This is going to be a long one but I think it will be worth your while for any trader that was not around during the Dot Com bubble. I am not going to say the financial crisis (NOT YET at least the FOMC still has time to screw this up and create the Dot Com bubble and financial crisis packed in one). I am going to tell you exactly what I went through, good bad and ugly. What mistakes I made and learned from, and what you should think about.
Now I know you have had the Perma bears screaming this since the rise from the Covid crash. They are one side minded, were wrong and got there asses handed to them. I am a Bull, but there are times to be a bear or just a sleeping bull.
I can tell you my experience and the similarities. My stocks were $ATML $JDSU $CMGI $JNPR (which is the only ones that still trades but it was over $244, went to $4 and now is $32, might have been a reverse split I can’t remember) and there were tons more but those are the ones I remember best. I guess I could try and call E*trade, see if they could send me my statements from 1998-2000. That would be something.
Your stocks are $AMC, $GME, $KOSS, ect. and crypto. First off I am not saying they are going to zero, some could like many from the Dot com Bubble, but they will come down to reality at least, and no we are not close to there yet.
Alright let’s give you the background.
It was 1998, I worked at a cell phone store for $10 hour plus commission, while a junior in college. Market was h0t real hot. Look at the $QQQ went from $57 to $120.
The owner of the store would sit on the phone most of the day ( LANDLINE ) with his broker trading. Online trading was only around 6 year, and slow, most people with real money traded through the phone old school. I saved up $5k and put it into an E*trade account. You had to know your fractions back then. A stocks did not trade to the penny like today ( that started in August 2000). Prices were 25 1/2, 13 1/4, 200 1/8, you get the idea. Options were not available to a 5k account heck they were not even liquid back then compared to today. So my story won’t be Turning 5k into 1mm.
Most traded equity back then and the equity was anywhere from 15 to 300 a share. But the dot com was simple. Stocks went up everyday. You bought when they were up $3 and sold before close up $15, 20, heck $50. When your account got bigger you bought the higher priced stocks that would open up $10 and range $60 sometimes $100 a day. Now they of course pulled back before close, we did not close on the highs everyday.
But the range was great. It was not HODL like today, no diamond hands. You would hold some overnight but cashed out most before close ( at least what is classified as the common day trader of now). Oh and after I don’t know, maybe 3 weeks when my 5k account was I think 30k E*trade gave me day trading margin ( you only need 2k in an account back then to have overnight margin, which was definitely fuel to the fire. Man I thought I was fucking Gordon gecko ( if you don’t know who that is watch the movie Wall Street, NOW).
Made 10k in a week went with friends to Cancun for spring break. Literally was there once a month for 3 months straight. Oh and it wasn’t just me. EVERYONE TRADING was making fucking money ( sound familiar).
The diner went from having Oprah on to the stock market. The waitress ( that used to scream at you in high school for throwing shit across the diner), would give you extra shit when you owned the same stock that she did. My dad who was a psychologist had a ” Quotetron”. That was the way you got quotes all the time from wherever you were ( 99% sure that was the name).
No smart phones back then. Cell phones just made calls, and that was only if you were lucky enough to be in an area that had service. Life was great 22 years old making thousands every week. I did do something smart back then. I always put a decent amount in the bank. Maybe 25-40% depending on the week.
Thanks to my dad ( and his friend that worked on Wall Street as the pension fund manager for US steel), he told said “this is big, something is wrong”. He mainly traded corporate bonds but saw the writing on the wall. So I sold everything. Made a ton of money on the ride up. Bought a bunch of stuff. Still had savings. But gave a SHIT LOAD back.
Is this your current status, or at least some of it…
Well we can’t fix what happened, but we can change what could be.
So are we at the Dot com bubble, NO, but global markets are now more than 3x larger ( 33T 1999 to over 94T beginning of 2021), and the FED balance sheet went from 1T to over 9T since 2005. There are many more moving pieces today. It won’t be the same debacle.
Will some of the names go to zero. YES. Will 50% of these high PE ratio stocks never come back to the price you bought them at, YES. They are already down 50-70%, well I hate to be the one to break this to you, BUT, many will go down another 50-70%, and still not be at 0.
So how would I handle this ( I am in know way a financial advisor, just someone that has been there, and this is my opinion).
If you look at your account and are hoping, praying for your stocks to rise, SELL THEM.
Hope and prayer does not work in the market. There is a reason the CEO of $AMC sold. ( Courtesy of Barron’s).
He knows it’s going back to $4 if not lower. Tell me why it is worth more Pre COVID. The market got out of hand.
I can write a 20 page article that led to all this but let’s just figure out what I would do now.
I am a technical trader but also look at fundamentals.
Do the stocks you own actually have real value?
If you never bought the stocks, had all the cash in your bank account , and didn’t look at Twitter, Reddit, or wherever everyone is gathering on to get into your head,
Would you buy them right now at the price it is at ? Would you wait and see, maybe let the market settle ? Or just not buy them at all ?
If the answer is NO, to either of the last two questions, just sell them on open tomorrow.
This does not mean you are done being a trader. It does not mean you are a failure. It’s the way the markets work and you ( paid your market dues) as they say.
Does it suck ? Hell yeah.
Are you done being a trader ? NO as long as you put in the necessary work !
You are just going to have reassess how, and what you trade. There is nothing wrong with that.
You might have to trade short side, buy puts. If you can not trade short, or are comfortable buying puts, just sit on the sidelines until the market settles down. YOU ARE NOT REQUIRED TO TRADE EVERYDAY, IN FACT THE MOST PROFITABLE TRADERS I KNOW, TRY AND MAKE AS FEW TRADES AS POSSIBLE.
LESS IS MORE, I SAY IT EVERYDAY IN OUR LIVE TRAIDNG ROOM.
CUT OUT ALL THE NOISE…. AND YES I MEAN ALL OF IT AND NARROW YOUR FOCUS.
So how did this story end, and how can you change your ending….
There is not a single trader out there from the dot com bubble that didn’t give back or lose money at some point.
The smart ones Lost money, but reassessed the market, made it all back and more overtime.
This is how the market normally functions. The one’s that just hoped and prayed, well they lost it all.
The ones that went balls deep in margin and leverage, the non professional traders owed the brokers money they did not have, got sued, eventually cut a deal to pay them back or filed bankruptcy in some cases.
The larger highly leveraged funds, they just blew the fuck up, got fully liquidated, went out of business, which kept causing the market to go down because of the amount of funds this happened too.
Now we have a similar situation with hedge fund, even more leveraged, in more complex ways.
It will happen again, I am not talking about the mega funds. Blackrock, Perishing Square Capital Management ( who just has to go on TV an cry for the markets to go up) ,and so on.
Or even the ones a littler smaller. They are fine. They are already out or hedged. Will wait to scoop up the $AALS, $MSFT, $HD of the world( just using theses as examples) and make a shit load more in the long run.
The problem now is ( in my opinion of course ), is the medium, the smaller funds, that are levered to the balls ( and there are plenty).
Bottom line all we can do as investor’s/ traders, is use the data and resources we have available to us on a daily basis.
Our job is #1 to protect our capital. Don’t fool yourself risk management is 100x more important than hitting some stupid ” YOLO”
Hit the YOLO great, You will be out of this profession in a year. ( probably already are after last week).
#2 Grow our capital by making smart decisions.
Maybe that means missing a trade or too. You can’t watch every stock on the board.
Focus on a smaller amount of names.
If no opportunity presents itself that day, hell even that week, you don’t get in trouble sitting on the sidelines.
NOT LOSING CAPITAL, IS MAKING YOUR CAPITAL GROW.
I trade when the set up is highly in my favor.
The most important lesson I learned this year is patience. You miss a trade, well guess what you missed it. Crying over spilt milk does you no good.
What I learned through all this is the more selective in the trades I take, THE MORE MONEY I MAKE.
It’s Boring…. But you know what it is paying off
My account is up more than 53% as of Friday’s close.
Exciting ? NO
Sometimes Boring ? YES
Profitable ? HELL YEAH
Was I the best trader in a market that went straight up for 18 months ? NO
Because I remember 1998-2000
Did I make less than others all in ? YES
Could I sleep at night with my positions ? YES
Ok, well enough here we got, to get ready to trade tomorrow.
If you are interested in seeing what we do, or don’t do, live everyday use the code below and click the link
Use code 21for7
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Regardless if you do, or do not, I hope this article was helpful to you in some way, in any way. Take away 1 new piece of knowledge and it is a success.
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