Be careful when things get Biblical.
We are hearing a lot about David vs. Goliath, about how the under-capitalized newer investors have taken on the behemoths and are winning. Armed with commission-free trading and more knowledge than ever, the people, united will never be defeated.
Excuse me if I interrupt by saying that this is "Mad Money," not "Mad People," and I am on the hunt to find the next Amazon (AMZN) or Alphabet (GOOGL) or Apple (AAPL) and not the next GameStop (GME) or AMC Entertainment (AMC) or Vaxart (VXRT) .
We are at a critical point in this market. The cheapest stocks right now are often the best and the most expensive are often the worst. United Parcel Service (UPS) , AbbVie (ABBV) , Alphabet, they sell at well below where they should be. I don't even know if GameStop is worth half or twice what it is selling for; I don't know, because they won't say anything, and it is all speculation.
But I want to address the revolution and put it in context, so people know why revolutions run afoul and sometimes they are just two-day juntas and other times they just get to the government radio station before the tanks roll and they are back in their checking account change. I am going to give you the rules for revolutionaries, and you are going to be able to decide if you want to be one, or if you are one - or if you don't even care.
First, there is a revolution and it's been caused by a company, Robinhood, that developed that and app that enabled easy buying and selling and commission-free trading.
Seventeen million people in. I like that. I like stocks. They like stocks. It's easy. People are learning. They are an army of many, not one, but they can be led by a couple of zealots. I am not against that, too. I like rebels, but they have to be with a cause, and the cause is empowerment, not enmity.
So, rule No. 1 for revolutionaries: Your goal is to augment your capital with the stocks of companies that, logically, deserve to be higher and will be higher over time, something I delved into deeply this morning if you were on my pretty unplugged ActionAlertsPlus monthly call.
Two, your goal is not to demolish the czars, the upper class, the kulaks, the fat cats, whatever. Where the hell does that get you? There is no slingshot. There is a button you push that helps you buy or sell what you want, not wipe out some guy you don't like and if we all do it at once we win. Put down the slingshot, pick up the annual, the quarterly, the conference call.
Three, stocks do a lot of crazy things and if you are ready to recognize that stocks are not rigged, they are creatures of emotion, you can capitalize on random emotion. Walmart (WMT) goes down a great deal because America might be re-opening. Opportunity. Chipotle (CMG) gets hammered, even as its January numbers are extraordinary. Opportunity. Costco (COST) goes down because maybe the next number will be weak. Great long-term story. Opportunity. It's craziness that's with you not against you. oh, and Costco reported an amazing number this very evening.
Four, Treasury Secretary Janet Yellen who met with a whole bunch of important people about what's happening in the market is going to do nothing for you. She doesn't know about the revolution. She knows about the economy, perhaps better than anyone. She doesn't want anyone to get hurt. But with a national pandemic and a stalled stimulus package, do you think she has time to say that perhaps we ought to make new rules that one day may make things better? Maybe. But as I said, it's caveat emptor. The government is not going to give you a warranty. You are not going to get your money back if you lost it. Sure, she should try to make it so that you can buy and sell what you want when you want it and she can investigate whether commission free means best price. I would like to know that. We don't. But a revolution doesn't run on pennies. It runs on knowledge and she cannot make us smarter. Even if she really is smart, which she is.
Five, if we are going to protect ourselves the single most important way to do that is to not borrow money from a broker to buy a stock. Just don't do it. That can magnify the loss. You are going to hit yourself with the slingshot. David slew Goliath, good allegory. Able slew himself? Suboptimal. Almost every single systematic problem with the market stars with too much debt. I know how hard this is. When I was busy getting a Foley catheter stuck into me last week, I was begging for morphine. Not my finest moment. Margin is morphine. Very hard to kick. Makes is so you don't think straight. You think you are a better investor when you don't think straight? Yeah...
Six, revolutionaries like to be stoked and led. They feel there is more to it than just buying and selling good stocks. They want to be encouraged by others who have done the work. Trust me, these people do not care about you. They need you to keep the balls in the air. I need you to keep a sound head. Today you should have been pondering if Amazon is worth more or less with Jeff Bezos move. Is it like Tim Cook at Apple? I think so. You should have been thinking about how Alphabet is now changing to a company where the focus is on Youtube profits and Google Cloud Services growth and how great that is. These companies give you a firehose of info and you need to figure out what helps you the most in making your decisions.
Finally, No. 7, please recall that there is part of the revolution that's not nihilist and not about storming the Winter Fat Cat Hedge Fund Palace. It's what may have brought you here. Finding companies that are not only making money but are doing good. You want to own a company that is determined to make the air clearer? Amazon's probably the most determined. You want a company committed to racial equality? That's probably Lowe's (LOW) or Constellation Brands (STZ) . You want a company committed to educating the most people in its work force? That might be Starbucks (SBUX) or Raytheon (RTX) . You want a company that pays rank and file the best? I have studied this. It's Costco.
These can go hand-in-hand co-revolutionists. It's why I have re-constructed my questions -- and my view of companies that believe that business is the greatest force for social change. This hasn't come easy for me. I am from the age where you make as much money with the best companies -- a Snowflake SNOW -- and then you give the money away. These days, though, if a company is going to recruit the talent it needs to compete against a Salesforce (CRM) or an Alphabet or an Apple, it is going to have to do so on these issues, not just money. If you can't compete you lose.
So, there's the seven tenets of being part of the new cadre of investors. If you follow them who knows, maybe you will end up being hated, because you have made money. Believe me, there are worse problems and, by the way, Goliath was an idiot.