Counterintuitive Stock Selling

Craig T · 06-28-2016, 12:41 PM

Why is it that when the value of a collector car goes down, people hang onto to them and wait for the value to come back up...And visa versa with buying. When the price of these air-cooled 911's takes a big dip, many of us will buy one. It's the same with gold, old guns, art, antiques, etc.

Most people do the opposite with stocks. The Brexit affect is a good example. The market takes a hit due to the uncertainty. People see a 4% or 5% single day decline and panic, then sell all their stock the next day. Savvy traders wait for that mass exit and residual decline and buy up stocks cheap. A few days or month later when the stock has risen, momentum trading kicks in, stocks get back up to lofty valuations and the masses jump back in on the positive news (now "historic" news). It's a cycle that repeats often.

Some of the largest stock market wealth creation is made by investors who jump into the market right after a big sell-off. It happened within days of the 87 crash, and not much longer on the 2000 tech bubble and 2007 mortgage crashes.

Did anybody lower their basis by increasing their positions on current holdings yesterday? Anybody who bought on yesterdays lows made a NICE profit today. Who's to say it'll hold, but if you look at a 50 year chart of the S&P, after 1987, 2000 tech bubble, and 2007 mortgage crisis, some people made big money. Its a pretty good odds bet.

wildthing · 06-28-2016, 12:42 PM

Bought some on Friday.

Noah930 · Noah930's Garage

Still waiting for the market to falter a bit more...

jwasbury · 06-28-2016, 12:57 PM

we may see some election year volatility, but you're right: buy low, sell high.

slodave · slodave's Garage

Been taking advantage of the Brexit market turmoil and buying. No way I'd sell right now.

Craig T · 06-28-2016, 01:24 PM

Quote:

Originally Posted by jwasbury

we may see some election year volatility, but you're right: buy low, sell high.

Trump = Uncertainty to Wall Street...probably markets tumble
Hillary = Takes Wall Street money, known entity...probably markets jump, even if temporay.

Gogar · 06-28-2016, 02:13 PM

I bought some things Monday night and had a nice day today. Many of the things I bought yesterday I will sell tomorrow. Rinse and repeat when the Brits actually file the papers.

id10t · 06-28-2016, 02:15 PM

Because with a spoon or a P car you can use and enjoy it while you wait for value to (re)build. Hard to do that with a piece of paper or some ones and zeroes on a drive platter

masraum · 06-28-2016, 02:25 PM

I just happened to have some cash sitting around, and yes, took advantage. I put in my orders over the weekend that happened first thing Mon morning. It would have been nice to wait, but I'm not fretting missing a little extra. What's done is done.

Craig T · 06-28-2016, 04:03 PM

Quote:

Originally Posted by masraum

I just happened to have some cash sitting around, and yes, took advantage. I put in my orders over the weekend that happened first thing Mon morning. It would have been nice to wait, but I'm not fretting missing a little extra. What's done is done.

Are you kidding? Monday morning was the perfect time! The bottom was hit mid-morning Monday. You couldn't have missed it by much. I did the same. Put in my order Sunday night anticipating Monday to trend back upward.

Gogar · 06-28-2016, 04:12 PM

Quote:

Originally Posted by Craig T

The bottom was hit mid-morning Monday.

Of course you mean this little mini-bottom before the axe wound in a few days. :/

jyl · jyl's Garage

A lot of the trading in stock markets is by investors/traders who, by deliberate strategy, are short term oriented. Their investment discipline requires that losing positions be sold quickly.

Gogar · 06-28-2016, 08:04 PM

I read a thing once about how your ego holds onto losers much longer than you should, and gets rid of your winners way too soon. I notice it in myself, especially when things aren't going my way.

NoRush993/951 · 06-28-2016, 08:25 PM

Big time foreign money flows are into U.S. Large cap stocks. Reporting laws are updating in 2017. U.S. is setting up as the ultimate last stop tax haven on the planet. This is an easy one. Keep it simple and stay large cap. Where else can all that money safely go? Europe - not. Japan - worse.
South America - bankrupt. Asia - Vietnam of all places is good and bugs me to no end that capitalists have no morals for all our prior war losses over there. India eventually will grow. Maybe Russia if you're a gambler. We are reaching global peak debt - be careful out there. When the loans go bad, equity goes to money heaven.

trader220 · 07-08-2016, 11:39 AM

Cars, art, old guns, antiques, etc. etc aren't liquid markets, they're not listed markets, they're not regulated markets... and they are surely not asset classes.

All the recent talk about collector cars being an asset class makes me want to short the collector car market, too bad there is no one who will write me a credit default swap on collector cars.

Anyone who says picking tops and bottoms is easy is just wrong. Same for anyone who thinks its easy to just step in when the markets falling and start buying (its the same as trying to pick the bottom).

Individual investors dont make up the volume in the markets, its the institutions who manage their money and who are chasing returns.

The equity markets of today are a far cry from what they had been up until 7 to 10 years ago.

My personal opinion... having owned seats on several exchanges... if the general public understood how fractured the equity markets in this country are now there would be massive regulatory outcry from the people.

stomachmonkey · 07-08-2016, 12:49 PM

My financial guy called yesterday.

Chasing some paperwork I owe him on one of my kids accounts.

Asked him how we did with Brexit.

Spectacular, was his response. We picked up some nice bargains on the way down and made a tidy profit, you'll like your next statement.

This is why I have him, he's good at what he does and I let him do his thing.

Me, I would have screwed the pooch. I'm good at other things and stick to that.

My time is better spent making money that he can turn into more.

Craig T · 07-08-2016, 12:57 PM

When I started this thread the S&P was down almost 7% due to Brexit. Today the S&P closed above the pre-Brexit crash levels. Anybody who jumped in the day I made this original post has done VERY well.

trader220 · 07-09-2016, 07:36 AM

Quote:

Originally Posted by stomachmonkey

My financial guy called yesterday.

Chasing some paperwork I owe him on one of my kids accounts.

Asked him how we did with Brexit.

Spectacular, was his response. We picked up some nice bargains on the way down and made a tidy profit, you'll like your next statement.

This is why I have him, he's good at what he does and I let him do his thing.

Me, I would have screwed the pooch. I'm good at other things and stick to that.

My time is better spent making money that he can turn into more.

Although I never worked on the retail side... I find it amazing in this day and age and with all the new regulations that there are many retail people who give their broker the ability digression trade their accounts like that.

Gogar · 07-09-2016, 08:07 AM

If you bought the right PCLN in the money option for about $5k with a delta of at least .6 last Monday you would have made about $10k on each contract.

trader220 · 07-09-2016, 08:59 AM

Quote:

Originally Posted by Gogar

If you bought the right PCLN in the money option for about $5k with a delta of at least .6 last Monday you would have made about $10k on each contract.

Why buy the 60 delta call? They inherently under perform their delta as compared to any of the party calls which have to trade 1 for 1 with the stock. If you're just using options to leverage directional guesses in the market then although the 60 delta calls work better than the out of the money (<50 delta), the parity ones are more efficient.

Also if % gains are your goal then the cheap OTM calls will increase in value on a % basis much more, there are obvious drawbacks with them.