Trading Tesla, Davey Day Trader, AMC Apes....
Brains and Bull Markets, and Charlie Munger's Harvard Speech
Read on nicholasvardy.com
Welcome to the 1200+ Global Guru fans and 2000+ Twitter followers (@NickVardy) who have joined us in our first four weeks on substack.
Today at a Glance:
· Quote: On Brains and Bull Markets
· Tweet: The Education of Davey Day Trader.
· Article: An Open Letter to AMC Apes
· Speculation: How to Profit from Tesla stock
· Speech: Charlie Munger on the Psychology of Misjudgment
"Never confuse brains with a bull market."
Wall Street adage
Confusing brains with a bull market was shown with full force over the past 18 months.
Whether in cryptocurrencies, disruptive technology stocks, SPACs, or meme stocks, everyone was a genius in the bull market.
Newbie investors lectured boomers on how they “didn’t get it.”
Experienced investors waited for the inevitable collapse.
Of course, the bear jumping out the window was no surprise to students of Wall Street’s timeless maxims.
Ironically, by summarizing timeless wisdom, these maxims are the opposite of the modern financial theory taught in business schools.
No formulas. No complex math.
Just a long and rich history of being right.
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Every financial boom had its heroes.
The murderer’s row of financial mountebanks in the recent "everything bubble" is so long it is hard to choose just one.
Since I just heard him on Joe Rogan’s podcast, let me pick on a shameless gambler like “Davy Day Trader” - David Portnoy- founder of Barstool Sports.
This short video tracks the well-worn path of a cocky trader morphing from hero to zero over the course of a year.
Some pull quotes:
'This is so much better than gambling."
"Anybody can do this game."
“I’m smarter than the algorithms."
Yes, I know that it’s not nice to indulge in schadenfreude.
But there is a more serious point here.
Every David Portnoy who blows up takes tens of thousands of others with him.
Meanwhile, Portnoy blithely ignores the crushing damage he has inflicted on his followers, leading many into bankruptcy.
Because as Portnoy revealed on Joe Rogan, he breaks open a bottle of champagne to celebrate every time one of his critics fails.
If only Davy Day Trader’s followers could still afford to do the same.
AMC was one of the meme stocks that captured the imagination of newbie investors in the post-pandemic bull market.
Newly minted traders bought into AMC Entertainment (NYSE: AMC) on the promise that it would “go to the moon.”
An army of Reddit apes swarmed on the widely shorted stock, forcing its price up and sticking it to all the Harvard guys running Wall Street’s largest hedge funds.
The apes trolled anyone who disagreed with them with a dismissive “OK, Boomer!” as they mocked the gerontocracy of Warren Buffett and Charlie Munger.
But with AMC falling from a peak of $62.49 to about $4.00, the game is up. And it’s time to learn some lessons.
· Apes were the self-proclaimed great unwashed investors railing against the titans of Wall Street. But much like a hormone-drenched, snarky teenager… they were both too conceited and too inexperienced to hold on to any money they made.
They didn’t even know what they didn’t know.
· The apes even had their self-proclaimed “ape father”- AMC CEO Adam Aron. While the apes collected worthless AMC NFTs, Aron sold $40 million worth of AMC stock, most at $40 per share.
It also turns out that Aron is a graduate of Harvard College and Harvard Business School. So those Harvard guys suckered you again.
· Finally, Warren Buffett famously said, “Only when the tide goes out do you discover who’s been swimming naked.”
Just compare the performance of Berkshire Hathaway (NYSE: BRK-B) with that of AMC last year.
Playing the financial markets doesn’t turn you into a skilled trader any more than playing on the same golf course as Tiger Woods turns you into a world-class golfer.
Don't be an ape.
To read the entire article, click here.
I’ve written about Tesla several times in the past month.
I am both fascinated and repelled by Elon Musk’s success.
Where others lionize him, I think of the admiration Musk-like figures received in the past amid other financial manias.
This includes the downfall of John Law in the Mississippi Bubble of 1720 and George Hudson of the British Railway Mania of the 1840s. (Spoiler Alert: Each went from untold wealth to dying almost penniless)
So it should be no surprise that I am actively trading Tesla by betting against it.
Here are five reasons why I am betting against Tesla.
First, Tesla remains insanely overvalued.
To wit: Tesla is currently worth more than Toyota, Volkswagen, GM, and Ford combined.
These four automakers sold more than 35 million vehicles in 2022.
In contrast, Tesla sold roughly 1.33 million vehicles over the same period.
Second, Tesla is no longer the only EV game in town. Consumers now have many more choices than they did even 18 months ago. And Tesla’s offerings are looking more dated with each passing day.
Third, Tesla has more red flags than any other company I have ever seen or heard of.
As far as I know, Tesla is the only company with a massive Wikipedia page dedicated to its controversies.
Finally, investor sentiment is slowly turning against Musk and Tesla.
Tesla is valued as a token in the Elon Musk fan club. And the value of that token is falling rapidly alongside Tesla's stock price.
What’s the state of play today?
Tesla’s stock price has rallied in the past two days. That makes it a perfect time to short Tesla (TSLA).
If you can’t short the stock, you can buy the AXS TSLA Bear Daily ETF (TSLQ)- an ETF that moves inversely to the price of Tesla. TSLQ rises as Tesla’s price drops. And vice versa.
I don't view TSLQ as a buy-and-hold play.
I place a GTC sell order at 10% above my purchase price, locking in quick short-term gains. You may want to do the same.
I then wait for a rebound and then rinse and repeat. The trade has been an ATM over the past few months.
Charlie Munger's Harvard Speech, June 1995
Coming out of Harvard Law School, I was offered a job with a quirky law firm in Los Angeles named Munger, Tolles & Olson.
I recall the name because it was the only law firm that pursued me actively.
It was only many years later I learned that the “Munger” in the name was Charles (aka Charlie) Munger, Warren Buffett’s long-standing investment partner.
You’ve probably seen pictures of Charlie Munger.
He’s the staid fellow who sits on stage next to Buffett during Berkshire Hathaway’s annual shareholder meetings.
But don’t let Munger’s modest appearance deceive you.
The 99-year-old vice chairman of Berkshire Hathaway has one of the most remarkable minds on the planet.
And this 1-hour 16-minute speech Munger gave at Harvard in 1995 offers us a remarkable insight into that mind.
Let me share three takeaways from the speech:
· Munger cites Robert Cialdini’s book Influence extensively. (I discussed Cialdini’s book in a previous “Global Guru.”) Munger passed out free copies of the book at his lecture.
· Munger values the importance of understanding human behavior far more than any training in financial analysis. As he says about behavioral economics: ”If economics isn’t behavioral, then what is?”
· Munger’s speech made me realize two things. First, graduating from Harvard Law School and trudging through the CFA exam (which even George Soros failed twice!) had little to do with my road to financial independence. Instead, it was my “useless” liberal arts education studying history at Stanford- that taught me how to think, read and write.
(Meanwhile, the only “practical” courses I took at Stanford- CS105 and CS106 for Pascal- were programming in a computer language that today does not exist.)
You can listen to Charlie Munger’s speech here.
You can read a transcript of the speech here.