Time for a weekly rant. I'll start posting them here as well. Occasionally it'll be market analysis, watchlists, or trading lessons learned the hard way.Please feel free to write back, I'll be glad to discuss things with you guys when I can.

This one is about investor mentality, Smart Vs. Dumb money, two of today's spotlit companies and being an Apex Investor.

 

Even though Google mentioned Etsy in reference to Google's new algorithms, causing a jump in traffic and potential revenues, $ETSY fundamentals and financials are way too overvalued at $21 per share. This price per share gives the recent IPO a market cap of $2.33 Billion. $ETSY shares jumped 37% today, on the same day that $GOOG is having one of the best days it has had in the last couple of years. Both companies are up so much in todays trading hours. So why am I worried?

 

You have to understand investor mentality, the greediness and the profit chasers and how they push prices up/down. Creating copious  levels of hype. 

 

You have to understand how the media is structured. They get paid based on viewers, and so they need to always cover the stories that would have the most viewers tuning in. They sell you the hype, and you as a retail investor eat it up. For example, you hear Jim Cramer say "buy buy buy" and you do so. Then you're wondering why your portfolio is down, but his is up? How is this possible?

 

This leads me into my final point before tying this all together. A major factor most people forget to account for is the level of incompetence amongst retail investors. 9 out of 10 investors lose money, it is a known fact. So use that to your advantage!

 

I really think its more like 95% of all retail investors lose money. I would call the 95% sheep, but that would be a compliment. They just watch the news or follow trades from Twitter and paid chatrooms. Don't get me wrong chatrooms can be useful, but only to bring something to your attention. Its up to you to do the research.

 

Retail investors, or the average Joe's, are statistically stupid gamblers when it comes to stocks and so they are usually the last people to get into a company. On average their entry points into company's are usually too late, and this is why they lose their money or give back any gains they may have made. 

 

But how can they be late if they act on the news as it happens? or when a trading guru posts a trade. Okay so you paid .20c more per share of company XYZ than the price of XYZ when the news just hit. You probably weren't following the sector, or the company prior to this. You most likely didn't spend a few hours (at least) to analyze financials, do research on management or look to who is reporting such "amazing" price targets. You just looked at the price targets the (anal)ysts released, and saw this awesome news and thought; "the sky's the limit." Did you research the accuracy of the analyst covering the company? Again, probably not. You probably thought; "oh shit the price is going to keep going up if I waste anymore time." You were fed basic information, from people you don't know, who don't have your best interests in mind. (Not counting guru's considering they've always preached against chasing)

 

You forgot to realize that "smart money" (investors, funds, and corporate insiders) were invested way before you, at price well below yours. So why is the hype important? Why have retail investors join the market and do everything to keep them there? 

 

Because the news and the bullshit has to be sold to someone. If the market was just made up of smart money then half the companies wouldn't even exist. You are here to provide liquidity to the market, so that smart money can keep outsmarting you and reinvesting with money they made off you. In a very cynical sense, they're like drug dealers. 

 

You see Google doing so well, and Etsy up huge in the market, and you chase the profits. You might make a dollar or two, but smart money is selling you parts of their huge positions, locking in profits and letting the rest ride out. Sometimes they make so much money peddling parts of their positions to the public that their remaining shares actually cost them way less than the current market price. (E.g - if you double your money on a 100 shares of XYZ, and sell half of your shares, then your remaining 50 share technically cost you $0.) They use their profits to lower their cost, so they don't care if the price drops, they'll ride it out. You on the other hand won't. You end up losing in the long run and becoming a statistic. 

 

Be smarter, do your research and realize that you will have an upper-hand in the markets if you understand how smart money moves and how stupid most other investors are. 

 

So given all this hype with Google and ETSY, I plan on shorting ETSY in the near term, IF and ONLY IF the next few days of research give me enough reason to. Probably by buying PUT Options or shorting CALL Options. Even if I'm wrong about ETSY in this case, then my research will stop me from making a mistake. But when you leave your decision making in other people's hands, you are gambling; just because you know one or two lucky people doesn't mean you should go play the lottery with your hard earned money. 

 

Moral of the story is, screw the Bulls and the Bears, think like an Apex predator. Be wise, calculated, and controlled in thought; be vicious by action.