Monday, December 31, 2012

Top Stocks for 2013: #5 OPEN


With a FPE of 25, a 33% short interest and no long term debt, my #5 pick for 2013 is OPEN. The nice thing about OPEN is the time to buy could be any day.  Trading above the 50 and 200 day moving average, the stock recently broke above resistance at $48 and is basing above it nicely. With a strong business model, and acquisition potential (GOOG would be killer), my price target for OPEN is $100 which is 17% below all time highs. I'd be comfortable buying here for a trade with a stop below $45 for a move to $65. I'm more comfortable buying this for a long term hold (will begin this position on Wednesday), buying a little here, adding on either above $50 or at $45 with a stop beneath $40 and profit target of $100.



Sunday, December 30, 2012

Facebook is your new God and Santa Claus (and it's a good thing)

It is inevitable while growing up your parents will utilize the all knowing presence of God or Santa to try and persuade you to not eat your boogers. You will argue that no one can see you and it doesn't hurt anyone, but your parents will come back with God or Santa (way worse) knows. In his fantastic book, The Righteous Mind, Jonathan Haidt examines studies that indicate the majority of humans in all cultures and nationalities act immorally (lie, steal, cheat) when they do not believe others will know and they have an advantage to gain.

Religion has been the human solution to suppressing this trait for the past 10,000 years. Religion builds a community to judge the individual, a set of rules to judge the person by and even provides an all knowing figure who Knows even when no one else does. If someone breaks these rules, then gossip will spread to the community and the person will be seen as an outcast. Religion and gossip promote conformity, and conformity has helped humans become the dominant species on the planet. By having like minded individuals whom we could trust to act similar to ourselves allowed our ancestors to form hunting parties, to build communities to raise each others young and to survive in general. 

Facebook and other social networks are replacing the eye in the sky aspect of religion. When you know that there is a good chance you will be photographed or videotaped at a location and that information will be published for the world to see, you're going to think twice about skipping work or cheating on a spouse. When you know that if you say something derogatory to someone and that you will be judged by others for saying it you examine the statement from all angles to see how it comes off. Overall, now that someone is, without question, watching and judging it will make humans act in a more cooperative and acceptable manner.  

What I am 100% not doing is saying the government should be the "eye in the sky". Government suffers the same fatal characteristic as religion, the small amount people with the power will do anything to keep it. What I'm saying is that as the internet becomes the neural system for the human species, social networks are becoming the moral system. As the moral system continues to develop and mature with the blending of cultures, we are crowd sourcing morality from ourselves and this will lead to a moral awakening not seen for thousands of years. 


Josh Beckett: Complacency Kills

Josh Beckett got a lot of attention on ESPN.com in 2012. There were several articles written, by some of the top analysts in baseball, proclaiming Beckett the most overrated pitcher in baseball and not a true “Ace.”  Well, Beckett definitely has the ability to be a true “Ace” and has been in the past. However he has become complacent. He takes his success for granted and is acting like he takes the fans for granted as well. When you are great at something, you usually get that way by working harder than anyone else. As you claim your spot at the top, some start to lose that drive to put in the work ethic. Same thing happens with traders. If you are lucky enough to be a profitable full time trader, realize that every great thing you did in the past to get to this point relies on your future actions, realize any moment of complacency could end your career. Stay mentally strong and always focused.

Crap, I outperformed my expectations today


What can Philip Humber’s 2012 baseball season teach us about trading? That sometimes incredible short term success negatively affects longer term performance.
Humber threw the 21st perfect game in MLB History on April 21st. In his 3 starts after then he threw a combined 13.1 innings and gave up 20 earned runs. Last year, he had a 3.75 ERA in 163 innings, which is fantastic considering he threw in the American League (which has a DH). He finished 2012 with a 5-5 record with a 6.44 ERA in 102 innings. 
So what has happened since his Perfect Game? His expectations rose too high too fast and he was getting frustrated with tiny failures that he would have shook off easily before. Now when he starts a game he has the small thought in the back of his mind that he can do it again, be perfect. Well statistically its almost impossible so he is setting himself up to fail. Soon as that first batter reaches base he loses composure as he develops a defeatist attitude and his mistakes pile up. Soon he is self destructing and his confidence is shot, quite shortly into the game.
Humber is a good pitcher with great stuff as evidenced by his season last year and his Perfect Game this year, and he will recover from his struggles this last season. But I would be willing to bet that his numbers for the year would be better if he had not thrown the Perfect Game and would have stayed happy throwing his normal 6 innings a game and allowing 2-3 runs.
I personally have experienced this effect in trading. I remember specifically buying a large amount of GS premarket on a gap down, only to have the stock reverse and run 10 points straight up. The move took about a total of 20 minutes and I had double my previous biggest day. Well I wanted to make that much money everyday! So I increased my risk and loser after loser until I gave back all my gains from the big trade and eventually my entire month. After that month my confidence was shot and I underperformed for another two months before I began getting back to the level I was before the big trade.
I remember a quote my dad told me growing up “Don’t let your emotions get too high during the good times or too low during the bad, keep a level head”. This is a fantastic way to approach trading and should guide your risk increment levels. Go slow and obviously don’t put yourself in a situation to blow up from one bad trade, but also don’t go for the huge trade because sometimes that trade working out is the worst thing for you.

Congrats You’re a Full Time Trader, Now Live Like You Are Unemployed


For something that is fairly easy to learn, trading for a living is incredibly hard. The reason is easily seen when studying the typical types of beginning traders. If you get two new traders you’ll usually get one who you have to force to make trades because they are terrified of losing money and one who enters into every trade they can find.
The timid trader usually has a healthy respect for money outside of the office and is very adept at managing a budget and living within their means. The aggressive trader is usually a big spender and will lose control of their budget when they have good days in the office.
The timid trader struggles to make a living in the office, they get frustrated and begin looking for a stable income with another position. The aggressive trader usually either blows out early or lives above their means until they blow out and are then forced to look for a stable income position.
It is a rare trader who begins in the sweet spot and is able to take risk in the office while living like he/she is poor. The best advice I got when beginning trading was pay for everything in cash and live like you will never make another dime. If you do well enough and build a nice capital base you can invest it in real estate or dividend stocks which can provide you some stable income.
And of course, do not attempt to trade full time if you are under pressure to make a monthly pay check to pay your bills. The pressure is incredibly high and so is the probability that you will have a moment of weakness and make a trade that ends your career before it even truly begins.

2013 Resolution...BLOGGING!

I began blogging on the Dinosaur Trader’s Virtual Office back in 2007 and fell off as the world melted around us. My P&L went the same way so I picked up a position as an analyst for a few years. Since then I’ve gotten back into trading full-time having found a fantastic prop firm. I cannot stress how nice it is to have an office of coworkers around you while trading, whether its physical or virtual.

 This blog will hopefully focus on STIR news and commentary as mentioned in the tagline, but I have a strong feeling I’ll be talking stocks just as much, and probably baseball, movies and books as well.

For now here are some core beliefs:

 - Everyone needs risk, both in their portfolio and their life.

 - The greatest way to succeed in something you love is to surround yourself with people who love that thing as well.

 - If you are not making the rules, the rules are skewed against you.

 - When investing you need to include fraud and news events (Black Swans, I guess) as reasons why you are going to lose money. You WILL lose money due to fraud and you WILL lose money due to unseen geological/political events if you are investing in anything. Be upset sure, but understand this is a common cost of investing and learn from what happened….fuck you MF Global.