One of the most lasting things that has stuck with me since business school was from an entry level course on futures and options. The ‘perfesser said on Day 1: “Only a idiot would trade on technicals, and only a fool would ignore them”.
That set up the first of many lessons I got over the next 20 years that would shape my views around trade.
And one of the first things that got beat into me the first time I got near a trade floor was: If you don’t know exactly what you are talking about…..don’t say a fucking word.
And that’s some differences between school and the real world.
The real world not only swears – it’ll take every cent you have rather than just a course fee. And it’ll also fire your ass if you screw up.
There is ultimately two sides to trade:
2. Not Fundamentals
Fundamentals are not only the economics, but the directly observable: supply & demand, costs, pricing, and so forth.
The things that aren’t: market sentiment, general ‘consensus’, expectations, predictions…..etcetera. We can impute them from share price movements and correlate, but, drivers of delta are not always clear.
The whole enchilada of it all: it ain’t science. Nosiree. Ain’t even close.
Like archeology (or many of the humanities for that matter) – trade uses science where it’s possible – but it’s not a science unto itself.
Much of the output of theories and models and financial engineering are math and statistics and physics…..which are driven by scientific law, and underly most of the research around returns on assets.
For cannabis sector equities, assets are in the form of land, greenhouses, tanks, genetics, human capital, and assorted the bits and pieces that make up your Plain Jane Basic Vanilla Dope Company. The presence of those assets within a single vehicle create a fungible (& hopefully liquid) way to buy and sell those assets. Their ability to produce revenues – and if they exceed the cost of the assets (crossed fingers) – Bingo! You rich.
Revenues will drive accretion in the perceived value of the assets, and hopefully, gets you that sexy yacht and small Mediterranean island you’ve had your eye on.
And yes, that one share of Namaste you own is considered an ‘asset’. The buyer or seller is making a statement on quality of the asset relative to price – given an outlook.
From there, the math can get complex.
I ain’t gonna go down the esoteric hole too far as we go. But I’ll set up signposts for the interested of you want to take a detour and check it out. For the most part….unless you’re an institutional with a good sized book and VaR….much of the heavy stuff cannot be applied and only academic in context.
The stuff that is applied (and works) is closely held and proprietary and never ever talked about nor ever ever written about.
At least until it’s not relevant anymore.
The other side of trade is the softer stuff. The stuff that’s more subjective, and resists strict definition. It’s where most retail lives when it trades.
I’ll be going through trade from A-Z over the next half year or so. The breadth of material is large. At times, like maybe the ‘return on assets’ description above – may strike you like *’blah blah get to the good stuff already and tell me what to do*. Especially to the experienced or who’ve been at it for awhile.
There is quite a few in our subscriber base and circle of friends that are professional traders who work in professional shops who have professional sized books and make professional sized incomes.
And I’d wager **hard** that not a single one of them would skim a word if they read it – even if they think they knew where it was going.
Trade is all about the specific. Known positions. Known exposures. Identified risks.
So, if you are having a ‘blah blah’ moment – I ask you to stop, and engage the material. This thing will take a large amount of effort for me – and if you are genuinely interested in trading professionally – put in effort as well.
Some of the worst train wrecks I’ve seen are people who can talk up a storm, use all the right lingo and buzzwords, and yet their whole house is built upon a bullshit premise that came in when they got bored – and didn’t get the basics laid in concrete.
And there is many of them out there in the world. And professionals go back to the basics all the time. Honest.
From here, we’ll start at the beginning, and put in the foundations. These posts will likely be shorter than your used to from me, but each one builds on the previous. And in my opinion, when it comes to foundations…….there are single sentences that say more than the entire word count in War & Peace.
GoBlue will probably like the brevity from me for a change 🙂