First It Takes An Uptrend
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Regular readers know that I dislike experts, gurus, permabulls, permabears, or anyone who frames risks and outcomes as asymmetrical.
I loathe these types as they embody all the traits I hate; closed-minded, unobjective, anti-intellectual, and able to ignore reality in a way that’s almost pathological.
Worse yet, they’re arrogant and righteous in their beliefs.
There’s no limit of “downs” these emperors are willing to go to – double, triple, quadruple - to avoid admitting to themselves that perhaps they have no clothes.
Still, I’d give them a pass if they just displayed an ounce of humility.
Tell me your macro theory and why you believe in it so passionately, but acknowledge that so far you’ve been wrong, and not only will I respect you, but you won’t hear a bad word from me again.
It doesn’t matter who these zealots are – gold bugs, crypto bros, Tesla fanboys – I’m agnostic and call them out wherever I find them because they’re dangerous.
And those who follow them not only lose money but opportunities.
Again, it will be of no surprise to readers that for the past year or so one of the groups that have been in my crosshairs are pot permabulls.
It’s hard to find a more delusional bunch, and I can’t recall a group whose narrative has diverged from price for so long and to such extremes – something I recently pointed out.
The responses followed a predictable pattern.
One thing I’ve learned about zealots is that when you call them out for being demonstrably wrong, they never address the question or issue posed.
Instead, they use a standard defense, one that with slight variations amounts to, “just you wait.”
That doesn’t sit well with me.
And still, the arguments for holding through 75% drawdowns continued, with people using Amazon - which went through its own 95% drawdown – as justification for hanging onto losing pot stocks.
Putting aside the non-starter of equating a pot company – any pot company – with one of the most innovative, transformational companies of the past century, this mindset is steeped in survivor, confirmation, and probably a few other biases.
When Amazon IPO’d it was just one of hundreds of second-generation internet companies that intended to change the world. By the time they reached the nadir of their drawdown post-dotcom bubble, most of those other companies were long gone.
Using Amazon as an example, not only would the pot sector as a whole have to experience an amazing turnaround, but you’d have to own every stock in the sector – or a time machine – to ensure that you held on to the eventual survivors (winners).
Of course, like all gurus, pot permabulls will claim that, unlike us mere mortals, they can see down the road, around corners, and into the future.
Perhaps they can.
I know a trader who went long near the bottom of the Covid crisis and made a fortune.
Did he foresee Congress moving mountains of money into the economy to keep it afloat? That advances in mRNA technology would deliver a vaccine in record time? And that regulators would clear all hurdles and fast-track those vaccines to the majority of Americans?
Or was he just lucky?
That’s the rub.
It’s almost impossible to differentiate between those who can see around corners and those who stick their heads in the sand.
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Last week, for the first time in months, the U.S. pot ETF MSOS showed signs that it might be pausing in its 8-month long downtrend – a huge win by itself.
First, it put in a double bottom. A small one, but a double bottom nevertheless.
Then it did something crazy. It rallied off that bottom and closed above a short-term downtrend line, a feat it hasn’t been able to achieve since February.
But predictably, it printed a reversal bar and closed below pivot resistance the next day, primed for the inevitable – a trip back down to new lows.
Then something amazing happened. Something miraculous. Just as it looked like MSOS was going to roll over, it reversed, closing at the high of the day, near the high of the week, and ABOVE pivot resistance.
Someone say “Hallelujah!”
Of course, you almost have to squint to see all this, and individual pot stocks – as well as its Canadian ETF counterpart MJ – didn’t perform quite so well, but hey, it’s green shoots – or buds.
You may wonder why I spend so much time paying attention to the pot sector?
People assume that because I pick on the permabulls I don’t agree with their fundamental thesis. That’s not true. Honestly, I have no opinion one way or the other. They could as easily be right as wrong.
What I do have is an opinion on is their competence as traders, investors, and money managers, because there is no normative, accepted risk management theory that allows for 75%+ drawdowns.
But, if the pot sector turns and the permabull’s favorite stocks become moneymaking juggernauts, I plan to make a boatload off them.
Until then I just keep things simple.
Because before a $5 stock can become a $100 stock, it has to get to $6, then $7, then $8, then through ninety-two digits after that.
And first, it takes an uptrend.
Market Review Video: 09-25-2021
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This week’s trading links:
Market & Finance Links*
*Some tips for getting around paywalls.
What does the smart money on Wall Street know about the Evergrande crisis? The Wall Street Journal
A piece I should have written on the psychology of betting it all. A Wealth of Common Sense
More on what one of the best traders in history, Steve Cohen, is doing in the crypto space. Front Office Sports
Why the Fed’s taper could be a big relief. The Reformed Broker
Estate planning tips gleaned from the Bob Ross fiasco. MarketWatch
If you are a retail trader, it’s a bad idea to try to copy the greats. Robot Wealth
I don’t put a lot of VC stuff in the links, but as a non-VC, I found this podcast by my friend Howard Lindzon particularly interesting. Panic With Friends
There are more calls these days to break up Facebook – and they’re only going to increase. The Week
Remember Occupy Wall Street? They’re still around and more of a force than you might think. MarketWatch
Lessons learned from a career fund manager. The Undercover Fund Manager
Return stacking. What is it? RCM Alternatives
Are stock markets becoming more correlated? Factor Research
It’s Good, It’s Good*
*Some tips for getting around paywalls.
This week, cavers finally got to the bottom of the “Well of Hell.” Live Science
Make sure to check out the video as well. South China Morning News
The must read story of the week. Los Angeles Times
I love seeing this. The pandemic has sparked a book craze. New York Post
Would you get a tattoo in order to get free tacos for life? 22 years ago these people did. SF Gate
Cool visual piece: Where Americans Live. Flowing Data
Turns out that humans may have lived in North America thousands of years before many scientists believed. The Wall Street Journal
What was it like to have known Kurt Cobain? The New Yorker
The hottest podcast on Spotify right now is a sleep cast. Rolling Stone
Set your mouth to drool. The Hungarian snacking tray. Saveur
More and more adult Americans are losing their shit in public these days. The Wall Street Journal
Five animals that can sense things you can’t, including if you’re pregnant. Popular Science
They found Noah’s Ark…again. The Sun
Coming out of the pandemic, ex-drinkers are finding more non-alcoholic options that still give them a buzz. The New Yorker
The Week in Tweets
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P.S. It should go without saying - but I’ll say it anyway - all opinions expressed in The Lund Loop are my own personal opinions and don’t reflect the views of my employer, any associated entities, or other organizations I’m associated with.
Nothing written, expressed, or implied here should be looked at as investment advice or an admonition to buy, sell, or trade any security or financial instrument. As always, do your own diligence.