How Facebook Bought Me A Steak Dinner

Facebook

 

A few years ago I got into an interesting discussion about market timing with a friend/wannabe trader (we’ll call him Fred). 

Facebook had been killing it for about a year when Fred stopped by my office to complain about having “missed the bottom.”  

We pick up the conversation just after he walked in.

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Me: Hi Fred… How are you?

Fred: Not so good…

Me: Why not?

Fred: Well… I followed your suggestion early on during the financial crisis when the market started falling apart and got out…

Me: And that’s somehow bad?

Fred: Yep… because I never got back in…

Me: Why not?  I told you when the market bias changed back to the upside on my charts…

Fred: I know… but you didn’t make me take the trade.  I thought I had missed the bottom and was hoping for a pullback…

Me: There have been lots of pullbacks…

Fred: I know, but I was never sure if it was actually a pullback or if the market was rolling over…

Me: That’s why stops were invented…

Fred: Maybe… guess it just goes to show what they say is true… you can’t time the market…

Me: Who is “they?”

Fred: The professionals…

Me: I’m a professional…

Fred: I mean the real professionals…

Me: Oh, I see… How do you know these “real professionals” are right?

Fred: I’m not in the market am I?  I just proved it… If I hadn’t tried to time the market and stayed in, I would still be in my positions.

Me: Has price made it back to the level where you exited your position(s)?

Fred: No.

Me: Then it sounds like all you’ve managed to prove is that you can’t follow rules/instructions… not that timing doesn’t work…

Fred: Well whatever the reason… I’m not in the market.

Me: True… and maybe that does mean you should stay away from timing the market… or maybe that just means you should find or work on developing a strategy you trust so that you’ll actually follow it…

Fred: I don’t know… I think I will just Dollar Cost Average and let the pros pick my stocks… do you know any good managers from your old days on the Street?

Me:  You mean back when I was one of the real pros?  Yep… the best one I knew of owns a gift store now…

Fred: I mean someone who still manages money…

Me: You mean as opposed to what I do everyday?

Fred: You don’t manage other people’s money.  And besides I want a good old fashioned stock picker… a mutual fund manager.

Me:  I see… I assume you want their good old fashioned performance as well…

Fred: I’m okay with slow and steady.

Me:  Riiiiiiight… ok…well I hope you’re also okay with glacial.  I’ll reach out to some friends and see if they can recommend someone good. A professional even.

Fred: Well until you find me a good manager, what’s this strategy that you’re talking about?

Me: I never gave you a strategy.  You asked me to let you know when I thought the market bias changed.  But if you’d like an actual strategy, there are lots of them.  Unfortunately,  none of them will work for you right now…

Fred: And why not Nostradamus?

Me: Don’t call me Nostradamus… he was never as good as me (may he rest in peace)…  No strategy will work for you because you don’t believe in what I do… As such, you’ll screw up the execution of even the best, most basic strategy in the world…

Fred:  Okay wise guy… show me one person who’s made money timing the market…

Me:  Hmmm, u mean besides me? You do realize that that’s basically what i do all day…

Fred: Whatever… I’m still not convinced you don’t have some super secret strategy or technology that you won’t share with anyone… you did work for “The Squid” after all…

Me: I was a broker… a “fancy” one, but a broker nonetheless.  You know more about market timing than i learned from my old employer…

Fred:  Changing the subject i see…

Me:  Not at all… I tell you what… how about I tell you exactly where a simple timing strategy would have bought Facebook?

Fred: Anyone could tell me NOW… I could tell YOU where I would have bought the stock NOW… most people’s hindsight is 20/20… mine is 15/15… 10/10 if it was a really long time ago… Telling me where a timing strategy WOULD HAVE bought a stock is like telling me what number I SHOULD HAVE played to win yesterday’s lottery.

Me:  Fair enough… how about I tell you exactly which of my old daily recaps to go back to for the buy call?

Fred:  Oh sure… what did you say?  Some nebulous “I would buy it ‘in here’?”  I hate it when you traders use that loosey goosey term…

Me: So now I’m a professional again I see…  Make up your mind rookie… And no… the video has where to buy the stock and where a stop should be placed.  I know several people who have made good money off just that call.  And it was a timing call.

Fred:  I don’t believe you have that… I listened to your wraps.

Me:  Sure you did.  Anyway… If I can provide you the exact video and it does what I say it does, we’re having dinner at your favorite steak house tonight… and you’re buying… If the video doesn’t show what I say it does, we’ll fly to NYC and you can have the Porterhouse at Peter Luger’s…

Fred: Yeah right… I have to pay for a flight to New York so you can buy me steak?  No thanks… Not even for Luger’s.

Me: No, that’s something that you would do.  If you win, we’ll fly, stay and eat on my dime.  What’s your excuse now?

Fred:  Okay Mr. Big Shot trader, it’s a bet.  Guess I’ll go pack…

Me:  You might want to sit down and watch this video first… You can even start at around the 6:38 mark if you’re in a hurry.  Close the door when you’re done… and I’ll see you for dinner at 7:30…

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Let’s look at the progression of Facebook [FB]

10 September 2012 Day before entry — Facebook discussion at 8:30 mark 

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11 September 2012 Day entry signal fired — Facebook discussed at the 4:40 mark…

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Update:

24 September 2012 — The trade has been on for a little more than a month… 

 

As of 11 July 2016 Monday

 

On 11 July 2016 Facebook’s closing price was $117.87.  At an entry price of $19.50, that’s a dollar return of $98.37… and a percentage return of 504%.  And it doesn’t look like the stock is done to the upside just yet.

So apparently Fred’s right… you can’t time the market…perfectly.  

But who needs to be perfect?

KIS,

The Trader

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