Why I Switched from Meme Stocks to ETF's

What I've Learned, How Hedge Funds Adapt, and Why I Chose ARK Investments

Starting off in the Market - A Retailer's Journey

Rewind back to the beginning of 2020 when I had 2 international business trips planned and at least 1 leisure trip to look forward to. Of course come March, that all changed.

I had a lot of free time and was glued to the news. Then the March bottom hit and stocks started to rebound.

That’s when I took a Udemy course on trading and started learning the basics. After that I started intermediate courses & honestly I didn’t finish that. I was trading and making money by then.

I always had a passion to trade since Boiler Room, except more transparent & less manipulative. I was offering unsolicited advice to anyone who would listen. It was exciting.

Soon after I started making bad trades and being impatient with blue chip stocks. Lost a lot (relatively) with option calls and puts. Which was humbling.

That’s when I changed my strategy for the first time. Despite all the bear hit pieces bemoaning the valuation, I invested more in TSLA.

 

“If the major finance news picks up a stock it’s either too late or you should wait for it to cool off.”

If You're Reading This Then It's Too Late

If the major finance news picks up a hot new stock it’s either too late or you should wait for it to cool off. This would be advice that proved right a majority of the time.

Psychology plays such a huge role in trading. As a person who hated missing gatherings with friends when I was younger or limited time sales, the fear of missing out, aka FOMO, was all too real.

Now, if the news is talking about it then I started to watch it run and strategized my exit strategy to take profits.

I had to be more disciplined. Sell on a 3-4 day run up because the major players, institutional money, is going to take profits. As large as we now say retailers are, institutional money are the big boys.

Short Sellers and Hit Pieces

As much as I disagree shorting a stock with the purpose of closing the business down, or writing articles with no real information to scare investors in order to hit your short price, short selling has it’s place in the markets. Keep in mind, short report hit pieces uncovered Enron and Nikola.

CCIV Short floatAn example is when the WSJ ran an article on CCIV and it started to drop up to 6%. 1.9 million shorts were covered in 30 minutes on speculation. These hit pieces make investors money a lot money.

On a much smaller scale, I’ve noticed an uptick of people posting DD reports. They explain all the great things about the next Gamestop or other meme stocks. I feel they are lower than the short sellers. Trying to pump the stock and targeting impressionable new traders, oblivious to what little amount it actually affects the stock.

All this takes time & experience to learn.

Having a Good Corner

I was fortunate that I knew people that invested heavily for decades and were patient with me when explaining things. Things you don’t think about or knew to ask when starting out.

Recently my brother wanted to get in the market. I was happy to help and explained things to him. Unlike me, he is in health care so he continued to work and didn’t have as much free time nor the desire.

After doing hours and hours of research I would give him a surefire pick. They so happened to be BNGO, NNDM & CCIV. He chose regular blue chip stocks, one of which was TSLA. As of this writing he is up over 50% this month in his first month of trading.

Not a bad start.

Gamestock, AMC and The Rise of Meme Stocks

elon tweet mugCrazy to think that we would take our financial advice from a meme. I made 20% in 30 minutes because I turn on Twitter notifications for a select few people. When Elon tweets, there’s a good chance money can be made.

My girlfriend even got his infamous tweet printed on a mug for me because we are in a time when memes move the markets.

That being said, when Elon tweeted, “Gamestonk!” I decided to pass on this chance. As much as the wealthy boomers were complaining, I felt they were right. The fundamentals didn’t make sense and some new kid who just downloaded Robinhood is buying calls on margins.

Don’t get me wrong, I like gambling. I’m gambling on CCIV merging with Lucid since it was $13. I’ve also taken gambles on tank stocks (SHIP) during contagion and pre-FDA approval penny stocks. Those didn’t end well. I didn’t know companies did reverse splits to stay compliant and offer more shares to gain capital. That was learning from experience. Guess I should have finished those courses after all.

I knew this wouldn’t end well for retailers. Hedge funds got smarter and they will find ways to recoup.

Hedge Funds Adapt

Those who thought they could crush hedge funds we’re largely misinformed. The subreddit Wall Streets Bets was a fun place for me to turn to. Back when they were discussing SPY calls and other plays before they broke out. You could trust the due diligence from certain Redditors that had a decent track record.

Now it’s an echo chamber of rockets and diamond hand emojis.

Not really where I want to spend my time lurking. However, the hedge funds know retail money is there. Of the 7 million members, I’m sure there are a lot of impressionable young traders that reads a coherent post on a micro cap stock and they take a position, or increase it.

These posts could be from bag holders or people hired by hedge funds. Hedge funds are hiring teams to watch social media and creating flash mobs to form and pile into a stock then they take their calculated positions.

The playing field will never be level. It’s like playing 1-on-1 against James Harden. Even if you played your whole life, you’re not going to beat a pro with their resources.

Like my mistakes early in trading, hedge funds have learned a lesson and adapted. They saw silver and put out fake posts on Reddit. Trying to gather a flash mob to buy in. CNBC covered the story. There were very smart people coming on CNBC & Wall Street Bets explaining there was a possibility you could short squeeze silver, or uncover the inflation that the government was hiding. There was no squeeze, they were manipulating.

I knew I had to be even more careful where I got my information from.

Memes are moving the Markets

My brother wanted another BNGO, NNDM, CCIV for another 50% return in 2 months. His APPL and WMT positions weren’t much fun. Now, not only am I concerned about my own money, but I have to consider the information I give him because he will not check it. That’s my job. Which is a bit of pressure that I don’t mind, but it forces me to be more careful.

He asked about GME and AMC and I said no and why. He didn’t listen. I was curious how this would go too. I threw $100 into AMC. That didn’t end well. However, it was confirmation of my theory, especially since the next day Robinhood only let you sell and not buy meme stocks for about a week. These brand-spanking new investors are literally watching their investments disappear.

This did 2 things:

  1. Others trust my judgment. Which makes me check sources more thoroughly.
  2. It made me completely distrust information peddled everywhere.
meme stock crash hold line
Click to Enlarge

The memes were amusing at first. Then it became annoying. Can’t check social media anymore because it’s all the same stuff. Mainstream media has 24 hour coverage on the situation too. Everyone, like me now, had an opinion.

Memes are moving the market, but in which direction? That is to be determined.

Shifting Point

Early February of 2021 things started to change for me. I noticed I was holding small positions in many stocks. There were 3 or 4 charging stations battling it out. I took positions in SBE at $15 and then that was doing well, so I got into EVGO.

These are my better plays, however, I was noticing that I was forgetting why I took positions. My portfolio had about 25 stocks in it. 40% were SPACS, and hyper growth potential companies that are trading with P/E ratios over 10000 and no product or revenue.

I never bought Nikola and made my case to those who would listen why I didn’t like it. That being said, there were other plays that I would never take if I had the fundamental information I have now.

That’s when something changed.

I listened to Cathy Woods on the We Study Billionaires podcast. She sounded smart, understood disruptive companies and eloquently explained the differences between the dot com bubble and today’s market. A topic the bears are always screaming about.

Here I am, studying for hours trying to find the next disruptive geno tech like BNGO & TTOO, listening to their CEO’s, looking at the numbers, trying to understand their technology as someone without a medical background. Just hoping that ARK adds one of my picks and the stock jumps.

The icing on the cake is that you called it. People much smarter than me, the ones who I try to emulate, essentially validated my research

Watching Cathy Woods and Choosing the Best ARK ETF

Cathy Wood’s ethos is finding potential disruptors in the industry. She’s not hiding what she’s doing. Updating their positions online everyday. Giving weekly talks on their YouTube channel where she explains her train of thought and where the market is heading.

Today she said on her weekly YouTube update that companies are spending money on dividends when they should be spending that on research & development because a disruptor will take their company over.

Most hedge funds don’t do this. Melvin Capitol reportedly got out of their short position on February 2nd. Perhaps they did, but what’s to stop them from a friend to take a short position?

I’ve watched Billions and the The Big Short. Sarcastic hubris aside, I am quite cynical when it comes to hedge funds and institutional investors.

So which ARK ETF is best

Since Cathy was on the We Study Billionaires podcast she explained she is most excited about the future of geno technology companies. Which is what interests me. ARKS returns are consistent month-over-month. Matter of fact, my returns in the geno field are only a little ahead of ARKG by a small margin. I only have perhaps 5 vs their 54 stock positions.

The one that is actually giving the highest return, the ETF that is giving the most bang for the buck is PRNT. Which is focused around the 3-D printings space. I was an early investor in NNDM, and understand how much 3-D printing could disrupt all industries.

 

I closed out about 25% of my positions. Some of which I took a small loss on. I parked my cash in PRNT and ARKG. When my other SPACS like, IPOD & PTSH find a company, I will close out those positions and reassess after the merger. In the mean time I’ll allocate the funds into these 2 ETFs.

No More Stock Tips from Major Media

I don’t think I’ve ever seen a stock pick from a major publication work out for me. There was one by Rich Duprey where he made a case for Apple buying the speaker brand SONOS. Citron Research made their bullish case too. It made sense, why not?

I had been investing for all of 2 months. I took a relatively large position in SONOS.

Then quarterly earnings came out a couple months later and the stock plummeted 15% overnight. Profit was less than expected because of various issues. Point is, I followed the hype and didn’t look at their numbers myself. Even if I could, I wouldn’t be able to uncover ongoing litigation, soaring tariffs and restructuring costs. I finished a stocks 101 course 2 months ago!

Everyone hates Citron Research now, but I don’t think they made their case with ill intent. I’m sure they helped some friends lose some coin. I am a different investor then the casual CNBC watcher. I am looking for companies that are changing with the times and forcing other companies to change too.

Stock Picks From Online Strangers

Mass media wasn’t the only place I turned to for picks. I turned to Reddit and YouTube. They would explain their positions. I now wondered how some Youtubers (like Mcash) are constantly explaining how they bought 900 shares of a new company every week. Never explaining their exit strategy and past mistakes. It was interesting at first. I now entertain, but no longer take a position unless I feel what they say is compelling enough to start researching.

There are a couple I follow. I keep my notifications on for 1or 2 others. However, they own up to their picks and offer their sources. Some go as far as revealing their portfolio.

Other YouTubers started resorting to click bait and recycled titles to get views, but not providing anything new, let alone concrete.

In the end, they are better than major news publications for me, but you still have to do your homework.

Conclusion

I am concerned that some of ARK’s ETF’s are brim filled with too many stocks. Besides that, I really like ARK and what they stand for. We will see in the future when they get too big and not as agile as they are now.

Or when she becomes a meme.

Until then I am going to ride these ~15% monthly returns until the wheels fall off.

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