We have been living in a crazy world this year. I don’t need to go into details. One of the interesting developments has been the number of new traders who have joined the markets in the belief that they can make easy money.
There is nobody more famous at the moment than Dave Portnoy and his online Twitter circus called Davey Day Trading Global #ddtg. Do yourself a favour and watch this clip (sound on). This interesting character is being featured regularly on CNBC and in the Wall Street Journal. The trading elite are up in arms. I love it.
I write most weeks about the AxiSelect incubation program for talented traders where we allocate up to $350,000 to qualifying traders and it got me thinking about something I think can be a learning experiencing for all parties. (Please do not respond to this email asking “how to get the money” if you haven’t bothered to go to the site and read all the rules.)
Over the last few months I have developed a burning desire to get more active in my trading after a number of years on the sidelines. So I decided to fund a small account and attempt to qualify for the AxiSelect program myself and hopefully become a Pro and document my journey in a public trading journal/blog.
This can naturally turn into an embarrassing failure on my part if I screw up but I think we can all learn through my experience which I will journal for all to see and therefore even if I fail I believe I can win. You can follow my performance on the PsyQuation platform with this link and I will be sharing the link to my journal shortly, I am just getting a little better organized.
As you can see I have started with quite a bang. Do not expect to see this kind of performance on a consistent basis. If the ducks are quacking I like to feed them.
My last comment is I listened to one of the most brilliant podcasts by one of the wisest guys in the markets. Jeremy Grantham is a hall of fame investor and is head of GMO with more than $60 billion under management. His style of value investing based on quantitative analysis is right up my ally. I have been following him for decades through his quarterly memo’s. If you do nothing else but listen to this podcast you would have done yourself and your investments an enormous service. Enjoy it here.
PsyQuation Community Stats (new section)
We look at the number of new accounts opened within our database relative to the base month of January 2020.
The message is pretty clear; account growth took off in March, April and May. I think this can be explained by a few factors:
- more time at home,
- looking for new ways to make money,
- FOMO – everyone in the markets seems to be making money so there is a palpable fear of missing out.
The media is all abuzz about the Robinhood traders effect on the recent bull market. For those who don’t know about it, Robinhood is a broker that disrupted the market by offering Zero commission trading to its mainly millennial target customer. Robinhood originally made its money by earning interest on the cash deposits in their client account but in a zero interest world that quickly ran dry. Due to the zero commission and its branding and technology it has been HUGELY successful. If they are offering their services for free its worth wondering how they are making money. I am not sure that most people realize they make their money by selling the order flow of their order book to high frequency firms.
What is interesting to note is that this in effect creates a momentum effect. You can read who Robinhood is selling its flow to here. What is happening in practice is the high frequency traders front run the orders driving up the price and then they get the follow through buy (or sell) from the Robinhood trader who get a terrible price fill.
Spinning Straw into Gold
Fairy tales and mythology play a much bigger role in our unconscious minds than we realize. For the last few days I have been stuck on symbolic imagery from the fairy tale Rumpelstiltskin. The story is hundreds of years old with many different areas to analyze. I want to focus on the spinning of Straw into Gold.
In the story, the nameless pretty girl is thrust into a difficult situation because of her fathers big mouth and ego needs. The greedy king threatens to kill her if she cannot turn a room full of straw into gold. The girl doesn’t know what to do and is close to giving up hope until she discovers an imp-like creature. The little goblin is able to turn the straw into gold for the girl in return for a payment, and so starts the slippery slope of doing business with the devil.
I am not going to repeat the story but I think there is some modern day symbolism with the way Central Banks are printing money like the spinning wheel in the story. Against common wisdom it seems that Central Banks are able to do the impossible, that is create money out of thin air. However what I believe we can learn from the stories ancient wisdom, there is always a cost. We may not see it at first or we may think that the cost is manageable, which is precisely what happened with the girl in our fairy tale. Each time she struck a new deal for a bigger cost she quickly became used to it and life continued on with no real consequence, until the ultimate cost comes knocking on the door.
The message I am trying to convey through this seemingly childish story is that based on the actions by Central Banks and the way we have engaged with the easy money is we really haven’t grown up. Its incumbent upon all of us to grow up and bring to consciousness the fact that there are certain parts of our life that need to die before we can grow whole.
Just like with Rumpelstiltskin, the day of reckoning is coming and I ask you, “who knows his name?”