Could you be the world’s biggest idiot trading your garbage stock going to zero or are you the world’s biggest genius trading your best under-the-radar stock that’s destined to take off like a rocket? Well, I guess it all depends on your time frame. I gave this some thought this week as I watched social media bantering back and forth over a selection of stocks I’ve been watching. The noise never seems to end.
The following are a selection of charts of one stock with the name of the stock whited out. Play along if you will, and see if trading this would make you a genius or an idiot.
Above we have a daily chart showing our speculative stock in question over 21 heading into a descending triangle where it’s almost cut in half, and then comes the big dump down to the 6 – 8 range followed by another decline into the 3’s, back up over 5, then ending at 3 flat. If you were holding this all the way down you might feel like the biggest idiot around. If you were thinking of buying a bargain would you pick it up at 6 then ride it down to 3? Would you add to it on the way down? Would you buy it way on the cheap at 3 or is this turkey going to zero?
Here’s the next chart, this time switching from the daily to the weekly view. From where we left off, if you bottom fished it at 3 and held it to 24 for an 8-bagger – congratulations! You’re a genius! Only if you sold it there though, because from there the elevator went back down to 6.50. You didn’t hold it, did you, idiot?
The next chart along the progression, another weekly but more extended look. If you’re holding this at 24 waiting to get your money back, just look at how long price fluctuated between 5 and 13. You idiot! But wait – redemption comes at the end of this chart in the form of a moonshot to 57! Look at that! The whole world thought you were an idiot when all along you were patiently waiting to double your money. And for those of you still holding from 3 you’re like friggin’ Einstein with your near 100-bagger! You sold at the top though, right? Don’t tell me you rode it down to 17 after all that? And you holding a double from 24 – you’re not sitting on a loss now at 17, are you?
Idiots. All of you.
The next chart, now a monthly view. That stupendous 57 peak ended up crushed to 15, then a whole bunch of erratic volatility up and down eventually leading to sub-5’s again. Take an overview of this chart and see how many times this stock alternated between being cut in half or more to doubling, tripling or more. This is fertile ground for swing traders to amass fortunes along the way, thereby making them the true geniuses of trading this chart. The guy who bought this at the start at 21 who lost most of that, won it back, lost it again, nearly tripled his money, then lost it all again, well, we all know he’s the biggest idiot of all. Same as the bottom picker at 3 who lost 90% of his near 100-bagger and is still holding under 5. A true idiot.
And now, for the final chart.
The example used to illustrate these charts is Regeneron (REGN) from mid-1993 to present. And look! This particular timeframe has ultimately turned all of you buy and hold “idiots”, everyone who has suffered through the ups and downs, into geniuses up here in the lofty 400’s.
So, if you bought it at 3 and you’re holding at +400, does that make you a genius? You’d be hard pressed to convince me that you’re a genius if you held from 57 in 2000 down to 4.61 five years later. Then again, you’d have a valid argument by simply pointing at today’s 429 price.
All stock stories certainly don’t end like this where everyone is rescued from harm’s way. My point is that you should keep your objectives and timeframes in mind when trading any stock, tune out the noise from anyone (including yourself) who thinks you’re a genius or an idiot, and follow your own plan. Imagine all the gloating arrogance at all of the highs and the painful bashing at the lows. Would any of that noise cause you to buy or hold on to the highs or sell or hang on to lows? Tune it all out, follow price action, and trade your plan – whatever it is.