I have decided to dub this the year of the shiny toy. It's also the year of unrealistic expectations and bagholder creation like I've never witnessed, but about those toys.
Gold, silver, and blockchain/Bitcoin have ascended to hold the title at the moment although precious metals have lost a little luster from the highs of last night. Still, no one can deny they've enjoyed a strong run over the past 10 days. We were due for a little exhaustion and rest after seeing multiple gaps higher every day during the regular trading session.
I really can't keep up this year. Online education, electric vehicles, SPACs, work-from-home, online retail, Covid-related plays, bankruptcy plays, urban community banks, and probably a dozen other themes I have already forgotten have dominated trading since March. I've traded through rotations before, but this concentration, absolute explosion, then abandonment for the next concentrated area is not something I can recall in two decades. The speed at which traders are pouncing on a theme, running securities huge, then abandoning them for the next shiny toy is amazing.
It's created some amazing trading opportunities and trading returns some may never again see in their lifetime, but sadly, it will also create a ton of new bag holders. I was fielding some Q&A with a group of newer traders over the weekend. I asked what the type of returns they expected from their trades. Among the choices were just hope to be green, 5% to 8%, 20%, 50%, and 100%. I threw in those last two just for fun.
Guess what the most popular answer(s) were?
The next 15 minutes were spent discussing reality and normalcy. Yes, 50% and 100% returns exist, even outside of options, but when we're talking a time frame of a few hours to a few days, that potential related diminishes quickly.
Perhaps, I'm the one out of touch and this is a new normalcy. A new batch of retail traders has discovered how to corner, manipulate, and run low float stocks in the pre-market and after hours. I noticed one, or possibly more, managed to make it onto a financial network. After scouring said twitter-feeds it read like an echo chamber pump-fest of mythological wizards with the power of suggestion spinning yarns so full of manure even cows held their noses as they scrolled through the feeds.
The issue I see is many of these trades are playing out like pyramids. The one calling out the trade is very secure in their ability to profit. Those blindly following will get split into the quick and the dead, but they will make the original caller look like a profit, a great trader. Honestly, it's hard to watch because after nearly three decades of trading, one learns that this time isn't different. Pushing paper under the guise of anything other than pushing paper ultimately hurts traders, especially new ones.
I understand the idea of market tuition. Lord knows I've paid my fair share, but that doesn't mean I'll sit idly by and let it happen to others without trying to share a little wisdom.
This year of the shiny toy has been fantastic. I've flipped my share of paper, but I'm honest with myself about it and try to convey that to others. I've talked about feeling dirty entering some trades because I knew the underlying companies were manure. I've been treated like manure by some stocks that I believe have strong underlying businesses and potentials. Yes, the market works that way, but I hope some out there will get the message to do their own diligence when trading, and I hope some leading the bandwagon of toy chasers will take the time to educate rather than focus solely on lining their own pockets.
Naive? Probably. But it's 2020, so anything is possible.