A dumb thing I did in 2020:
Saw something that wasn't there on a maiden RE trade and bot late. Should have known bulk tonnage MRE/PEA etc almost all sold news in 2020 but was busy and rushed. Need to be early to best win those types of deposits. -25%ish for my trouble. 1/11

A thread about GameStop:

Big hedge funds made big bets that GameStop’s stock was overvalued. The way these bets work is the hedge fund borrows shares of the stock and sells those borrowed shares.

When it comes time to give the borrowed shares back, they buy them on the market, hopefully at lower prices. For example, they might sell the borrowed share at $50, hoping to be able to buy the share back at $30, to make a $20 profit. This is called shorting.

The hedge funds were so sure that GameStop was going down, that GameStop was the most shorted stock on the market. 140% of the shares in existence were “borrowed.” Imagine Bob borrows from Jane who borrows from Sue who borrows from John.

Shorting is risky, but the hedge funds were so sure that they just didn’t even care. People on Reddit realized this and basically thought “what if we all just bought shares and refused to sell them when the hedge funds need to give their borrowed shares back.”

The price goes up, the hedge funds are forced to buy back the expensive shares and lose money. Except the hedge funds kept doubling down as the price rode up, expecting that it would eventually fall. The Redditors weren't scared off and with "diamond hands" refused to sell.

In my 20 years of trading I have noticed this cycle play out again and again with traders that "make it":

1. Overconfidently reach for returns
2. Get humbled by the market
3. Simplify + concentrate on clear, high probability edges.

1/n

Nearly everyone starts with a lack of respect for how hard it is to consistently make money trading.

That leads them to pass over high-probability sources of returns in favor of more marginal ideas.

Or they overcomplicate the trading of a good edge.

2/n

Here's an example...

It is 2015. You look at a simple strategy.

You hold an equal dollar exposure to:
- Cap Weighted US Stocks (VTI)
- 20+ Yr US Treasury Bonds (TLT)
- Gold (GLD)

And rebalance each month.

(I've extended back a bit with mutual fund prices.)

3/n

It made money consistently with a few blips.

You'd have 4x your money from 1997 to 2015.

It makes sense. It's harnessing two big sources of risk premia (equity + duration).

It diversifies across 3 macro assets that tend to outperform in different econ environments

4/n

But, naturally, you turn your mind to how you could do better...

And here is where it gets dangerous!

There are good ways to try to "do better", and there are bad ways to try to "do better".

5/n

Saturday Thread Time.
Re-Read interview of Ed Seykota from @jackschwager
book "Market Wizards". It's the most philosophical interview among all interviews. Needs to re-read it over and over.
@vivbajaj Sir, a re-tweet would be highly appreciated.

1. Systems don’t need to be changed. The trick is for a trader to develop a system with which he is compatible

2. The key to long-term survival and prosperity has a lot to do with the money management techniques incorporated into the technical system.

3. The profitability of trading systems seems to move in cycles. Periods during which trend-following systems are highly successful will lead to their increased popularity.

3.1 As the number of system users increases, and the markets shift from trending to directionless price action, these systems become unprofitable, and undercapitalized and inexperienced traders will get shaken out. Longevity is the key to success.

4. In order of importance to me are (1) the long-term trend, (2) the current chart pattern, and (3) picking a good spot to buy or sell.