Rebel Traders 041 : Fools and Fools that Follow

So who is the more foolish? The fool or the fool that follows? Well, in this week’s Rebel Trader Podcast, we’ll dive in and see...

In this April Fool’s special the Rebel Traders, Sean and Phil are going to have a little fun as we explore some the weirdest and stupidest reasons stocks actually rose and the hype train people jump on.

Not only that, to quote Obi-Wan Kenobi, we’ll discover who is more foolish, the fool or the fool that follows. We also have our popular regular spots including Tip of the Week, Rebel Trader Mailbag and BS of the Week…

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Automated: Who is the more foolish? The fool, or the fool that follows? Let's do it.
Automated: Rebel Traders takes you inside the world of two underground, master traders who take an entertaining and contrary look at the markets to cut through the noise of Wall Street and help you navigate the trading minefield. Together, Sean Donahoe and Phil Newton are on a mission to give you the unfair advantage of a Rebel Trader. And now, here are your hosts, Sean Donahoe and Mr. Phil Newton.
Sean Donahoe: Hey, hey, hey! This is Sean Donahoe and welcome to this April Fools Special, and I am joined by...the biggest fool of all, he has the jester's hat on. Absolutely.
Phil Newton: Jester, the jester of . You know, I like a good giggle as much as the next person.
Sean Donahoe: Absolutely. Abso-bloody-lutely. Abso-bloody-lutely. And, we are gonna have a little bit of fun today; we're going-
Phil Newton: You put me in mind of rent-a-goat actually, Sean. Just to date ourselves a little bit.
Sean Donahoe: Oh, my good God. Jeremy. That's you. That was...say his name?
Phil Newton: I don't, I can't remember. I honestly
Sean Donahoe: Now the Alzheimer's is setting in, is what you're saying.
Phil Newton: Rocking gently. I've just got this jester's hat, and you know, I should have got some bells that we could shake.
Sean Donahoe: Well, there you go and pull the other one, yes.
Phil Newton: In other news, talking about things that titillate and jingle around-
Sean Donahoe: Oh, dear.
Phil Newton: Ken Dodd, God bless his cotton socks, the were officially closed on Ken Dodd.
Sean Donahoe: Yeah, I'm, you know, that was actually...very sorry to hear that Mr. tickle stick himself, if you references, this is a comedian who was, man he was a classic in the 80s and, yeah, 70s and 80s.
Phil Newton: 70s and 80s.
Sean Donahoe: Yeah, and Mr. tax evasion as well.
Phil Newton: He's from my neck of the woods, yeah, king tax evasion.
Sean Donahoe: So, double respect there,
Phil Newton: Back on point. So, as you can probably gather, it's all full of April Fool's special, titillating joviality is essentially what we're about
Sean Donahoe: I think so, yeah, but we're a couple of practical jokers-
Phil Newton: Set the tone.
Sean Donahoe: Yeah, so we're gonna have . Yeah, there you go. So in today's show, we are going to basically explore some of the weirdest, and stupidest reasons stocks actually rose. And I mean these are really, you wouldn't expect these, you would expect these all to be-
Phil Newton: You couldn't make it up.
Sean Donahoe: You couldn't make it up, exactly. And so-
Phil Newton: But they did.
Sean Donahoe: They did, yes indeed. So we're gonna be looking as I say, at some of the stupidest reasons some stocks actually rose and the hype train that people jumped on, as well as the usual quick fire round. What else we got, Phil?
Phil Newton: Well, we got quick fire round, we got the bullshit of the week; we're not sort of thing's gonna be bullshit...literally calling out the hype, the hype and shenanigans of the industry all the way through this episode.
Sean Donahoe: Pretty much.
Phil Newton: So yeah. Maybe somewhere amongst all those shenanigans, we will find that core question of, "where is the trade?" And yeah, that's essentially setting the tone of the show for today-
Sean Donahoe: Absolutely. This is a very tongue-in-cheek show compared to what we usually do, but we will have some fun today, considering it is April Fool's-
Phil Newton: More fun than usual, I think it might be-
Sean Donahoe: There you go.
Phil Newton: More fun than usual.
Sean Donahoe: So, okay. So we're gonna have a little bit of fun here...each one of us is gonna share a couple of stories here. And just think about this, 'cause there's a valuable lesson, this is kind of like Aesop's Fables here. There's a valuable lesson and a moral to each story, and we'll take each one in turn. So here's the first one. You're gonna love this one. This one made me cry, laughing when it was going on...in fact, I think we were talking about this way, way, way back
Phil Newton: Around it, yeah, at the time.
Sean Donahoe: Yeah, so when Pokemon Go came out, if you haven't, if you've lived under a rock in Alaska or something like that, then you might not be aware of this. But, Pokemon Go was literally going crazy. It was a augmented reality cell phone game, and it sent people, basically, it got people out of the house and off their asses, and they were running around trying to catch these digital monsters just by walking around with their cell phone trying to catch them all. And, literally, the world went nuts with this.
Phil Newton: People were losing their mind.
Sean Donahoe: I mean, literally, people got hit by cars because they weren't watching where they were going crossing the street, trying to catch a bloody Pokemon in the middle of the street. Businesses were opening up Pokemon venues by actually paying the company that was behind this, to put monster-
Phil Newton: To put monsters in there.
Sean Donahoe: To put monsters in their establishment.
Phil Newton: Imaginary monst-
Sean Donahoe: Yeah, and I mean like, people would swarm when they heard, or there was rumors on social media about an ultra-rare one. People were swarming like...Central Park in New York. Literally, thousands of people trying to catch one of these virtual monsters. I mean, it was insane, and here's the thing. The stock price, Nintendo stock price rose by over 50%; gaining over one billion dollars a day, totalling over-
Phil Newton: Little finger to the corner of the mouth.
Sean Donahoe: Oh, indeed! I mean, this was, indeed. Now here's the thing, it totaled over ten billion in less than a week. But, there was one small problem. Nintendo didn't make the bloody game.
Phil Newton: What's that, Sean, let me know what that problem is.
Sean Donahoe: Yeah. Nintendo didn't make the bloody game at all. They only owed a small share of the company that did, and then they had to announce they didn't make it . It's not mine, so-
Phil Newton: That's what they had to say?
Sean Donahoe: Now here's the thing, and this is where, again, this is the moral of the story. A simple, bloody Google search...they would have figured out when all these investors are throwing their money into Nintendo, or a check of the bloody actual Google Play, or what have you where they're actually going to play the bloody game would have showed that it wasn't Nintendo responsible. It was another company entirely, but Nintendo kept it-
Phil Newton: I was just gonna say, so let's think about this. So as an investor, 'cause that's what...people want to invest in kind of, jump on the bandwagon if you'll pardon the pun, but try a new investor and get some stock movements from the overinflated excitement, you would have imagined that it would be very simple. That who owns Pokemon Go, you know, or you know, who owns the rights to that, now that would be the absolute most, bare minimum, basic research that you would do on a stock if that was your reason for investing. Who owns this? You know, who's gonna benefit from, you know, all the excitement and hype around this, the excitement of the game. 'Cause you know, at the time, it was a phenomenon that was providing an opportunity for savvy investors.
The catch was, as you just rightly said, who owns it?
Sean Donahoe: Who's behind it?
Phil Newton: You know, it's like when I get, when we get some support questions, Sean. You could, we get emails, and people might wait anywhere from one hour to 24 hours, depends on when they send that email on. When we get a chance to reply. They could type the same question into Google and get probably a better answer in a more timely fashion, because it's like, you know, what time does the sun rise? You know, that's the type of question that's being asked here. It's like, well, there's gonna be a table somewhere on the internet that says, you know, in your area when the sun is expected to rise. Or, when the tide is supposed to come in.
But you know what I mean? It's just like, it's common knowledge that is easy, accessible. But that's too difficult for some people, I'm guessing.
Sean Donahoe: Well, when you're talking ten billion, that's ten billion reasons why you should have looked at and double checked things before you get going. But, kind of leads into the next one. Do you wanna take this one?
Phil Newton: I might, I might. It's, well I'm gonna speak, I'm thinking of why you're asking me to say this, 'cause it's got lots of words without vowels, and you know I struggle at the .
South Korean semi-conductor device manufacturer, DI Corporation shares, wow that's a tongue twister before you even get going. So their shares surged over 800% in October, 2012. Now, why did this happen? You might ask me, Sean.
Sean Donahoe: Why did this happen, sir?
Phil Newton: No, they didn't. The latest mobile chip, or some super-secret computer, no none of that. The chairman, and the lead shareholder, wait for it Sean. I'm gonna get you on the edge of your seat about this, but the chairman and the lead shareholder was actually the father of the Gangnam Style song. Do you remember?
Sean Donahoe: Oh, my God. Hey there-
Phil Newton: How do you pronounce it? Is it Psy, Pie in my ignorance on how to pronounce it. Anyway, Psy. He actually owned some stock in the company, and it basically, you probably see where this is going, because of a tenuous link to the song and the popularity, and he owned some shares in the company, that was a good enough reason for stock to soar. There was no other correlation whatsoever, but because of that very tenuous link, the stock gained over a hundred million in value because of that popular and to be fair, it was a great song.
Everyone was lovin' it. It was a popular YouTube viral song. I think the only lyrics that we even know in it are, "hey sexy ladies." And that was it, and you had this crazy little dance with the, like you're revving motorcycles with your wrists crossed. And basically, that was it. It was just this viral song, but because of the link to the company, the stock actually soared and went absolutely, I think the phrase is official, batshit crazy.
Sean Donahoe: That's funny as hell. Oh, my Lord. Now here's the link with this one.
Phil Newton: But there was no reason.
Sean Donahoe: Yeah, there was no reason between them.
Phil Newton: I've just got, now we've seen similar things, again...the route that we're going down with these types of, I wouldn't call them opportunities, but there's just such tenuous, non-existent link to the stock, you know, surging in price. Now we have actually seen of these recently, where, you know, the stocks are going absolutely crazy, or what seems to be just nonsense, absolute nonsense. This is another good example of nonsense.
Sean Donahoe: Abso-bloody-lutely. Now here's the interesting thing, and it's a stupid fact, but Gangnam Style, a lot of people thought it was just celebrating, you know, it's K-Pop, you know, Korean pop music or what have you. But apparently, it was actually mocking the people who live in this area, which is Gangnam, apparently. And the...it's like living in Kensington in London, or something like that. And the absolutely ridiculous style and the attitudes they have in society. So it was actually a mockery of that.
But people didn't realize what was going on under the hood. But certainly, nothing to do with bloody semi-conductor testing company that's developing chips or anything like that, no. There was none of that. It was completely ridiculous.
Phil Newton: We say, "shenanigans".
Sean Donahoe: Absolutely. It was just stupid-
Phil Newton:
Sean Donahoe: Yes, indeed. And usually prefer yeah, bovine organic waste. There you go. So, okay. I've gotta have this one. I'm gonna call this one, "Flying the Nest". Now, here's the thing. Nest is like, is a home automation system. It really is like Sky Net for your home.
Phil Newton: The ticker symbol we're talking about here, Nest. N e s t.
Sean Donahoe: Well, yes. Actually, Nest Labs created this and Nest is actually the name of the system. So-
Phil Newton: All right, it's okay.
Sean Donahoe: Just to clarify, so-
Phil Newton:
Sean Donahoe: Yeah, it's over here, might not be over there yet. .
Phil Newton: And Sean, you know, help me out.
Sean Donahoe: So anyway, this system is basically controls your house, it can control, you can speak to it through your phone, control all your lights, it's very, very cool. If you ever watched the movie, "Demolition Man", it kinda reminds me that when he's walking into his house, he can turn on the lights with his voice and everything else. You can pretty much do that...Star Trek. Very, very cool stuff. And it really is an amazing system. We actually have one in this house. Basically, everything is connected, and Google bought out Nest Labs for three point two billion dollars.
And here's the cool thing. People absolutely loved it, they saw when Google is saying, hey they gotta buy a company, people wanna jump on the bandwagon. And, they did. There was a huge surge in the Nest stock symbol, and it jumped up 1900% of its value.
Phil Newton: Wow. That's a big jump.
Sean Donahoe: I mean, boom! Everyone wanted a slice. But there was one problem. Nest Labs is a private company, and not listed in the stock market. Nest, the stock symbol, is owned by a company called Nestor, Inc. and they make those automatic red light cameras, automatic traffic enforcement systems for government agencies, and cities and everything else; has nothing to do with Nest Labs. Oops! So, funnily enough, using one of the services involved in this entire transaction, called, "Google", where
Phil Newton: How would you respond to that? I mean, you could imagine that one or two people might make the, you know, be lazy and just go, "Oh yeah, let's go for it", or what you're saying. A quick Google search would answer this-
Sean Donahoe: Absolutely. Yeah.
Phil Newton: How can such a large group of people get it wrong? That would cause the stock to move so, let's be fair, so violently that has no relation whatsoever to why they're investing in the first place.
Sean Donahoe: It's just crazy. It's just crazy. Think about this, you should do your research and emphasis on the word, "search" in that re-search and using that Google thing and figure out it's the wrong damn company. That's, I mean...that is a facepalm moment.
Phil Newton: Now, the funny thing is, is if it was fake news, shall we say, I think that's the popular phrase. If it was fake news, or a rumor that was put out, this would be a classic pump and dump type .
Sean Donahoe: Absolutely, absolutely.
Phil Newton: You know, because that's what it is, it's just, it's a naturally, it's a pump and dump in the wild. Naturally occurring phenomenon.
Sean Donahoe: Abso-bloody-lutely. Yes, the common, not the commoner garden pump or dump, this is the, you know, like the haggis.
Phil Newton: fake pump and dump. Carry it in the wild one.
Sean Donahoe: Dear me. Dear me. So yeah, there you go. So, okay. I've got, no, I know you're gonna love this next one, so you, I'll let you take this one.
Phil Newton: Well, speaking of...you emphasizing the research, but let's just say you get the research wrong, Sean. We've all made those mistakes, I mean, it's gonna be the ultimate typo when you press the wrong keys in the wrong order. And something happens that shouldn't happen. So, we've all made mistakes-
Sean Donahoe: This is, this is if you've already done all your research, you got it nailed down, and you're gonna execute.
Phil Newton: Yeah, this is research, but what if you've done the research wrong? We've all made mistakes is the point I'm trying to get to, and at least we've not made a mistake similar to an employer. I'm gonna struggle with another simile, similarly even, weird name. I'm not, well, to be fair, Sean, I think I've embarrassed myself already by struggling around and chewing around, and not saying it. Is it Mizuho Securities?-
Sean Donahoe: I think that's close enough. That's what I would have said-
Phil Newton: Is that close enough? Again, I...it's just got too many vowels and not enough consonants. Or is it the other way around? I'm not sure. They accidentally made a decision that wiped two percent off the knicker. Just think about that. It doesn't sound like much. But when we think about the stock market, in a normal day, might move point three to point five percent is like a big move. A two percent move on an index, which is the index we're talking about. The Japanese index, stock index, two percent of the stock index was why. You know, that's a fairly big move.
Sean Donahoe: That's bloody massive.
Phil Newton: It's a big move when you think about, you know, that's trying to convert them to Dow points, you know, maybe, you know, five, six, seven hundred points. You know, it's, which is it, is it five, six or seven hundred points? No, but that's the sort of range of movement to give you an idea of the magnitude. When in a normal day, it might be 80-100. So, I'm just trying to kinda emphasize, that hey, one typo, one error by what could be a clerical error by an employee of the securities exchange, you know, basically, one to two percent off the knicker.
So in 2005, what happened, Sean, was that they wanted to sell a single share of JCOM at around 60, well six hundred and ten thousand Yen. It sounds simple. You know, you type in the ticker symbol, you type in weapon. You wanna sell a single share, and then you click send. You root the order. It sounds like a simple deal...we do it every day in our own accounts. But, unless you pressed the wrong button. They call this a fat-finger trade, Sean, in circles. You know, where you-
Sean Donahoe: Yeah.
Phil Newton: Press the one, but then hit the zero by mistake or you press the one or the four or five that you what I'm saying? You press two buttons by mistake and you don't check the numbers that you've put in. So basically, there's been a larger number, has been put in to send the order then what they intended. Again, it sounds such a simple little innocuous mistake to make, but it has a devastating impact on the exchange. And it's not the first time that I've heard this, I mean I've heard it with FTSE, the DAX, the European exchanges, you know, we don't hear it so much on the U.S. exchanges. But some the less liquid indexes, you certainly hear about it in Europe, every now and again.
But anyway, they backpedaled faster than what's keeping the theme, Sean, Sonic the Hedgehog trying to moonwalk like Michael Jackson.
Sean Donahoe: Sonic the Hedgehog trying to moonwalk, I'm trying to picture that, that's brilliant.
Phil Newton: It's a pretty fast backpedal is what we're trying to suggest here. But they tried to undo the change. Now what can happen, depending on whose palms you grease, you can reverse an order. What sometimes happens, is when there is a very obvious mistake that's made that has such a dramatic impact on the market, you know, the markets will just kinda pause for, you know, ten or fifteen minutes while they figure out, okay. Something's gone wrong here, and they can often reverse the mistake that's made.
But what happened this time, Sean, is that they refused to undo it. It was very clearly an obvious mistake.
Sean Donahoe: Oh my Lord.
Phil Newton: is all I can say. But this shredded about 345 million in value from Mizuho Securities, and you know, as you can imagine, such an error that ripples through the market, and heads would have been and were effectively rowing. What we're trying to say here is ultimately a typo, a clerical error, a fat-fingered trade is how it's usually referred to and very often usually reversed. They didn't do it this time, what was clearly a mistake and that just wiped millions off the markets and caused the indexes to move quite dramatically when it's clearly an error.
Sean Donahoe: Wow.
Phil Newton: They have procedures in place to reverse these things, it's kind of the nonsense I'm kinda trying to emphasize here as well.
Sean Donahoe: Oh wow. I was actually just looking this up, 'cause I wanted to see the details. Yeah, they accidentally dumped six hundred and ten thousand shares at one Yen each instead of one share at six thousand...six hundred and ten thousand. Wow. That's a definite "oops". And apparently, that was actually 41 times the amount of stock they actually held, so they had to honor that stupid price, because they refused to, they refused to .
Phil Newton: Here.
Sean Donahoe: And the head of the stock exchange, the Tokyo Stock Exchange, was actually, had to resign because of this. They told him to get the hell out, basically, because he wouldn't reverse it and hit...controls the-
Phil Newton: Don't darken my doorstep again.
Sean Donahoe: No, indeed. Oh my Lord, can you imagine being the trader that Oh wow.
Phil Newton: Yeah, I mean it should have gone to Specsavers. Takes on a whole new meaning. You know, I mean, if you're like me, and you do struggle to read the odd word, you would do what I've done a few times on this show, Sean. And that's just to say, "can I get clarification on what this is actually supposed to say". And clearly, if you read it the wrong way around-
Sean Donahoe: Geez. Okay, so that is classic. I mean-
Phil Newton: doesn't quite cover it, but to be fair...I wanna say a common occurrence. It's not unheard of on a semi-annual, you know, it happens a couple of times a year from the public's point of view. You know, those fat-fingered types of trades do happen, and you know, they're not obviously as dramatic as that one. But they do happen. You know, trades get reversed quite regularly, and you know, why it didn't happen on this occasion? I don't know. You know, someone was clearly having a bad day at the office, more than one person, maybe.
Sean Donahoe: Wow. That is insane. So, okay, I've got a couple of bonus ones here for you. I'm just pulling them up.
Phil Newton: Well, while you're thinking about that, I was thinking about my first kind of . It was a fat-fingered trade on the DAX, and was my first experience at this, sort of back in the year 2000, 2001-ish. That's what direction. And again, I was in a trade room at the time, a physical trade room, not a virtual one as we have these days. But I remember the markets just, it was on the DAX, which is the German index, and I remember it. The markets just dropping, and again, similarly around one and a half, two percent in a very short space of time it went from one level to the other and you know, it was very...was instead of a five lot order going through the market, a 50 lot order was placed.
Now it doesn't sound like much, but on the DAX, that's a big order for the DAX-
Sean Donahoe: I was gonna say, that's huge.
Phil Newton: Liquidity wasn't there. It jumped, you know, quite a big chunk of, I mean, with five lots you're gonna get slippage on the DAX. You know, it's not an order you're gonna get filled all at the same price. 'Cause liquidity is just not there. But it just, I mean, this was my first appearance of that fat-fingered phenomenon, and it just, the markets just jumped. I was like, "oh my God". You know, what's going on? Then before we know it...within a few minutes a hold was called, a hold on trading, and then all of a sudden it was, the trade was reversed, prices were back to about 14 minutes later. It was, you know, back to where it was previously.
The data was reversed, the order was reversed, what was essentially a fat-fingered trade, someone pressed 50 lots instead of five lots. And you know, and this is the same sort of thing that was just going on with the previous story, where the order was just put in the wrong way around and it caused such a big...you know, it's clearly a mistake. It does happen. I wouldn't say on a frequent basis for it to be common, but it does happen on a regular basis. You know, it just doesn't normally hit the news.
Sean Donahoe: Yeah, indeed.
Phil Newton: Unless it's something of that magnitude. Yeah.
Sean Donahoe: You know, we've seen a couple of these certainly happen over time, in different markets.
Phil Newton: Yeah, I mean, sometimes you hear, it's when markets go past the...but I suppose the automated and algorithm trading gets the blame a lot these days, where the market moves and it just kind of triggers the automated orders go through the system and someone's getting the blame. But you know, it's the same types of principles, just a larger volume of orders going through at one price point, is causing an accelerated movement. That's what we're talking about here. It just happened on one order; this fat-fingered trade.
Sean Donahoe: Funny stuff. Okay, well, I've got that quick fire round for ya.
Phil Newton: I was just having a little flashback, so in my early days trading.
Sean Donahoe: There you go. So, okay. Where we've got to now is the quick fire round. I'm gonna fire, just because this is, as I say, a tongue-in-cheek episode, let's actually, I'm gonna fire a couple of crazy stories that are, that I found. And you've gotta tell me, Phil, whether they're, you think they're true or false, knowing what we know in the stock market and with traders. These are crazy trading stories.
Phil Newton: These aren't in our show, no? actually don't know what's coming.
Sean Donahoe: Exactly.
Phil Newton: So not real.
Sean Donahoe: So okay. I found this crazy article about some stories. I just stumbled across these during my research for today's show. So I'm gonna fire this one at you. Okay, so first story.
Just for fun, the head of a trading desk made an outstanding and crazy offer to all of the people at his desk. Anyone who legally named their newborn boy, "Tammy" would receive a check for $25,000 upon submitting a valid birth certificate.
Phil Newton: I'll go, real on that one. That didn't seem too farfetched or crazy to be honest.
Sean Donahoe: It is absolutely true. Yes. Alas, there were no takers.
Phil Newton: And it's...in a movie, the movie that springs to mind, surprising, a movie link, was, "Indecent Proposal". I know it's not exactly the same thing, but you know, it must happen often enough for someone to have had the idea.
Sean Donahoe: Bloody insane, yes.
Phil Newton: 'Cause there's that guy, changed his surname to some businesslike name or website name. For 12 months, he gets sponsored and legally changes his name to whatever company he's promoting. I can't remember his name, surprisingly. But I also remember he changed his name to you know, like Bob Steiner dot com or whatever it was. It wasn't Bob Steiner, but you know what I'm saying. changes his name, you know, so it's not...it wouldn't be unrealistic to, you know, get a small check for something stupid like that, essentially. I don't know that's a big deal. Well yeah, true, true. Clearly true.
Sean Donahoe: Okay, yeah. It is true, and the last note takers, it proved too difficult to get anyone mother to agree, so. Now, okay. Here's another one.
A Wall Streeter boasted that he and his kids loved to go camping, so he built his Connecticut mansion, they thought, and lifted a jumbo-sized RV camper and placed it in the center of the basement. And then, built the house around it. True or false?
Phil Newton: That seems weird. I'd like to just point the finger and say, "You Americans are crazy". But that could be true. I'm gonna lean on the side of being true, here.
Sean Donahoe: It is. Absolutely true. Yes. It is absolutely true. I can't imagine doing that, but, you know, Jesus Christ. That is insane, but yes, it is true. So okay. Here's another one. Now, this one, I think I know what Phil's gonna say, but I'm gonna throw it out there anyway.
A sell side firm was having so much fun partying in the 80s that they actually put their drug dealer on the payroll as an assistant. It was more convenient to have him hanging out at the desk. The dealer ended up learning how to trade stocks and was so damn good at it, that years later he became the head of the desk.
Phil Newton: You know, I'm surprised that story wasn't in the Wolf of Wall Street, something like that. It sounds such like something that would have been on page 42 of the book, maybe. It's so crazy and out there, I'm gonna say true to that as well.
Sean Donahoe: It is true, yes. It is true.
Phil Newton: It just seemed so farfetched, it's got to be true.
Sean Donahoe: Yeah, that's...we all hear these stories of these, this kinda craziness that you know, that Wall Street was all loaded up with cocaine and everything else-
Phil Newton: If you say the 80s, it's gotta be true.
Sean Donahoe: That was it. Okay, so. Okay, how about this one?
A trader paid a bouncer one year's salary to quit his job on the spot and be his personal bouncer for the night and take him to the bathroom whenever he needed to go. His job, his only job was to clear a lane, and the next day the trader was asked why he did it. His answer was, "I just felt like it". True or false? dramatic Simon Cowell pause, here.
Phil Newton: I want, I don't have the waxed chest that he's got, though. I wanna say true to this one as well. Again, it seems so farfetched, but I've heard similar things where people have been...people have got too much money than sense.
Sean Donahoe: Yes.
Phil Newton: And again, I've known a few pit traders before the pits were closed, sort of late 90s, early and I've heard some of the...I've not had firsthand experience but I've heard the stories from pit traders that, the things they used to do. So I can believe this actually happened, as well. So I'm gonna say true, as well to this.
Sean Donahoe: It is absolutely true. I hate to say it.
Phil Newton: Again...it's not the craziest thing I've heard.
Sean Donahoe: No.
Phil Newton: I've, well, I'll tell you some of these stories off air, Sean, from ex pit traders.
Sean Donahoe: Well, I've got one that's gonna set the, I think, set the bar kinda high. Okay.
A sales trader and seven other guys wracked up a $27,000 strip club bill, in six hours. The next day, he didn't know how to expense it, so he went straight to the CFO. The CFO had a hard time figuring out what to do; he ultimately decided to take every dollar of commissions until the debt was paid off. Oh, and he said, "don't ever do that again". True or false?
Phil Newton: You know what? Again, not the first time I've heard this story, Sean. It's gotta be true.
Sean Donahoe: It is true. It is true. Twenty-seven thousand. It's like the GDP of small countries.
Phil Newton: Well, I've heard a few stories, that kind of ranging from sort of forty thousand....we're talking pounds here, 'cause it's UK traders. But sort of forty thousand all the way up to sort of seventy-five, eighty thousand pounds. You know, for a couple of hours, you know, around of drinks at Spearmint Rhino's or something like that. It's not an uncommon thing to...again, it's true. It's gotta be true. If that one's not true, I've heard too many similar stories.
Sean Donahoe: Yes, it is true. So, there you go. That's the quick fire round and each one of those unfortunately, was true. But, now.
Phil Newton: Not some of the craziest there, stories that I've heard to be fair.
Sean Donahoe: No, I had to keep them semi-clean.
Phil Newton: Semi-clean, yeah, semi-clean. I think for educational purposes, we'll just recommend go and watch, not necessarily watching the Wolf of Wall Street, but go and read the book, or similar books. 'Cause...eye watering stories in there, apparently.
Sean Donahoe: Yes, indeed.
Phil Newton: And, you know, anyway. Moving swiftly on, I think is the phrase you want next.
Sean Donahoe: Absolutely. Now here's the funny thing, I actually have a signed copy. I actually met Jordan Belfort, the guy behind Wolf of Wall Street, and actually have a signed copy of the book. Now, I think he's a complete tool, don't get me wrong. But I have a signed copy of the book anyway.
Phil Newton: He's a charismatic tool.
Sean Donahoe: Yes. Yes, indeed. But there you go, anyway. With that being said, let's-
Phil Newton: Moving on.
Sean Donahoe: Let's move on very, very bloody swiftly.
Automated: And now, it's time for the Rebel Trader tip of the week. Brought to you by trade canyon dot com. Ready to take your trading game to the next level? Discover where smarter traders come to get coached by the best, and learning to trade just got way easier. Trade Canyon. Smarter Traders live here.
Sean Donahoe: Okay, so the Rebel Trader tip of the week. So based on today's content, here's the part I'm lying. It's kind of the underscore, know what the hell you're doing, and why. Double check that hot tip, or speculative trade, and watch out for those fat-finger trades. Listen, anyone can get caught in this by not thinking and letting the wrong part of their brain take over. Pipe dreams are everywhere, and tempting you to jump on, but ultimately, the risk is usually not worth the reward. If you're going into one of these risky, speculative trades, again, cross all your I's and dot all your T's. And again, yes that was deliberately backwards. But you wanna make sure you got all the details locked in, locked down and be aware of these greed temptations as they usually lead to loss. So Phil, what do you say about that?
Phil Newton: I think it's worth, I was just gonna say it's worth mentioning, all right, don't discount them out of hand-
Sean Donahoe: No.
Phil Newton: If you want to pay...the suggestion that we always make is, use whatever is sent to raise your awareness that something could be happening. And then what you wanna be thinking about is, does it meet your criteria for a trade? Just because someone says, "hey, I'm bullish on this", you know, my first thought is, if someone's giving me some type of tip, I'm automatically thinking the opposite. Just 'cause I've had some experience and I want whatever the crowd is doing, whatever the herd, I wanna be doing the opposite.
So it raises my awareness of an opportunity, and it might not be what, kinda the headline opportunity is. You know, I'm usually thinking the...contrarian mindset is, that's the way we trade. You know, it's uncommonly, sorta doing the uncommon thing is probably the best way to benefit from it. So I think, just raise your awareness. You know, if you want to pay attention to the rumor mill and the hot tip, that's great, but the best way to treat them is, raise your awareness of something.
It doesn't matter whether you're trying to stay neutral and...whether it's a bullish or a bearish opportunity, and you know, evaluate it for yourself...if you must pay attention to, I think that's the same, personally, I want to, you know, do my own thinking, do my own research, and try and evaluate the opportunity relative to my personal strategy. But, if you are gonna keep it, have an ear to the ground, just use it to raise your awareness.
Sean Donahoe: Absolutely. So there you go, ladies and gentlemen. Again, raise your awareness, but do your homework, and hey, Google is your friend when it comes to finding out some information.
Phil Newton: There's no excuses these days. There literally is no excuses.
Sean Donahoe: Abso-bloody-lutely.
Phil Newton: stock market. Yes or no?
Sean Donahoe: Dear me. That's the one I think, it was the ultimate, "are you kidding me? Are you kidding me right now?" There you go. Anyway-
Phil Newton: For real?
Sean Donahoe: Exactly. Exactly. So there you go. We've shown many facepalm moments today, we've shown many head scratchers, and WTF moments-
Phil Newton: We've learned some of these lessons the hard way, as well, you know, I've had my, you know...I've bought into the rumor mill, and I did it once and once only. And it was a lesson, an expensive lesson, that I learned very early on. And I've never done it again since.
Sean Donahoe: Yeah. Absolutely. That's kind of why we developed these strategies in these things. So anyway, let's move onto the mail bag.
Automated: If you've got questions, we've got answers. Sean and Phil dive into the virtual mailbag for this week's Rebel Traders quick fire round.
Sean Donahoe: Okay, so again, a quick rummage in the mailbag, and we'll actually get to some serious stuff now, for a change.
Phil Newton: Never serious.
Sean Donahoe: No, no, never let this happen. So I'm gonna fire this first one at you. What is, what are the best ways to hedge a long stock position? Now that's kind of-
Phil Newton: Why do you wanna hedge? Why do you wanna hedge?
Sean Donahoe: Because they like
Phil Newton: That might be a yes. Hire a gardener. No...but why are you backpedaling on the hedge? Has something changed? Has your viewpoint changed? You know, if you're thinking about a hedge, then you're worried about something. So what are you worried about? And why didn't you set that up as a part of the trade that you expressed when you put the position on in the first place? You know, that's what's going through my mind. So, you know
Sean Donahoe: That's what is going through my head, as well, is like, if you're uncertain about the trade, why have you got the trade on?
Phil Newton: Why you doing it in the first place? Yeah, I mean all right. If you want to, I mean, there's lots of reasons why you would hedge, and I understand that. I have been a little bit flippant, but I'm just trying to point out, you know, you should think about these things before you put the trade on. Okay, you're thinking about the worst case scenario. I f I buy stock, we are talking about buying stock here, if I buy stock or to be fair, I could be selling short, but how can I protect against the worst case scenario? So what is the worst case scenario, and how can I minimize that?
That should be addressed before you put the trade on. So that you know what you're doing and why you're doing it. So if you're in the position and you're thinking about a hedge, then you're worried about something. You know, my, again, my knee-jerk reaction then would be, well your position start is too big, if you're worried about something. Nothing's changed. Why are you stressed? You know, have some conviction in your analysis. Well, this question of, you know, in my view, should be addressed before or as part of your research. There's that word again, Sean. As part of your research in the, evaluating the opportunity.
So, you know, if you're in the position, and you're starting to stress, then you know, okay, maybe you should reevaluate the way that you set the trade up. To answer the question, how'd he hedge it? Buy stock, buy puts. That is the simplest way to protect it and cap down such risk, so if you're wrong, you've got a protection, you've got a "get out", you can cap your maximum loss without having to use a physical stop loss and get out of position. 'Cause the market oscillates, so it allows you to kind of cap that risk. That would be what I would do if I was thinking about protecting so, but just to rephrase here, buy stock and then at a certain point, below the price that you've purchased the stock, you would buy a put, which gives you the right. But not the obligation to sell the stock that you've purchased.
Sean Donahoe: Absolutely. So, nice simple way.
Phil Newton: So if it does go down, yeah, if it does go down, and the value of...the stock does go down and the option expires, then you've got the right, which is why you're buying the put in the first place is to sell that stock at that price that you've purchased the strike price at. So, it just allows you to kind of hedge the trade. And again, the reason why you would do that is you've not got a physical stock blot in place, so that you're not getting out of the position of what effectively could be noise.
Sean Donahoe: That's exactly it. I mean, you couldn't really answer that any better, because my biggest concern was again, why are you in the trade, and why wasn't that planned for? Or, okay, if there's a problem with a trade and there is an issue, then is it time to get out of that position rather than hedge it, because again, situations change. But, there you go.
Phil Newton: Now, again just taking it the other way, maybe something like right now, there's something funky on in the market as we're doing this. The markets...they're kind of a little bit crazy and kooky. They're erratic. So maybe that's why you're hedging. Again, the same thing. Maybe you wanna look for the same reason in the same way. You wanna lock some profits in. Or, you know, you don't wanna kind of sit through a deep retracement if this is looking like it could be a market...you can do the same thing, and lock profits in. That would be another way to kind of hedge and, you know, if you do got a deep retracement, you can lock in the higher price, buy it back at the lower price.
And all those, you know, for the same reason you can do that at any point during the trade, when initially opening the position, I'd be thinking about protecting the downside risk and then at some point, say in the middle of the position, if we're in a situation like now where the market is crazy. Maybe you want to protect the profits, and for the same reason and in the same way that's what you can do.
Sean Donahoe: Perfect, perfect
Phil Newton: Spectrum there.
Sean Donahoe: Yeah, I like the double edged sword on that one, and we can see, you know, two
Phil Newton: There's a lot of ways to do it, I mean arguably it comes down to what's your objective with trading, and why you're doing the opportunity in the first place. You know, watch your telly, there are lots of other questions, but just back of the envelope, broad stroke version there are your two kind of extremes, in my view.
Sean Donahoe: And it's funny, 'cause we do this a lot, 'cause with a lot of these questions we always go back to the originator. You know, what is your intent? What is your goal? Why were you in the trade in the first place? We always go back to that original, because it's the foundation of all good trading, is what put you in that position in the first place? Or what-
Phil Newton: Yeah, why did you do it? If you, yeah. What are you doing, when are you doing, why are you doing it? Anyway, yeah. It's an interesting question, maybe...suppose we could do a whole session on that kind of risk profiling on positions, but-
Sean Donahoe: We actually might do that, yeah. I think that's a good, I think that's a good idea for a future show.
Phil Newton: in the future, and I know this is going to be right up your bowling alley.
Sean Donahoe: Yeah, Mrs.
Phil Newton: Do you think AI, artificial intelligence, and machine learning will make trading useless? I was actually thinking about this today, actually. Yeah but do you think AI and machine learning will make trading useless? Just before you answer that, while you mull this over, Sean, I saw an article, Sean, about as Amazon are doing physical store locations, now-
Sean Donahoe: Yes.
Phil Newton: scanning, get your book or whatever it is you're buying and scan out, and they're making, essentially, the shop assistants. And it's not the first business to do this, but they are making the shop assistants surplus to requirements. You know, we've seen in the grocery stores, or the same way, McDonald's has gone the same way, where it's kind of self-service, selecting your menu, you push your own buttons. For the most part, brokerages don't, you know, we've got discount...you know, we can push the buttons ourselves, essentially, which makes the stock broker useless to kinda keep on board.
So, you know, it's not a new thing entirely, it's gradually getting more common in lots of industries. You know, is technology gonna make an AI learn, but would it make the trader useless? We know that the broker's useless.
Sean Donahoe: I don't think so. Here's the thing. Lots of people, and this is something you've said before which is actually a very good point...there's people behind the algorithms, and at the end of the day, these algorithms are gonna be competing with each other. Long and short, with different criteria, different signals, if they were all the same, I would say yes. Because they would literally feed off of each other. But right now, or they would replicate each other's trades and it would be ridiculous. But there's gonna be plenty of algorithms taking the other side of trades, and making different decisions based on different criteria, different data sets.
The thing is, that no algorithm is the same, unless it's stolen. But that, at the end of the day-
Phil Newton: It could also be a common word; should be a colon, there could be typos, different personalities, the same-
Sean Donahoe: Different data.
Phil Newton: And the same strategy can be written in different ways and different languages, therefore open to interpretation. So I think I'm kinda with you there, Sean, I mean I think there's gonna be more reliance on some form of algorithmic approach. And you know, there's more people learning computer language...for a second language, you know, it's becoming more common to be able to write some kind of coding language. And there's certainly more interfaces that allow non-coders to write code and-
Sean Donahoe: Yeah.
Phil Newton: You know, that certainly can be done. Will it get rid of traders completely? I don't think so-
Sean Donahoe: No, I don't think so-
Phil Newton: But certainly in the short term, are we talking you know, five, ten, fifteen years? I don't see it on the horizon. It doesn't mean that jobs are gonna be lost at the, kinda the higher level, but I think the retail trader, we will always gonna want to push our own buttons.
Sean Donahoe: I agree, and I think what's gonna happen . Well, at the end of the day, here's the thing. I think that trading is going to evolve. I was reading a complex, a detailed article last night from Nvidia...they are holding a big event, and they were saying that...some of their machine learning has grown in terms of speed. It's ten times faster than it was six months ago, and this is using Nvidia GPUs to, you know, basically stack with each other to process and mine data machine learning systems, which is really where Nvidia is moving to. And I think there again, it's the industry, it's gonna get faster and faster and faster, more and more algorithmic trading is gonna happen. Greater volume, greater liquidity.
Phil Newton: More commonplace as well.
Sean Donahoe: And I think it's gonna be more and more commonplace, indeed. And I think the markets are gonna become more and more efficient, because again, these micro trades and high frequency trading, they're gonna take the other side of pretty much any position based on what they're seeing and learning, and everything else. And there's still gonna be room for the retail trader. Now, for the, I would say the thunder trader and the pro traders, I wouldn't say their days are numbered, but I think there's gonna be a decline. Because again, more and more people-
Phil Newton: I think it could be machine operated trading. 'Cause i know a guy, I know a guy, Sean. There's a guy I know that's, he was essentially a coder and writing algorithms, and essentially he gave me the impression that...the only thing he couldn't code was when to turn the program on and off. He had to manually evaluate...these look like the right conditions for this group of algorithms or that group of...you know, he'd have maybe 20 different algorithms running and trading for him and put the trade on, taking it off and managing the trade and managing the risk. But he had to kind of pull the levers to turn them on and off.
Because that's the only thing he couldn't code was to recognize the mock conditions for that group of strategies, or the next group of strategies. I think that's one direction that the retail trader will go. That availability to maybe run multiple strategies and, you know, just be like the fat controller and pop them on and off and pull the levers.
Sean Donahoe: Yeah, basically. Basically, that's, that is one issue, but I think that can evolve as well because all you need to do now is create machine learning algorithms that identify the environment and what is likely best for a particular equity. I mean, we are rapidly approaching full automation here and autonomous trading with, without even the need.
Phil Newton: I think the availability for the little guy and the retail trader to evaluate and data mine opportunities is getting cheaper and cheaper; more affordable and more commonplace. I think that's what will change, so it might create, to be fair, it's going to create more traders, more opportunity, more, you know, two-sided markets. You know, I don't think it will get rid of the individual trader.
Sean Donahoe: No.
Phil Newton: At least its current evolution, and even what's on the horizon of evolution.
Sean Donahoe:
Phil Newton: Yeah. An interesting thought, yeah, an interesting thought.
Sean Donahoe: Absolutely.
Phil Newton: Thought provoking, Sean.
Sean Donahoe: Well, we try and be intellectual occasionally. It doesn't happen often, but there you go. So okay, that leads into the next question perfectly, which is, "what do pro traders do that retail traders don't?"
Phil Newton: Manage risk. Instant knee-jerk reaction.
Sean Donahoe: Yeah, exactly. I was gonna say, I was thinking the same thing, when I saw this, is risk management and actually for the most part, make money.
Phil Newton: There's no thinking in that answer. It's just immediately. The retail trader, and we've said this many times before, but it's my knee-jerk reaction to that type of question. The retail trader focuses on, "how much money can I make?". The pro trader, I wanna say a pro trader, someone who not necessarily who is professional...'cause a professional trader might mean that they're working at the institutional level, the managing of funds, and you know, they're a professional. But someone who's making money a successful trader, that could include the retail trader when I'm talking about a pro trader.
Someone who's consistently making money from the markets, shall we say. The consistently successful trader is focused on, "how little can I lose?" vs. the retail, the uneducated retail trader is focused on, "how much money can I make?". And it seems such a weird distinction to make, but if you focus on, "how little can I lose?", surprisingly, Sean, just like every other business in the world is always thinking about, "how can I reduce my overhead?". As a business owner, that's one of your constant concerns, is, "how can I get rid of the unnecessary overhead?".
You know, and if I'm not managing the risk of the business. So if traders did that more, then on the assumption that you've got a positive expectancy strategy, which is a fancy way of saying, "we expect to make money", which is why we're in business in the first place, on that assumption that you've got that part of the puzzle working, then the profits will take care of themselves. You know, and that's the difference between retail traders and pro trader, the people who make money, the people who don't make money.
That's the difference between it as far as I can tell, and it doesn't matter whether it's an institutional hedge fund, a successful retail trader, but that's the difference between people who make money and don't make money with any business, as far as I'm concerned.
Sean Donahoe: Abso-bloody-lutely. Bang on the nail, and yeah, it really does come down to the attitude, the businesslike approach. The pro traders have a businesslike approach to their business. I mean, that's what it is. Retail traders in general, don't. We have a thing we say here, which is a horrible statistic, but 90% of retail traders lose 90% of their money within 90 days. I mean, that is atrocious, but it comes down to not having a solid strategy, not sticking to it, not having risk management and literally too much speculation in their trades. You know? They're
Phil Newton: For the fence.
Sean Donahoe: Absolutely.
Phil Newton: one trade and again, they'll look and say, "look how much money I could make".
Sean Donahoe: Abso-bloody-lutely. So there you go. That is the mailbag, and again, drop your questions, we'll rock on and play on, sir. Play on.
Phil Newton: You might not necessarily get a good answer, but you'll get an answer.
Sean Donahoe: There you go, indeed, indeed, indeed. Okay, so rock on.
Automated: Don't forget, if you have a question you want to ask Sean and Phil, just go to Trade Canyon dot com, slash RT questions and your question may be featured on a future show. Uh oh, what's that smell? It's time to call out the Wall Street shenanigans, mainstream confusion, and outright hi jinks and hokum of so-called, "experts". Yep, it's time for, "Bullshit of the Week".
Sean Donahoe: Okay, so, Bullshit of the Week, and I think you're gonna like this one, Phil. This kinda carries on from last week's bullshit. But basically, this is market manipulation 101, but to my mind, it's a valid bloody reason. You see, here's the thing. Twitter dropped 12 percent yesterday, after a short seller announced their research. Now, this is research of every famous and popular short seller that everyone listens to, because as soon as he sells and makes an announcement, something usually happens...but here's the thing. It's the self-fulfilling prophecy. The problem is that his reasons are absolutely valid. So he's obviously got a big, short position. He puts out this big announcement, press release, gets all the press.
Everyone jumps on it, and then, boom. The stock goes down, which is great for him, because his short position is now going down, and everything else. The price is going down, and he's making money like hand over fist. But here's the thing that they said. They cite that regulatory pressure, which is you know, for privacy, which is happening because of the Facebook issue that we were talking about with Cambridge Analytical last week and everything else. You can't turn on the TV without hearing about Facebook at the moment and all this.
But, citing the heavy regulatory pressure for privacy will impact the data business. I mean yes, folks, surprise, surprise-
Phil Newton: Really? Really?
Sean Donahoe: Based on your data. They sell your data. If you pick up your cell phone, you've got data. You're generating data, and they sell it. Companies are listening, you know, it's basically, your phone is always on with a microphone. Okay, Google, do this. Hey, Alexa. Do this. Guess what? They're continuously listening. Now, are they processing that data? No one's gonna officially say for sure and there's been all sorts of accusations. But at the end of the day, big part of Twitter's current business is selling that data. It's worth 400 million dollars a year.
So, they also cite a large amount of insider selling, a low short interest. And acquisition of Twitter is kind of unlikely, 'cause no one wants to touch them, because let's face it. Twitter is kind of like, unless you're a celebrity or a news feed, not a lot of people actually use it productively every single day and have real conversations. I've been seeing massive decline and it really is, it's been under massive pressure. I mean, the dynamics are in place to short Twitter was the, one of the official phrases from the article.
Regardless, I mean, we've talked about this in the past. I mean, market manipulation a couple of weeks ago, and with a big enough earpiece and trumpeter, hail your bad news publicly, you can drive down the price of an equity like these guys have done. Problem is, that the...research they've done is valid and it's just enough to tip over a fragile stock.
Phil Newton: Are you trying to tell me, Sean, that you can't polish a turd?
Sean Donahoe: Well you can sprinkle sugar on it, but you ain't gonna eat it, you know what I mean? But, yeah...at this stage it's just not good. I mean, Twitter and social media in general right now, we were talking about this a wee while ago, is what we call the monster effect. And this is from when Coca-Cola bought Monster, and we saw a massive jump in Pepsi because Pepsi had nothing to do with it, you know, because it was just again-
Phil Newton: But it's that rising tides experience. It raises all ships as we were discussing at the time. You know, and this is, arguably this is the other way around, isn't it?
Sean Donahoe: Exactly. It's sinking all turds, yes, and-
Phil Newton: the drain.
Sean Donahoe: Indeed, but at the end of the day, what's happening to Facebook is gonna drag down some of the other players in this industry, and Twitter dropping 12 percent right after this, I mean, yeah. You know they just made major bank because of this, but they had enough of an earpiece to get it out there to a lot of, the attention of lots of other sellers.
Phil Newton: But it wasn't just smoke and mirrors
Sean Donahoe: Yeah.
Phil Newton: Saying there as well. There was actually a justifiable, "hey this is actually a turd, we're just pointing it out, and the overall"-
Sean Donahoe: And here's our evidence.
Phil Newton: . Oh, sorry, some celebrity just saying, "we're not gonna use it". If you can't...your company's probably not that good in the first place if having that much of an impact on the share price. You know, that for me would be quite concerning.
Sean Donahoe: Abso-bloody-lutely. And then, watch out for which platform she says she actually uses now, it was Kylie Jenner. Knocked out 15 billion dollars off of the, off of Snapchat's market cap.
Phil Newton: See, they snapped it off .
Sean Donahoe: Abso-bloody-lutely. Geez.
Phil Newton: Or you know...but it does make a mockery of the situation. I mean, I suppose it just goes to show how little substance there are behind some of these platforms, or some of these businesses. It puts me in mind of the late 90s where anything with a dot com in it was, you know, was, you know, floating on the stock market. And there was no substance to the company, really there was no substance. So, we're saying that, you know, in a small but similar way, anything with block chain and the name, is you know, suddenly getting overinflated pricing should we say.
And the opposite was social media, you know, because one's got a particularly bad rep at the moment and the other companies are getting a similar bad rep. But they're already not great companies. Not that they're bad companies, they're perhaps just not good companies. I know there was a distinction there. Well you know what I'm saying? It's...an interesting way to find opportunities, I think as well.
Sean Donahoe: Abso-bloody-lutely. And again, it's raising awareness, keep an eye out. There are opportunities right there, where you know, this can't be. Look for follow on, look for momentum, and look for any other one that could be. Do a little digging. See which companies are selling the data that could be also affected by this regulation. Do your homework. Again, opportunities abound, and there is your opportunity for, where is the trade?
We actually found one in bullshit.
Phil Newton: Indeed. And just like a rising tide, will lift all ships, a flushing toilet will sink all turds.
Sean Donahoe: There you go. It was waiting for that one.
Phil Newton: I've been itching for that break
Sean Donahoe: Oh dear, you need to go see a doctor.
Phil Newton: Oh dear, oh dear. I need to go in there, get this 40 pound .
Sean Donahoe: Indeed. And with that stupidity and hilarity, we will wrap up the show right there. That is it for this week and thank you for listening to the show. Please remember, this show isn't free, and this show is a little bit crazy this week, but it will cost you a five star review. Just go to Trade Canyon dot com, forward slash Rebel Traders, you can subscribe and leave a review, we'd love to hear from you and see what you think of the show. Any suggestions or questions, and rock on from there. What else we got, Phil?
Phil Newton: Well, you can also connect with us on the social media platforms that we've just been bashing, the Facebook and Twitter
Sean Donahoe: While they still exist, yes.
Phil Newton: Specifically, while they're still around, you can reach out to us there, Trade Canyon dot com, forward slash Rebel Traders. What have we got coming up in next week's show, Sean?
Sean Donahoe: Well, we are gonna take a little more serious and relaxing and Zen-like state. We are going to take a state of trading Zen, of how to get your mind in the zone, and stay there during your trading. Basically, mind strengthening, focus, and resilience and discipline. We're gonna be talking about a few different things, what you need as a trader to really be at that professional level, and maximize your-
Phil Newton: It's like my flippancy, a subject that's quite close to my heart.
Sean Donahoe: Indeed. So we're gonna go from crazy to Zen, and rock on. Absolutely. We'll be sitting on rocks, surrounded by rakes and sand, and we'll be all good. So I'm not shaving my head-
Phil Newton: You could say Sean, you could say Sean, but today's show was two standard deviations away from Zen.
Sean Donahoe: There you go.
Phil Newton: I'm gonna bring it right back to the midpoint, as a mean reversion.
Sean Donahoe: There you go. I actually like that, well done, sir. Well done. See, you know-
Phil Newton: Right.
Sean Donahoe: You got it, you got it made, you got it made. Okay, so ladies and gentlemen, rock on. We'll see you next time. Take care for now.
Phil Newton: See you next time.
Automated: For more cutting edge trading advice, and a free trader workshop to help you build a personalized trading plan, and make smarter trading decisions, go to Trade Canyon dot com now.
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[00:00:10] Show Introduction

[03:19] Sean: Each one of us is gonna share a couple of stories. Just think about this because there's a valuable lesson and a moral to each story. It's kind of like Aesop's fables. Here's the first one. This one made me cry laughing when it was going on. When Pokemon Go came out, it was literally going crazy. It was an augmented reality cell phone game and it got people out of the house and off their asses. They were running around trying to catch these digital monsters just by walking around with their cell phones trying to catch them all. The world went nuts.

[04:19] Phil: People were losing their minds.

[04:19] Sean: People got hit by cars while trying to catch a bloody Pokemon in the middle of the street. Businesses were opening Pokemon venues by paying the company that was behind this to put monsters in establishment. People would swarm when they heard rumors about an ultra-rare one, like in Central Park. Literally thousands of people. It was insane. Here's the thing. The stock price, Nintendo, rose by over 50%, gaining over 1 billion dollars a day. It totaled over 10 billion in less than a week, but there was one small problem. Nintendo didn't make the bloody game at all. They only owned a small share of the company that did. And then they had to announce they didn't make it. This is the moral of the story. A simple Google search, they would have figured out, when all of these investors were throwing their money into Nintendo, or a check of the actual Google Play app, would have shown it wasn't Nintendo.

[06:01] Phil: As an investor, trying to invest and get some stock movement from the over-inflated excitement, you would have imagined that it would be very simple to say who owns Pokemon Go? That would be the bare minimum research you would do on a stock if that was your reason for investing. Who owns this? Who's gonna benefit from all the excitement and hype of the game? At the time, it was a phenomenon that was providing and opportunity for savvy investors. But the catch was, who owns it? It's like when we get support questions. We get emails. People might wait anywhere from 1 hour to 24 hours, depending on when they send that email and when we get a chance to reply. They could type the same question into to Google and get a better answer in a more timely fashion. Like what time does the sun rise? That's the type of question. There's gonna be a table on the internet that says when the sun is supposed to rise in your area. It's common knowledge that's easily accessible. But that's too difficult for some people.

[07:31] Sean: When you're talking 10 billion, that's 10 billion reasons why you should have double checked things before you get going. But, kind of leads into the next one. Do you want to take this one?

[07:43] Phil: I might. It's got lots of words without vowels and you know I struggle. South Korean semiconductor device manufacturer, DI Corporation Shares. Their shares surged over 800% in 2012. Why did this happen? Did they invent some super cool technology? No they didn't. The latest mobile chip or some super secret computer? No, none of that. The chairman and lead shareholder was actually the father of the Gangnam Style song.

[08:39] Sean: Oh my god. Heyyy, sexy lady.

[08:42] Phil: He owned some stock in the company and because of a tenuous link to the song, that was a good enough reason for the stock to soar. It gained over a 100 million in value. To be fair, it was a great song - a YouTube viral song. I think the only lyrics we know are 'hey sexy lady' and there was this crazy little dance with it. Basically that was it.

[09:45] Sean: That's funny as hell.

[09:51] Phil: There's no reason. You can see the theme we're going with. We have seen a few of these recently where stocks are going absolutely crazy for what seems to be just nonsense.

[10:16] Sean: Here's the interesting thing. Gangnam Style, a lot of people thought it was just celebrating K pop (Korean pop music). But apparently, it was actually mocking the people who live in this area, which is Gangnam, and it's like living in Kensington in London and the absolutely ridiculous style and attitudes they have in society. But certainly, nothing to do with the semiconductor company.

[11:04] Phil: Dare we say, shenanigans?

[11:05] Sean: It was just stupid. Bovine organic waste. Okay, I'm gonna have this one. I'm gonna call this one 'flying the nest'. Now, here's the thing. Nest is a home automation system. It really is like Skynet for your home.

[11:27] Phil: The tick symbol we're talking about here: NEST.

[11:30] Sean: Actually, Nest Labs created this and Nest is the name of the system. It basically controls your house. You can speak to it through your phone and control all your lights. If you ever watched the movie, Demolition Man, it kind of reminds me of that when he's walking into his house and he can turn on the lights with his voice. You can pretty much do that, like something out of Star Trek. Very cool stuff. It really is an amazing system. We actually have on in this house. Basically, everything is connected. Google bought out Nest Labs for 3.2 billion dollars. When Google is saying they want to buy a bandwagon, people want to jump on the bandwagon. And they did. There was a huge surge in the NEST stock symbol and it jumped up 1900% of its value. Boom. Everyone wanted a slice. But there was one problem. Nest Labs is a private company and not listed in the stock market. NEST, the stock symbol, is owned by a company called Nestor, Inc. and they make those automatic red light cameras, automatic traffic enforcement systems for government agencies and cities. Has nothing to do with Nest Labs. Oops. Using one of the services involved in this entire transaction, called Google, and a little bit of research...

[13:08] Phil: My head is in my hands here. How do you respond to that? You can imagine that one or two people might be lazy and say let's go for it. But like you're saying, a quick Google search would answer this. How can such a large group of people get it wrong that would cause the stock to move so violently?

[13:38] Sean: It's just crazy. Think about this. You should do your research and emphasis on the word 'search', using that Google thing and figure out it was the wrong damn company. That is a facepalm moment.

[13:53] Phil: The funny thing is, if it was fake news or a rumor, this would be a classic pump and dump setup.

[14:06] Sean: Absolutely.

[14:07] Phil: It's a pump and dump in the wild, a naturally occurring phenomenon.

[14:28] Sean: Dear me. So there you go. I know you're gonna love this next one, so I'll let you take this one.

[14:33] Phil: You were emphasizing the research, but let's just say you get the research wrong, Sean. We've all made those mistakes. It's gonna be the ultimate typo.

[14:57] Sean: This is - you've done all your research and you've got it nailed down and you're gonna execute.

[14:58] Phil: But what if you've done the research wrong? We've all made mistakes is the point I'm trying to get to. Is it Mizuho Securities?

[15:21] Sean: I think that's close enough. That's what I would have said.

[15:24] Phil: Is that cockney enough? It's just got too many vowels and not enough consonants, or is it the other way around? I'm not sure. Anyway, they accidentally made a decision that wiped 2% off. It might not sound like much. In a normal day, we think about a 0.2% or 0.3% move as a big move, a 2% move on an index, in this case the Japanese index, 2% was wiped off. That's a fairly big move.

[15:59] Sean: That's bloody massive.

[16:00] Phil: Let's try to convert that to DOW points. Maybe 500, 600, 700 points when in a normal day it might be 80-100. I'm just trying to emphasize that one typo, it could be a clerical error by an employee of the securities exchange, basically wiped 2% off the Nikkei. In 2005, what happened, Sean, was they wanted to sell a single share of JCOM at around 610,000 yen. It sounds simple. You type in the ticker symbol. You type the number one, and then you click send. They call this a fat-fingered trade in circles. You press the one but then you hit the zero by mistake. There's been a larger number than what they intended. It sounds like a simple, innocuous mistake, but it has a devastating impact on the exchange. Anyway, they backpedaled faster than Sonic the Hedgehog doing the moonwalk like Michael Jackson.

[17:41] Sean: Sonic the Hedgehog trying to moonwalk. That's brilliant.

[17:45] Phil: It's pretty fast. They tried to undo it. Depending on who's palms you grease, you can reverse an order. What sometimes happens is when there is a very obvious mistake that has such a dramatic impact in the markets, the markets will just pause for 10-15 minutes while they figure out what's gone wrong. They can often reverse the mistake. But what happened this time, Sean, is that they refused to undo it.

[18:20] Sean: Oh my lord.

[18:22] Phil: This shredded about 345 million in value from Mizuho Securities. Such an error sent ripples through the market. Heads were rolling. Ultimately, a typo, a clerical error, a fat-fingered trade, often reversed, they didn't do it this time, wiped millions off the market and caused the indexes to move quite dramatically. It's clearly an error and they have procedures in place to reverse these things is the nonsense I'm trying to emphasize here.

[19:10] Sean: Wow. I was just looking this up to see the details. They accidentally dumped 610,000 shares at 1 yen each instead of 1 share at 610,000. That's a definite oops. Apparently that was actually 41 times the amount of stock they actually held, so they had honor that stupid price. A head of the Tokyo stock exchange had to resign because of this. Told him to get the hell out because he wouldn't reverse it. Can you imagine being the trader that did that?

[20:11] Phil: If you're like me and struggle to read the odd word, you would do what I've done a few times on this show. Can I get clarification on what this is supposed to say?

[20:24] Sean: Jeez. That is classic.

[20:29] Phil: Oops doesn't quite cover it. But it's not unheard of. It happens a couple of times a year from the public's point of view. They're not usually this dramatic, but it does happen.

[20:57] Sean: That is insane. So I've got a couple of bonus ones here for you. I'm just pulling them up.

[21:04] Phil: While you're thinking about that, I was just thinking about my first thought. It was fat-fingered trade on the DAX, was my first experience with this in the year 2000 or 2001. I was in a physical trade room. The DAX, the German index, and I remember the markets just dropping 1% or 2% in a very short time. Instead of a five lot order going through the market, a 50 lot order was placed. That's a big order. Because the liquidity wasn't there, it jumped. With 5 lots, you're gonna get slippage. But this was my first experience. Before we knew it, a halt was called on trading and the trade was reversed. About 40 minutes later, it was back to where it was previously. Everything was reversed. Someone pressed 50 lots instead of 5 lots.

[22:46] Sean: Indeed. We've seen a couple of these over time in different markets.

[22:54] Phil: I suppose the automated and algorithmic trading gets blamed where the market moves and it triggers all the automated orders. Someone's getting the blame. Same principles. A larger volume of order going through is causing an accelerated movement.

[23:23] Sean: Funny stuff. Well I've got the Quickfire Round for you. I'm gonna fire a couple of crazy stories that I found. You've got to tell me Phil whether they're true or false in the stock market.

[24:03] Phil: These aren't in our show notes. I don't know what's coming.

[24:03] Sean: Exactly.

[00:24:03] Quickfire Round

[24:07] Sean: I found this crazy article about some stories. First story: Just for fun, the head of a trading desk made an outstanding and crazy offer to all of the people at his desk. Anyone who legally named their newborn boy 'Tammy' would receive a check for $25,000 upon submitting a valid birth certificate.

[24:33] Phil: I'll go real on that. That doesn't seem too far fetched or crazy to be honest.

[24:36] Sean: It is absolutely true. Alas, there were no takers.

[24:41] Phil: The movie that springs to mine was Indecent Proposal. I know it's not exactly the same thing, but it must happen often enough for someone to have had the idea. That guy changed his surname to some business name or website name and he gets sponsored to legally change his name to whatever company he's proposing. I half remember he changes his name to like BobsDiner.com or whatever it was.

[25:18] Sean: That's funny. It proved too difficult to get any mother to agree. Okay, here's another one. A Wall Streeter boasted that he and his kids love to go camping. He built his Connecticut mansion. They lifted a jumbo-sized RV camper and placed it in the center of the basement and then built the house around it. True or false?

[25:54] Phil: That seems weird. I'd like to just point the finger and say you Americans are crazy, but it could be true. I'm gonna lean on the side of being true here.

[26:05] Sean: It is absolutely true. I can't imagine doing that. That is insane. Here's another one. A cell-side firm was having so much fun partying in the 80's that they actually put their drug dealer on the payroll as an assistant. It was more convenient to have him hanging out at the desk. The dealer ended up learning how to trade stocks and was so damn good at it that years later he became the head of the desk.

26:44 Phil: I'm surprised that story wasn't in The Wolf of Wall Street. It sounds like something that would have been on page 42 of the book. It's so crazy and out there I'm gonna say true to that as well.

[26:58] Sean: It is true. We all hear these stories of the craziness that Wall Street was all loaded up as cocaine.

[27:18] Phil: You said the 80's, so it's got to be true.

[27:21] Sean: Okay, how about this one? A trader paid a bouncer one year's salary on the spot to quit his job and be his personal bouncer for the night and take him to the bathroom whenever he needed to go. His only job was to clear a lane and the next day the trader was asked why he did it. His answer was, just felt like it. True or false?

[27:42] Phil: I want to say true to this one as well. Again, it seems so far-fetched by I've heard similar things where people have got more money than sense. I've known a fit pit traders before the pits were closed, and I've heard stories like this. I can believe this actually happened as well. So, I'm gonna say true as well.

[28:24] Sean: It is absolutely true.

[28:29] Phil: It's not the craziest thing I've heard. I've tell you some of these stories off-air.

[28:36] Sean: Well I've got one that's gonna set the bar kind of high. A sales trader and seven other guys racked up a $27,000 strip club bill in six hours. The next day, he didn't know how to expense it, so he went straight to the CFO. The CFO had a hard time figuring out what to do. He ultimately decided to take every dollar of commissions until the debt was paid off. Oh, and he said don't ever do that again. True or false?

[29:06] Phil: Not the first time I've heard this story. It's gotta be true.

[29:13] Sean: It is true. It's like the GDP of small countries.

[29:19] Phil: I've heard a few stories ranging from 40,000 pounds all the way up to 75,000, 80,000 pounds for a couple of hours, a round of drinks at Spearmint Rhinos or something. It's not an uncommon thing.

[29:47] Sean: Yes, it is true. That's the Quickfire Round and each one of those was unfortunately true. I had to keep them semi-clean.

[30:03] Phil: I think for educational purposes, we'll just recommend watching or reading the book The Wolf of Wall Street, or similar book. There's some eye-watering stories in there.

[30:19] Sean: Here's the funny thing. I actually have a signed copy. I actually met Jordan Belfort. I think he's a complete tool but I have a signed copy. Anyway, with that being said, let's move on very bloody swiftly.

[00:30:45] Rebel Trader Tip of the Week

[31:01] Sean: Okay so, the Rebel Trader Tip of the Week. Based on today's content, here's the bottom line. It's kind of the underscore. Know what the hell you're and why. Double that check that hot tip or speculative trade and watch out for those fat-fingered trades. Listen, anyone can got caught in this by not thinking and letting the wrong part of their brain take over. Hype trains are everywhere and tempting you to jump on. Ultimately, the risk is not usually worth the reward. If you're going into one of these risky speculative trades, again, cross all your i's and dot all your t's. Yes, that was deliberately backwards. But you want to make sure you've got all the details locked in, locked down, and be aware of these greed temptations as they usually lead to loss.

[31:53] Phil: I think it's worth mentioning. Don't discount them out of hand. The suggestion we always make is use whatever is said to raise your awareness that something could be happening. What you want to be thinking about is does it meet your criteria for a trade? Just because someone says, I'm bullish on a trade... My first thought is if someone's giving me some tip, I'm automatically thinking the opposite. Whatever the crowd is doing, I want to do the opposite. It raises my awareness of an opportunity, and it might not be what the headline is. That contrarian mindset is the way we trade. If you want to pay attention to the rumor mill, that's great. But the best way to treat them is raise your awareness of something. Try to stay neutral, whether it's a bullish or bearish opportunity. Evaluate it for yourself if you must pay attention to it. Personally, I want to do my own thinking relative to my own personal strategy.

[33:22] Sean: There you do. Raise your awareness but do your homework. Hey, Google is your friend when it comes to finding out some information.

[33:32] Phil: There's no excuses these days.

[33:45] Sean: But there you go. We've shown many facepalm moments today. We've shown many head scratchers and WTF moments.

[34:04] Phil: I bought into the rumor mill once only. It was an expensive lesson and I've never done it again since.

[34:11] Sean: Absolutely. That's why we develop these strategies. Let's move onto the mailbag.

[00:34:10] Quickfire Round

[34:26] Sean: Okay so, a quick rummage in the mail bag. We'll actually get to some serious stuff now, for a change. I'm gonna fire this first one at you. What are the best ways to hedge a long stock position?

[34:52] Phil: Why do you want to hedge? Why are you backpedaling on the hedge? Has your viewpoint changed? If you're thinking about a hedge, you're worried about something. Why didn't you set that up as part of the trade you expressed when you put the position on? That's what going through my mind.

[35:17] Sean: Funny. That's what was going through my head as well. I'm like, if you're uncertain about the trade, why you got the trade on?

[35:23] Phil: There's lots of reasons why you would hedge and I'm being a little bit flippant, but I'm just trying to point out that you should think about these things before you put the trade on. If I buy stock or am selling short, how can I protect against a worst case scenario? What is the worst case scenario and how can I minimize that? That should be addressed before you put the trade on so you know what you're doing, when and why. If you're in the position and thinking about a hedge, then you're worried about something. My knee jerk reaction is your position size is too big if you're worried about something. If nothing's changed, why are you stressed? Have some conviction in your analysis. This question should be addressed before or as part of your research in evaluating the opportunity. Maybe you should reevaluate the way you set the trade up. To answer the question, how do you hedge it? Buy stock and buy puts. That is the simplest way to cap downside risk. If you're wrong, you've got a protection. You've got to get out. You can cap your max loss without having to use a physical stop loss and get out of the position. It just allows you to cap that risk. That'd be what I would do. Buy stock and at a certain point below the price you've purchased the stock, you would buy a put, which gives you the right but not the obligation to sell the stock that you've purchased.

[37:03] Sean: Absolutely. It's a nice simple way.

[37:07] Phil: If it does go down and the options expires, then you've got the rights which is why you're buying the stock in the first place to sell that stock at that price that you've purchased the strike price at. It allows you to hedge the trade. The reason why you would do that is that you've not got a physical stop loss in place, so that you're not getting out of the position of what effectively could be noise.

[37:34] Sean: That's exactly it. You couldn't really answer that any better. My biggest concern was again, why are you in the trade and why wasn't that planned for? If there's a problem with the trade or if there is an issue, is it time to get out of that position rather than hedge it because again, situations change. There you go.

[37:52] Phil: Again, just taking it the other way. Maybe something like right now, there's something funky going on in the market as we're doing this. The markets are a little crazy and kooky - they're erratic. Maybe that's why you're hedging. Maybe for the same reason, you want to lock some profit in. You don't want to sit through a deep retracement if this is looking like it could be a market correction. You could do the same thing and lock profit in. If you do get a deep retracement, you can lock in the higher price and buy it back at a lower price. You can do that at any point during the trade, but initially when opening the position, I would be thinking about protecting the downside risk and then at some point, say in the middle of the position, if we're in a situation like now where the market is crazy, maybe you want to protect the profits and for the same reason in the same way, that's what you can do. Two ends of the spectrum there.

[38:43] Sean: I like the double edged sword on that one. We can see two angles.

[38:50] Phil: There's lots of ways to do it. It comes down to what's your objective with trading? Lots of other questions, but there are your two extremes in my view.

[39:02] Sean: And it's funny because we do this a lot. A lot of these questions, we always go back to the originator. What is your intent? Why were you in the trade in the first place? It's the foundation of all good trading.

[39:23] Phil: It's an interesting question. I suppose we could do a whole session on risk profiling of positions.

[39:32] Sean: We actually might do that. That's a good idea for a future show.

[39:35] Phil: Question for you, Sean. I know this is gonna be right up your bowling alley. Do you think AI (artificial intelligence) and machine learning will make trading useless? Before you answer this, I saw an article about Amazon doing physical store locations. You just scan in and get your book or whatever it is you're buying and scan out. They're making the shop assistants self-service requirements. McDonald's is doing the same thing. You push your own buttons. For the most part, brokerages, we can push the buttons ourselves. It's getting more common. Is technology going to make the trader useless. We know the broker is useless.

[40:43] Sean: I don't think so. There's people behind the algorithms. These algorithms are going to be competing with each other long and short with different criteria and signals. If they were all the same, I would say yes because they would feed off each other or replicate each other's trades and it would be ridiculous. But there's gonna be plenty of algorithms taking the other side of trades and making different decisions based on different criteria based on different data sets. The thing is, no algorithm is the same unless it's stolen.

[41:32] Phil: There could be a typo, different personalities...

[41:36] Sean: Different data.

[41:37] Phil: The same strategy can be written in different ways and different languages and open to interpretation. I think I'm kind of with ya, Sean. I think there's gonna be more reliance on some form of algorithmic approach. There's more people learning computer language as a second language. There's certainly interfaces to allow non-coders to write code. That can be done. But will it get rid of traders completely? I don't think so. Not in the short-term, 5-15 years. It doesn't mean jobs are gonna be lost or that it won't be done at the high level, but I think the retail trader, we're always gonna want to push our own buttons.

[42:25] Sean: I agree and here's the thing. I think trading is gonna evolve. I was reading a detailed article last night from Invidia. They were holding a big event. They were saying some of their machine learning has grown in terms of speed. It's ten times faster than it was 6 months ago. This is using Invidia GPUs to stack with each other to process and mine data, machine learning systems, which is really where Invidia is moving to. The industry is gonna get faster and faster, more algorithmic trading is gonna happen. Greater volume. Greater liquidity. I think it's gonna be more commonplace and the markets are gonna become more efficient because these micro-trades and HFT, they're gonna take the other side of any position, based on what they're seeing and learning. They're still gonna be room for the retail trader. For the fund trader and pro-traders, I wouldn't say their days are numbered, but there's gonna be a decline.

[43:43] Phil: I think it could be machine-operated trading. I know a guy who was essentially a coder and writing algorithms. He gave me the impression that the only thing he couldn't code was when to turn the program on and off. He had to manually evaluate. Ex, this looks like the right conditions for this group of algorithms. He'd have maybe 20 different algorithms trading for him. He had to kind of pull the levers to turn them on and off. I think that's one direction that the retail trader will go - that availability to maybe run multiple out strategies and just be like the fat controller to turn the levers.

[44:38] Sean: Yeah, basically. That is one issue but I think that can evolve as well. All you need to do now is create machine learning algorithms that identify the environment and what is likely best for a particular equity. We are rapidly approaching full automation here and autonomous trading without even the need.

[45:00] Phil: I think the availability for the little guy and the retail trader to evaluate and data mine opportunities is getting cheaper, more affordable, and more commonplace. I think that's what will change. So, it might create more traders, more opportunity. I don't think it will get rid of the individual trader.

[45:39] Sean: Okay, that leads into the next question perfectly, which is "What do pro-traders do that retail traders don't?

[45:51] Phil: Manage risk. Instant knee jerk reaction.

[45:58] Sean: I was thinking the same thing. Risk management. Actually, for the most part, make money.

[46:02] Phil: There's no thinking in that answer. The retail trader focuses on how much money can I make, and the pro-trader, who, I want to say is not necessarily a professional. Professional level might mean they're working at the institutional level or managing a fund. But someone who's making money. A successful trader. That could include the retail trader when I'm talking about a pro-trader. Someone who's consistently making money in the markets. Anyway, the consistently successful trader is focused on how little can I lose vs. the uneducated retail trader who is focused on how much money can I make. Every business in the world is thinking about how can I reduce my overhead? As a business owner, that's one of your constant concerns. That's managing the risk of the business. If traders did that more, on the assumption that you've got a positive expectancy strategy, the profits will take care of themselves. That's the difference between people who make money and people who don't make money with any business.

[47:48] Sean: Bang on the nail. It really does come down to the attitude - the business-like approach. We have a thing we say here, which is a horrible statistic, but 90% of retail traders lose 90% of their money within 90 days. That is atrocious. It comes down to not having a solid strategy, not sticking to it, not having risk management, and literally too much speculation in their trades.

[48:23] Phil: Swinging for the fence.

[48:30] Sean: Absolutely. So there is the mail bag. Drop your questions, we'll rock on and play on, sir. Jog on, kitty.

[48:39] Phil: You might not necessarily get a good answer, but you'll get an answer.

[48:42] Sean: Indeed. Rock on.

[00:48:46] Bulls**t of the Week

[49:14] Sean: Okay so, Bullshit of the Week. I think you're gonna like this one, Phil. This kind of carries on from last week's bullshit. Basically, this is market manipulation 101. To my mind, it's a valid bloody reason. Twitter dropped 12% yesterday after a short seller announced their research. This is a very famous short seller that everyone listens to because as soon as he sells and makes an announcement, something usually happens. It's the self-fulfilling prophecy. The problem is his reasons are absolutely valid. He's obviously got a big short position. He puts out this big announcement, press release, and everyone jumps on it and then boom. The stock goes down. It's great for him because his short position is now going down and he's making money hand over fist. They cite that regulatory pressure for privacy, which is happening because of the Facebook issue we were talking about with Cambridge Analytica, citing any regulatory pressure for privacy will impact their data business. Yes, folks. Surprise, surprise. They sell your data. If you pick up your cell phone, you've got data. They sell it. Companies are listening. Basically your phone is always on with a microphone. Okay, Google, do this. Hey Alexa, do this. Guess what, they're continuously listening. Are they processing that data? No one's gonna officially say for sure. There's been all sorts of accusations. Big part of Twitter's current business is selling that data. It's worth 400 million dollars a year. They also cite a large amount of insider selling, a low short interest, and the fact that an acquisition of Twitter is kind of unlikely. Let's face it, Twitter is kind of like, unless you're a celebrity or news feed, not a lot of people use it productively. It's seen massive decline. It's been under massive pressure. The dynamics are in place to short Twitter was one of the official phrases from the article. Regardless, we've talked about market manipulation in the past. With a big enough earpiece and trumpet hail your bad news publicly, you can drive down the price of an equity, like these guys have done. The problem is, the research they have done is valid. It's just enough to tip over a fragile stock.

[51:54] Phil: Are you trying to tell me, Sean, that you can't polish a turd?

[52:00] Sean: Well you can sprinkle sugar on it but you ain't gonna eat it! At this stage, it's just not good. Twitter and social media in general right now is what we call the monster effect. This is from when Coca Cola bought Monster and you saw a massive jump in Pepsi because Pepsi had nothing to do with it, but-

[52:29] Phil: It's that rising tide experience. It raises all ships. Arguably, this is the other way around.

[52:37] Sean: Exactly. It's sinking all turds.

[52:42] Phil: It's gonna flush them all down the drain.

[52:46] Sean: At the end of the day, what's happening to Facebook is gonna drag down some of the other players in this industry and Twitter dropping 12% right after this, you know they just made major bank because of this. They had enough of an ear piece to get it out there to the attention of a lot of other sellers.

[53:10] Phil: It wasn't just smoke and mirrors, is what you're saying. There was actually a justifiable, "Hey, this is a turd. We're just pointing that out." The overall flavor of the publicly-traded social media platforms is horrible. Snapchat is the other one. That's down the pan as well. Some popular person saying I'm not using it, that's scary. That tanked Snapchat. It's scary when you can't survive when some celebrity is saying we're not gonna use it. Your company is probably not that good in the first place if it's having that much of an impact on the share price.

[53:59] Sean: And then watch out which platform she says she actually uses now. It was Kylie Jenner and knocked off 15 billion dollars off of Snapchat's market cap.

[54:16] Phil: I suppose it just goes to show how little substance there is behind some of these businesses. It puts me in mind of the late 90's where anything with a .com in it floated on the stock market and there was no substance in it. Anything with blockchain in the name is getting over-inflated pricing, and the opposite with social media. Because one has a bad rep, the others are too, but they're already not great companies - not that they're bad companies. It's an interesting way to find opportunities.

[55:05] Sean: Absolutely. It's raising awareness. Keep an eye out. Look for follow on, look for momentum. Do a little digging. Look for which companies could be also affected by which companies could have opportunities abound and there is your opportunities for where is the trade? We actually one in all this April Fool's bullshit.

[55:33] Phil: Indeed. And just like a rising tide will raise all ships, a flushing toilet will sink all turds.

[55:41] Sean: He was waiting for that one. You need to go see a doctor. With that stupidity and hilarity, we will wrap up the show right there. That is it. Thank you for listening. Please remember, this show isn't free. It will cost you a five star review. Just go to tradecanyon.com/rebeltraders. You can subscribe and leave a review. We'd love to hear from you and see what you think of the show, any suggestions or questions and rock on from there. What else we got, Phil?

[56:16] Phil: You can also connect with us on the social media platforms we've just been bashing at tradecanyon.com/rebeltraders. What have we got next week?

[56:32] Sean: We're gonna take a little more of a serious and relaxing and zen-like state. We are going to take a state of trading zen and how to get your mind in the zone and stay there during your trading. It's basically mind strengthening, focus, and resilience and discipline. We're gonna be talking about a few different things you need as a trader to really be at that professional level.

[56:59] Phil: Despite my flippancy, a subject that's quite close to my heart.

[57:01] Sean: Indeed. We're gonna go from crazy to zen and we'll rock on. We'll be sitting on rocks surrounded by rakes and sand. I'm not shaving my head.

[57:14] Phil: You could say that today's show was two standard deviations away from zen and we're gonna bring it right back to the midpoint as a mean reversion.

[57:24] Sean: I like that. Well done, sir. You've got it made. Ladies and gentlemen, rock on. We'll see you next time. Take care for now.

[57:33] Phil: See you next time.

Resources & Links Mentioned in This Week's Show

3 Key Takeaways From This Show

  • Don’t follow the fools in to oblivion
  • Check your trades, why you are getting in to them and make sure you have your facts straight
  • Watch out for those fat-finger trades, they can be very costly

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