Flip side of psychology question for Saul

Investment Analysis Clubs Saul’s Investing Discussions
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Saul et al,

I loved the thread entitled Psychology Question for Saul. Super interesting. Thanks to all who contributed.

I have a perhaps similarly odd question: if posting trades and rationales here, rather than affecting Saul, affects the market. Is that a crazy thought? Two general ways come to mind:

  1. Is it more than slightly possible that, for smallcaps anyway, that some hedge fund or other traders are using this board as one input to their trades in such a way that it’s counter-productive (or perhaps productive) for Saul and the rest of us? I mean I doubt AMZN would be moved but how about LGIH, INBK, AMBA, AMAVF, MITK, RUBI, PN, AIOCF or SSNI? I’m not even sure I know how they’d use it… like the shorts sense excess exuberance here and up the ante?

  2. Related, I also don’t have much sense for the combined invested net worth of the board’s readership is. Maybe resulting buys/sells from the readership are too small to matter. But with a really small stock like INBK, market cap $200m, I figure just a couple mil in play could move the price quite a lot. I think someone tried to take a poll of the readers along those lines a year or two ago for a particular stock.

Anyway I figure other folks here wiser than me have thought about this so it’d be fun to hear what you all think. Perhaps there are 10,000 other similar boards out there that all cancel each other out.

Please feel free to tell me to put my tinfoil hat back on if merited. :slight_smile: Cheers.

2 Likes
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Interesting question but I doubt that anyone can truly explain market movements, not that they don’t try. The larger the market the harder it gets. With micro-caps and penny stocks manipulation becomes easier, all it takes is money and stories. Can TMF move markets? Probably. Can Saul move markets? Less likely. But we all move markets – usually imperceptibly.

The lower the volume the easier it is to move markets. I see it in option trading. Most of my options are highly illiquid. Often I’m the only one who actually does a trade on an option on a given day. Yesterday I bought back a BKE June 26.75 call, the only trade in that option yesterday. That left an open interest of only 19 BKE June 26.75 call options.

Good luck trying to move Amazon, the mightiest river in the world! I don’t know if the story is true or not but it seems that the early visitors to Brazil noticed that the ocean was sweet getting there so mighty is that river.

Getting back to markets, JP Morgan annunciated the Law of Markets when asked what the market would do. He replied “It will fluctuate.” Benoit Mandelbrot in The Misbehavior of Markets revealed lots more details about how markets behave. He got a job at IBM and was able to get lots of free computer time to play with price data. He discovered things like that prices have memory (not truly random) and that prices have a power law distribution, not a normal (bell curve) distribution which is used in most financial calculations including the Black-Scholes option pricing model which proves that the model is wrong! So, why don’t they use the right distribution? Because the math is too difficult and bell curve distribution is easy and well known.

Graham and Dodd wrote the investing bible and deviating from it is heresy. Except that Graham and Dodd wrote before much was known about markets qua markets, how prices behave. Ben Graham blamed the market crash of 1929 on Edgar Lawrence Smith who wrote a book explaining why stocks are better investments than bonds back around 1924. Jeremy J. Siegel references Smith’s book multiple times in his own best seller Stocks for the Long Run. In time Ben Graham had to change his tune.

My point is that prices have a lot of information in them if one knows how to read them but I have often been accused of practicing financial voodoo and told to shut up. Forget about tinfoil hats and explore!

Denny Schlesinger

The (Mis)behavior of Markets: A Fractal View of Financial Turbulence by Benoit Mandelbrot
https://www.amazon.com/Misbehavior-Markets-Fractal-Financial…

Common Stocks as Long Term Investments by Edgar Lawrence Smith
This book has only seven reviews, one is mine writing as “Individual Investor”
https://www.amazon.com/Misbehavior-Markets-Fractal-Financial…

Stocks for the Long Run 5/E: The Definitive Guide to Financial Market Returns & Long-Term Investment Strategies by Jeremy J. Siegel
https://www.amazon.com/Stocks-Long-Run-Definitive-Investment…

2 Likes
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Saul et al,

I loved the thread entitled Psychology Question for Saul. Super interesting. Thanks to all who contributed.

I have a perhaps similarly odd question: if posting trades and rationales here, rather than affecting Saul, affects the market. Is that a crazy thought? Two general ways come to mind:

1) Is it more than slightly possible that, for smallcaps anyway, that some hedge fund or other traders are using this board as one input to their trades in such a way that it’s counter-productive (or perhaps productive) for Saul and the rest of us? I mean I doubt AMZN would be moved but how about LGIH, INBK, AMBA, AMAVF, MITK, RUBI, PN, AIOCF or SSNI? I’m not even sure I know how they’d use it… like the shorts sense excess exuberance here and up the ante?

2) Related, I also don’t have much sense for the combined invested net worth of the board’s readership is. Maybe resulting buys/sells from the readership are too small to matter. But with a really small stock like INBK, market cap $200m, I figure just a couple mil in play could move the price quite a lot. I think someone tried to take a poll of the readers along those lines a year or two ago for a particular stock.

Anyway I figure other folks here wiser than me have thought about this so it’d be fun to hear what you all think. Perhaps there are 10,000 other similar boards out there that all cancel each other out.

Please feel free to tell me to put my tinfoil hat back on if merited. :slight_smile: Cheers.

Get a thicher hat.

What I am about to tell you is already happening.

Bots scrape the web continuously. They then put in trades based on the scrapes and create posts and news articles put together based on the scrapes to,support the trade. Other bots copy and then eventually people move in, then the bots move along.

If you post enough and use certain ways of writing long enough and you get quoted often enough you will see your phrases hitting various news feeds. It will not be an entire article, but I have seen phrases, and themes of my posts reflected in news aggregator sites.

So yes, there are no ifs, ands, or buts about it.

Cheers
Qazulight

5 Likes
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Other bots copy and then eventually people move in, then the bots move along.

So…we need to invent a code language for this board the bots won’t decipher.

JT

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Yes, a code to get everyone in and then a bunch of positive posts from everyone while we are unloading our positions. :grinning: Just kidding for the board police!

Randy.

2 Likes