“We’re Streaking through the Market!!”

(Reference from Old School)

The stock market is not completely random – it’s mean reverting over time. Just to provide it: Here’s the next day avg. return and probability of going up based on the number of consecutive days the market has gone up or down.

You can see the probability the market goes up and the average return almost monotonically declines from the most negative streaks to the most positive streaks.

This is one of the reasons the average investor gets killed. Fear on the low end causes them to sell and miss the rally. FOMO on the high end causes them to buy at the wrong time.

Pay attention to the current streak when you are compelled to buy or sell. If you want to sell after 5 days down, it’s probably a bad time.

Stop Playing Games.. with the Stock

GameStop is only up 100% today to $300 a share. What’s going on? Whelp, the number of shares short at the end of December was 71 million. The number of shares outstanding is 51mm. That’s right – more shares were shorted than existed.

Now everyone is in a huge scramble to cover their shorts pushing the price through the roof.

This happened a few times before. The first story I’ll share is that of VW. In 2008, a short squeeze made VW the most valuable company IN THE WORLD. (Maybe Tesla isn’t overpriced)

The issue? Once the squeeze was over, the stock crashed 93% and is still – 13 years later – 80% off the high it hit in 2008.

GameStop buyer beware.