that is get blown up.
7. if stock isn't working, sell it. if it is, add. market catches on to things. remember #1. you can buy it back when it starts working. whether that is -20% or +20% doesn't matter. if anything buying +20% means company is de-risked on some issue that caused it to not work to begin with
8. no one cares about valuation. if your thesis is that its expensive because earnings quality is bad or its cheap, I will pass. every algo knows what the P/E is
Seems like you are recreating a "jump on the latest theme"/"momentum in well followed names" strategy.
Can this work? Perhaps - devil is in the details on how it's implemented and how ahead of the market you are. What I usually see with people who like to think about stocks in this way is they fall into a bunch of hindsight bias: "I knew EVs were going to be big, so I would have gone long tesla in 2019," "NVDA was such a no brainer," "big tech was an easy buy." In reality you might get more ARKK style performance when you are actually trading.
Some of the best investors I know trade nearly 100% against your rules looking at valuation, finding temporary headwinds and catalysts for value/rerating. Once again, devil is in the details on how to implement that.
yes good points. though i think one of the key lessons is also knowing when to jump off momentum.
stock acting weak on good numbers when it used to outperform is a huge signal to sell or flip short. or co that used to beat a lot starts missing, or left for dead company that starts acting well again. all of these are valuable price signals on incremental buyer/seller which is what drives marginal stock moves
Hate to break it to you, but when the momentum stock starts missing earnings, the stock gets cut by 40% and you're late in selling. You're delusional if you think you'll be able to time the top better than others, because everyone is playing for the same thing.
My advice -
Investing cannot be a checklist. If it were so it would have been automated 25 years ago. It’s up to you to understand WHY certain ideas work so that you can find the nuances. You cannot find a single right answer in investing and it’s absolutely pointless to try.Study micro economics. Study valuation. Study strategy. Study philosophy. Make your own rules. There is no equation.
These strike me less as investment principles and more as trading principles. Discretionarily playing momentum / trend following on equities seems like a difficult game to play, even though in a bull market environment it might appear that it is relatively easy to profit this way.
Price is what you pay, value is what you get (I know buffett isn't applicable in 2024, but its still a good quote). Having a flexible or bayesian view on valuation is good, but can't say I agree with "valuation doesn't matter". Note: this doesn't mean indiscriminately judging valuation based on absolute/relative P/Es, obviously, but the degree of earnings revisions matter if your stock is 10x vs. 40x fwd EPS. In this context, valuation def matters.
Maybe thats all semantics... anyways, I generally agree that technicals are an important barometer to track. But otherwise not sure I really agree with the general sentiment here. Important to define the game you are trying to play though: short term? longer term? etc.
AFAIK, even in pod world, trading momentum and narrative + yipit + earnings variances only gets you so far
Good points above. Would also add that changes to valuation frameworks (EV/sales to P/E) when fundamentals change can be huge for re/de ratings
Like when a business is inflecting and profitability becomes more apparent (ie software biz from ev/revenue to ev/fcf)?
This is satire right? Right??
These are not serious people
Points 1-8 are all some derivative of momentum chasing. I feel like it's satire but could be wrong. If it's not, be glad this is who you are playing against
Ngmi
Dont know if it applies specifically to this post, but after reading the above, I was shocked about the lack of fundamental factors involved in the investment process. My investment principles are more like the opposite of what is mentioned here (both on a personal and professional level):
- Quality matters - a business needs a clear reason to exist (Kodak vs. Digital)
- Do not just follow narratives - railroads provided a clear advantage and investors lost money on nominal, absolute and relative terms (1800s). Disruptive technology can change the world but the unprofitable if not invested at the right level
- Capital intensive projects (or investments) should be rewarded with long-term profits in excess of cost of capital. If a business is not protected for the time needed to recover the investment, technology will disrupt it before it is able to generate meaningful pay-back to investors
- It is easier to identity losers from technology than winners (MP3 vs. Discman vs. iPod)
- Capital structure does not matter until it matters (lease obligations / Wework)
- Trends only remain if there are “strong hands” involved. A bubble can continue until there are no other fools interested in buying.
- Cigar butts are ok if there is a cash yield / liquidation value (with a real catalyst) to justify the investment
- Convexity is important. A company that is doing great can provide multiple additional opportunities to an investor. Do not sell if valuation / target IRR is th only justification for the sale. If thesis remains applicable, keep invested
I tell the above to all the analysts below me (HF).
Bump. Guess this has worked - all AI and thematic stocks at ATH and still up, meanwhile laggards/bad relative stocks that are “value” have been crushed. Makes me more confident this is the way going fwd - process is better to find momentum, justify why it’s working, buy, then other way around.
buying value stocks has become way more risky
Huh. Satire?
bumping because Nvidia and AI stocks are up hugely since this initial post, and the non-AI stocks have been terrible with rising rates. proves my point on buying winners, not losers more
Bump. Guess QQQ AAPL NVDA are up 10% in a week again. How are your differentiated “value” or “idio” picks doing?
Very stupid post.
(1) many pods are long AAPL and NVDA for idio reasons, NOT for momo reasons. NVDA for example -- consensus figures for the year are persistently underestimating the actual performance of NVDA (and scale of AI purchases). On the flipside, AMD getting crushed because no one is buying MI300x. That's a great pair trade -- if you bought AMD because you thought the chart and momo looked good, you're in for a tough ride. In AAPLs case, consensus is pessimistic on iPhone refresh cycle, and it's too early to know if we will get a big boost to volumes. In this case, AAPL a great stock to trade (buying and selling).
(2) For many pods, there is active trading involved where a PM will be adjusting the weights of their long and short book through the weeks/months. This is why Yipit +msci + etc. is so heavily used, because it is incremental on a scenario outcome. E.g. if AAPL fwd p/e is 13x and average through the quarter (estimate adjusted) is 14x, then market implied metric is too pessimistic. If Yipit print on thurs was good and you know AAPL execs are talking at a conference next week, you spec long into the event (betting on incremental info lifting valuation back to 14x from 13x). The "formula" is = you have a view + incremental info = updated view on metric - market implied estimate = expectation gap. You wanna be long +ve expectation gaps and short -ve ones.
I know people love to quote PTJ, but his quote is asinine. Maybe it was appropriate when trading commodity futures in the 80s and 90s. But who (professionally) is averaging into positions? How is this an investment principle for analysts? On the flipside, TCA is real and is a substantial drag on performance if not managed effectively.
This is literally momentum which is a beta. Don't be beta on a HF subforum...real tip for HF analysts -- pay very little attention to the chart. If your thesis is "buy the stonk because good chart", you're not going to have a job. Your "this is generally true over time" is an assumption about autocorrelation that exists in the US but not in other equity markets across the globe. Be very careful about extrapolating linearly into the future, because we (HF community) will eat your lunch.
A continuation of the momentum theme. Seriously dude, this isn't WSB. Momentum is a great source of exit liquidity. Price momentum tends to cointegrate with "earnings momentum" (in real life, the leading indicators of earnings, not EPS estimates you can scrape from Yahoo Finance lol).
"Narrative" matters to stock marketers selling into LO or retail. This is very basic thinking that is not at all how a HF analyst should think.
Counterpoint, you don't get rich on beta. Nuance is variant perception. Why are your principles all consensus?
Yes but everyone and their mother on Alphasense is scrubbing transcripts for that fit. Not understanding the drivers behind growth (or the improvement in data) is like a poor swimmer jumping into a pond without testing the depth.
A "stock isn't working" means you haven't figured out the timing and catalyst. Those are two things that are integral to an investment thesis. Don't take a position without doing the work.
Nonprofessionals do not understand equity valuation, but if you're at a HF you should. Valuation tells you whether the stock is crowded/underowned and what expectations are. Valuation is arguably the most important part of an investment thesis. If you are generating a stock pitch w/o conducting an analysis of the valuation, then you will have a follow up conversation with your PM and it may be your last lol.
*yawn*
How're things going for this guy? Didn't you say just buy TQQQ and NVDA and you were going to outperform everyone?
NVDA up 10% since post. also you could have sold anytime before the draw when chart stopped working
again - charts work. buy what works, short what doesnt
LMAO "also you could have sold at anytime before it went down"
So what are your charts telling you to do now
This post aged well. hyped stocks, tsla, bitcoin, AI, all up 200%+ on the year. NVDA ironically the worst of the predictions here and still up over 40%.
the mistake was not being bigger in pltr, app, mstr, and quantum which have done so much better - could have been corrected by being EVEN more momentum/good chart focused (e.g. selling NVDA earlier when chart stalling to buy ionq/pltr/app where charts ripping)
Somebody should make an ETF/basket that shorts your stock picks, and we can all buy it as downside protection against the hype and mania that is fueling this valuation-ignorant bull market.
why are they shorts? i hve been right and value has been wrong. why will this change? could have said this 6 months ago
market has always been valuation ignorant - it is stupid to look at a PE ratio anyone else can see
This is such a stupid "im not out of touch, the kids are wrong" post
PLTR APP AFRM NVDA AVGO vs. IVE
Occaecati quos cum occaecati harum. Molestiae dignissimos nihil deserunt dolores voluptatem et corrupti. Repellendus delectus ab ut eius qui. Id consectetur sint autem.
Ipsam id nihil veniam tempore id. Facilis totam assumenda iste. Est molestiae nihil eos. Accusamus voluptatum quasi possimus sit voluptates quibusdam saepe eos. Ut ducimus voluptas occaecati doloribus quo. Aut quae culpa sit velit et mollitia commodi non.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Eos sequi recusandae alias sed provident unde. Magnam veniam reiciendis omnis fugit deserunt.