I'm spending the better part of the next three days listening to small and microcap virtual presentations at the LD Micro 500 Conference. This is one I'd much prefer to attend in person, but we know how the world is at the moment and in-person conferences simply aren't practical. I'm hoping to come away from this with three to five new ideas for the next 12 to 18 months. There are over 300 presentations, so I curated my listening live list a bit, but I plan on circling back around to many others at the conclusion of the conference.
It's been a nice break from the never go down large-cap side of the market, but I noticed something intriguing last night in thinking about calling tops or bottoms. While there is no external component to accurately help you, there may be an internal component. Let me give you an example.
Net Element (NETE) has been a terrible call on my part. I've owned shares, trading around the core of that ownership to scalp some trades and lower my cost basis, but still suffered in my position. I'd done the math after going through the SEC filings repeatedly along with the company's shareholder letter and realized that the rolling share count of 50 million to 75 million post-merger shares, all based on price, meant that Mullen Technologies, the company merging with Net Element, would have the same post-merger market cap whether NETE was in the low $6s or the low $9s. With the stock around $9, I tweeted similar ranges.
Yesterday, the lower end of the range was touched and I had enough. A constant bleed of 3% to 5% per day every day for three weeks wears on you and I hit the sell button. I didn't feel the relief I thought I might. Instead, I felt stupid. The stock was literally printing the exact bottom of my range and I was selling? I immediately realized that was purely emotional. That was capitulation. And that was probably the wrong move.
My next move was to buy back my position and increase it by 33%. It was the bottom. The common-sense move was to buy. I had done the math. Under $6.25 and the market cap began to decline pushing the post-merger value into one of the cheaper Electric Vehicle (EV) plays on the market. The emotional move was to sell, and after holding through a huge move lower, it is exactly what one would look for in a bottom.
Any outcome is hindsight. In this case, the stock has rallied 10% over the past day from those lows. Again, I was able to trade a portion of my extra shares (4/5ths of that extra 33% I bought) just now. I'm holding onto the core and I'll keep an eye out for the tests of the ranges I believe we'll see until the merger is complete. That range is $6.25 on the lower end and $9.25 on the upper end.
The lesson here is sometimes YOU can be the indicator for a top or bottom. That doesn't mean you should ignore stops or that churning in your stomach, but make sure you add in a component to your trading beyond emotion. If your actions are contracting your logic, your research, or your core strategy, then maybe give it a second look before pulling the trigger. Your emotion may be giving you the biggest contra-trigger that no one else can sell.