Trading versus Investing

This was gonna be a blog post on why I came in today with a long bias in RIMM. But there is so much chatter right now on StockTwits with respect to ABK that I thought I would throw in my two cents. Let me start with a few preliminaries before I get into the meat of the post.

#1 The vast majority of my trading is intraday. I was labeled at some point in the late 1990s (with all the other non-bulge-bank traders) as a “day trader”.

#2 I went to a competitive undergraduate business school where I didn’t learn the first thing about trading but I did meet a lot of future bank analysts who are very good at what they do but couldn’t trade their way out of a paper bag.

So back to ABK. It first caught my attention on Friday at $1 per share. Then yesterday it really caught my attention when it hit $1.60 and started to consolidate. I mentioned it to Gman then got up from the desk to attend a meeting. When I came back from the meeting it was at $2.30. My sense was that this move was completely unwarranted but that some of my old buds at the momentum funds were trying to start Q2 off with a bang. I knew that eventually there would be a great shorting opportunity but I was not interested in jumping in front of a freight train.

I checked the long term chart and circled $3.40 as a potential price to initiate a short position. $3.40 was the price from which ABK gapped down back in 2008. It was a natural place for the momo hedgies to end the short squeeze party and also a level where a ton of players would look to get short. It is not a coincidence that the high in ABK today was $3.39.

Armed with a potentially good price to short ABK I waited. Right as the market opened it traded close to $3.40 but failed. I shorted a small position. I was interested in getting conformation from the tape before committing to a large short position. That confirmation came at 11:00AM when ABK began to sell off on heavy volume. Unfortunately, my trading firm would not allow me to short more shares. Apparently, there was no inventory available.

Over the next hour ABK dropped about $1. That would have been a nice trade. A trade and not an investment. I don’t know if the analysts who follow this stock are correct and the equity is worthless. But my hunch was they could be so I was willing to use technical analysis, the tape, and knowledge of the dopey trading patterns of the hedgies to game a low risk high reward short position.

As an aside, I find it interesting that the MSM and politicians are so interested in how the “short sellers” have such a negative impact on the market. Why is there never anything written in the New York Times, WSJ, or broadcast on CNBC about the damage caused to the equity markets by the idiotic momentum guys who step in to push things to absurd prices when fear has been removed from the marketplace? The SEC and the media are so concerned about the “negative impact” that short sellers have on equity markets that noone ever stops to consider if there might be negative consequences from “long buyers”. But I digress.

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