Lone Ranger Economics
"Stop Playing This Game?: Charts Don’t Lie!"
Most of you probably heard at least a little bit about GameStop and its stock in January of 2021. We will discuss this financial phenomenon in this lesson, but first we need to differentiate the difference between investing in stocks and trading stocks. Investing is based on fundamentals of current profit, future value and potential growth. Trading is based on technical action of the price, usually identified in observing the price history chart and capitalizing on pattern recognition. Investing is a long-term endeavor while trading is usually for a few weeks, days and in some cases a few minutes. The time needed to make a decision is usually proportional to the time holding a stock; deciding whether or not to enter a trade may take a few minutes while the time needed to find a great investment may take hours, days or even weeks. Having said that, I did not invest in GameStop, but I did do some trading. Here is what I did, considered doing and why.
On January 21, I purchased a significant portion of GME, not because of any hype on-line but rather because of the action/momentum on its short-term pricing history. THE CHART TOLD ME TO BUY! In fact, I decided that it was probably very profitable and safe to hold for 2-3 days. That was my commitment. I bought in about $43 per share.
The next day I was baffled why it went up 70% or so. It was tempting to sell it, but the chart told me I should keep it for 2-3 days, so I practiced self-discipline and did not sell. The next trading morning, I sold it all off at $93. But I did buy some back at $73 to let that ride another 2 days. I was still clueless about the Reddit group WallStreetBets - I was just trusting the charts! Two days later I sold at $293.
Then I started figuring out what was going on with the Reddit hype. I advised friends to SELL, SELL, SELL when it was in the $300’s because the chart said it was probably coming down, and coming down fast.
On its way down the next week, I did do some day-trading when the chart said it would be good to hold for a few hours. I averaged about 2-4% in a matter of hours, but just missed making about 80% on one trade – DARN IT!
When it got back down to $40 in February, I was thinking about jumping back in for a few days when it went back above $50. The day it did so, I almost pulled the trigger on some “options” which are much riskier but the payoff can be incredible. I decided to do with a different stock option. My mistake, because I would have turned $200 into about $10,000 overnight as it shot from $50 to $175! I should have obeyed the chart that time!
So let’s talk about charts! One of the unique components of our success in the 3200 meters in track was the split-charts we used. These charts were a visual tool used to find mistakes and correct them in 3200 meter races.
Now let’s talk basketball. One of the clichés used in the NBA broadcasting for about a decade is “Ball don’t lie!”. Former Trailblazer Rasheed Wallace gets the credit for this statement. Basically it is quoted when a foul is called that was very questionable and the player fouled misses the free throw, as if the ball knew the whistle should not have been called. There was also an unknown movie with that title made in 2008 that I have not yet watched.
In our case, we will modify that statement to “Charts don’t lie!”, the subtitle to this lesson. Now is that necessarily an absolute true statement? By no means. But the short-term stock charts are right a good portion of the time. Fundamentals of a stock are great for long-term investing, but the technical aspects of the chart are best for short-term trading. Since this new statement is not the absolute truth, let’s modify it to be more accurate: “Charts usually tell the truth!”
This GameStop game has been interesting and exciting, very lucrative for some and very frustrating for some. My advice is that you need to know when to stop playing this game. Gamestop went up because of the hype, not because of fundamentals. I have avoided “investing” in GME. So should you play this GameStop game? If you are going to play this trading game, you need to know when to sell. Otherwise you probably should not play this game.
Unlike GME, silver fundamentals are “off the chart!!!” Here is a great video showing a chart for the long-range expectations for Silver could put the price between $300 and $1,200 per ounce within a few years. Can silver reach $1,200 per ounce? Is this chart lying? I doubt it!
I am investing in Silver while I trade stocks like GME. When the broken Silver pricing system gets fixed, the price will skyrocket, but it probably will not come back down like GME. "Rich Dad, Poor Dad" author Robert Kiyosaki plans to hold his silver because it has been suppressed in price and has immense future value (First 1:12, then 5:15-5:23). Right now, you can buy about 8 ounces of silver with each share of GME. I believe in 2 years, you will be able to buy 10-100 shares of GME with an ounce of Silver. Know the difference between investing and trading, and act accordingly.
Hi Ho Silver, AWAY!