Trading Thoughts – June 11, 2021

by DAN NLY PLUG NIO TSLA NKLA 
I have been thinking about this over the last couple of days as I have been kind of looking at various things in my Active Trade List, what do I keep, what do I not? I was also just talking to a friend of mine, just earlier this morning actually, about how we have all of these different kinds of traders at Stock Market Mentor. Some are long-term investors that look at fundamentals, others don’t even know how to spell fundamentals and think that maybe it’s just some kind of fun, some kind of a game with “damentals”.

Everybody kind of trades a little bit differently and so I have to kind of tailor my “delivery”, so to speak, accordingly. But some things are totally universal, it doesn’t matter if you trade the tick chart for the first 1-minute of the day or whether you are holding stuff for years. I just want to kind of talk about that and I want to look at it from the perspective of what is in your account. Not the market, not all of these different possibilities, oh, I think I want to do this, I’m an active trader, blah, blah, blah. No, I am talking about what stocks are in your account right now.

Again, it doesn’t matter if you bought a bunch of stocks because it’s 9:35 and you are looking to get rid of them by 9:50 or whatever. Here’s the way I look at my account; I will ask you this question, are the stocks in your account, do you look at them as employees? Do you look at them as part of your circle of friends, like your inner circle? Or do you look at them as your family? Now, some would even look at them as complete strangers and so let’s add that to the list.

Are the stocks in your account, and bear with me here because this is really important, it’s a mental thing, are the stocks in your account strangers where you could not give a rip about them? You don’t care, couldn’t care less. They are strangers in and out? I don’t even know what the ticker is, if it isn’t working it’s done.

Or are they employees? Where you’ve got a little bit of time invested in them. You had to hire them for a reason, you did a little work and you want to see them do well but you are very dispassionate about it just like, ah, if it’s working fine, if it’s not, it’s not.

Or is a stock in your account part of your circle of friends? Like it’s really going to kind of take a lot for you to cut that stock out of your account because you literally have an allegiance, a loyalty to that stock. For one weird reason or another, you dig the ticker. Maybe you made a lot of money on it, whatever the case may be, but you do give that stock a little bit of leeway because it’s in your circle of friends. These would be the stocks that you say, oh, I like such and such a stock. How do I trade Apple ( NASDAQ: AAPL ), or this or that? That’s one of these stocks that’s in your circle of friends.

And then the last one, and this could be the most awesome thing in the world but it could also be really, really devastating for you, it depends on what happens. Is a stock like your family? Is a stock more than your inner circle, is it your daughter, your son, your cousin, your brother, your sister, stuff like that? Is that how you look at certain stocks? Because if you do you are going to have a huge blind spot.

I want to go through some things here and I will just let you categorize these. And then at the end of it, you need to look at all of the stocks in your account and do it with the idea of this, I just want to make money. That’s all I care about in my trading, I just want to make money. I’m not worried about making friends. I’m not worried about making enemies. I don’t even care about getting personal satisfaction. Hey, screw that, I just want to make money, that’s why I trade. As the old saying goes, if you want a friend, get a dog. We just want to make money here. These are the categories, strangers, employees, friends, family.

I know this, AT&T ( NYSE: T ), 7.2 percent yield. If you look at this on a weekly chart, it’s been trickling down. Now, the dividend was lower when the price was higher. So it’s down here, now it’s here, the dividend is higher, it’s lower than it was here. But if you look back on the yearly chart. I am pretty sure AT&T ( NYSE: T ) was trading before the late ‘80’s.

This is the point, I know because I have talked to some people, AT&T ( NYSE: T ) Ma Bell, has been passed from generation to generation, this is a family member for some people. Others, I do covered strangles on it, it’s none of the above. But this is the type of stock that is literally passed from generation to generation. And why? It has nothing to do with AT&T ( NYSE: T ), it has to do with the dividend. As long as this stock is kicking out a dividend people own this with a negative cost basis. I don’t know whether I am using the plus or the minus sign correctly.

What I mean is, the dividends that they have collected from this stock are more than they paid for the stock. So they are on a total free ride, this thing could do just about anything and they are not going to sell the stock. They don’t have an allegiance to the company, some people do, they have an allegiance to the dividend. So is this a family member? Sure. And as long as the family member keeps kicking out this dividend, fine. I will tell you this though if AT&T ( NYSE: T ) ever said, you know what? We can’t pay any more dividends. This stock would drop so fast it would snap your head around. And so this is a company, that as long as it’s working, people are going to hang onto it.

Now, let’s look at Annaly Capital ( NYSE: NLY ). This is one, I wouldn’t put it in the AT&T ( NYSE: T ) category, it’s paying 9.2 percent. I think we got it at 10.1 or 10.5 percent when we got into it clear back here, so I wouldn’t look at this as a family member. Even though it pays good dividends I will give this thing a lot of leeway, but I am not going to give it that much leeway. If this thing starts imploding and starts moving down lower and lower I am going to need to get rid of this stock because I don’t even know where Annaly Capital’s ( NYSE: NLY ) home offices are. I don’t care. I know what they do, they have a great management team, they kick out a nice dividend, but I don’t care that much about the stock. So if it stops performing, even though I love the dividend, I am out of there.

Now, what about a stock like Plug Power ( NASDAQ: PLUG )? This thing, for crying out loud, has been a monster stock. A 1600 percent return in 8 months, but here’s the deal, maybe you bought it and rode it all the way up, good for you, I know somewhere along the line you took profits. But let’s say you started the stock here, this was just a stock that wasn’t even an employee it was just a stranger. Gradually it runs up and you hold it, maybe you sold it. But gradually this goes from being a stranger to an employee. Now you are looking at the stock more, you may even be interested in whatever this company does. And then it continues to go up and pretty soon, because this thing is paying you off huge, from 5 to 10 up to 15, this is definitely in your inner circle, no question about it.

By the time it is up here you have got a total blind spot towards this company. How can you not? The thing has just been paying you off like a demon. And so you are saying, Plug Power ( NASDAQ: PLUG ) can do no wrong. This is absolutely in your inner circle of friends, maybe it even becomes your family. So by the time the stock is up here you are in all of the way. You love this stock. You have ridden it all the way from being a stranger all of the way up to being a trusted family member. But then what happens with the stock? The stock starts falling and over 3.5 months this has fallen 75 percent. So my question to you is this, when is this family member not a family member? Maybe it’s my inner circle, maybe it’s just an employee, and then finally it’s a stranger.

What I am talking about here is an emotional roller coaster for you because you are emotional about trading. If you are not emotional about trading none of this matters. You just have rules and when the stock does this you are out. When the stock does that you are in. That’s the way it goes. But on a stock like this, you will see this transition. And then here’s the other thing that can really screw you up. What if you didn’t see this but somehow you see the stock here? Maybe you even see it here and you think, wow, I have got to get in here. So right now you are buying really, really high, not the brightest bulb in the chandelier, buying up here.

And so what is this stock to you? My bet is, it is immediately a family member. You see this kind of move here, you haven’t participated in it. But you see other people in the forum or online or whatever. Oh, Plug Power ( NASDAQ: PLUG ), Plug Power ( NASDAQ: PLUG ), it’s awesome. And so you jump in here, and this is your family member, this thing goes 75 percent. And then at some point during this you are saying, you know what? I have got to get out of this stock, I have no loyalty. Ultimately, the money that you are losing causes you to take a different look at the stock. You look at things differently because the stock is hitting you in the pocketbook. But depending on how you look at any given stock, you can have a blind spot or you can be acutely aware of what’s happening.

If we look at a stock like Nio ( NYSE: NIO ), this is another one. It is up 1600 percent in a year and then it fell 50 percent. So this starts as a stranger, employee, inner circle, family, and then at some point, it starts rolling over. If you are the type of trader who really looks at these various stocks, you fall in love with stocks in your account, this may surprise you, this is not a bad thing, I don’t think that is a bad thing because if for example if you are in Nio ( NYSE: NIO ) here you made a whole boatload of money. This is a career-maker here, if you just fell in love with this stock and you go, I’m in, I love it, it’s forever. So being a really, really loyal family member, so to speak, is definitely a good thing. But if the stock starts imploding on you, that sense of loyalty is going to absolutely kill you.

You have to have some kind of rules in order for you to adjust how you feel about a stock. Is it a stranger? Is it an employee? Is it part of your inner circle? Or is this a family member? And just from seeing some of the comments that people make in the forum about various stocks, I will think to myself sometimes, this person is really too close to that stock. This person is not looking at the stock objectively. I look at a chart and go, what the heck are you thinking? But that’s because that is the difference between this person who really, really loves this stock, and me, I am just looking at the chart.

So at some point in the progression of every single stock, if you are the type of person that tends to get emotionally attached to these positions, you have to have a sliding scale. You have to be looking at this and saying, okay, at some point, like my beloved Nio ( NYSE: NIO ), my beloved Tesla ( NASDAQ: TSLA ). Tesla ( NASDAQ: TSLA ) has made me so much money, Tony Stark, space, Mars, the whole bit, whatever it is. Naming my kid actually a symbol, it’s all good. At some point, you are looking at this and you are a true believer, you’re a family. This is part of your family, and guess what? Nobody is more correct than you, riding this thing almost 1700 percent in a little over a year. My worst trade was not making this trade, I will tell you that, so no criticism there.

But at some point, are you changing your tactic? Are you still being true to being a trader? Or are you just kind of a fanboy or girl for that matter, for various stocks whether it’s this or that? Has your allegiance shifted from making money to just being loyal to a particular stock, which by the way, the stock doesn’t know about you, the stock doesn’t care about you. And even if it did know you and care about you, it probably wouldn’t like you. They are tickers, they are not people. And so you have to have this sense of objectivity when a stock starts trading in a way that you don’t like.

This is the first one I thought of, ( NASDAQ: NKLA ), well, there are a couple of others like Tilray ( NASDAQ: TLRY ), etcetera, etcetera, but we will just go with this, ( NASDAQ: NKLA ). If we go back here, this is a monster stock, Nikola ( NASDAQ: NKLA ). Let’s see, Tesla ( NASDAQ: TSLA ) did pretty well, that’s the last name, Nikola ( NASDAQ: NKLA ) is the first name, gosh, that should be pretty good. And so you are looking at this stock and it’s absolutely rallied like no other stock you have seen. And then it does this, it’s awesome. This is beyond a family member, this is like a blood brother. But then at some point, the stock starts doing this. And so I guarantee you somebody bought up here and they are still holding the bag, they are still holding the bag.

And so what I am telling you is, think about stocks like Enron and WorldCom, where those stocks were doing great because the companies were doing great. But as it turns out, you know what? The executives were stealing from the company. Whether it’s Bernie Ebbers or Ken Leigh, Andy Fastow, they are stealing from the company. And at some point, the stock started to reflect that. And once that stock started to reflect that, then the wheels started coming off the wagon and the stocks just absolutely imploded. I can’t show you those charts because those stocks are delisted.

I want you to listen to me here, I didn’t plan on this going on for so long. I was actually just going to put it in part of the typical video but I am making this its own one because this is important. I was thinking about risk, and all this is about risk. I was thinking about how, if you are trading, say, 4 stocks in your account, just for easy math, you have got 25 percent of your account in each stock. And they are all doing well, and you kind of get emotionally attached to these things.

On certain stocks, whether it’s AT&T ( NYSE: T ) or Annaly ( NYSE: NLY ) or Plug Power ( NASDAQ: PLUG ), Nio ( NYSE: NIO ), Nikola ( NASDAQ: NKLA ), Tesla ( NASDAQ: TSLA ), any of these. You are not using stops. Why, because they are family members, or they are close friends so you are not going to have a stop on that. You are not going to have a stop on a family member, where the first mistake they make or something, you are out of there, I don’t want to see you any more. You may do that with a stranger, but you are going to have an emotional and intellectual tie to any of these given stocks.

So let’s say you got 4 stocks, 25 percent each, that are really, really good. You really like them and then one of them starts to underperform. One of them starts to kind of rollover, the others are doing okay. But you are noticing that the one that started to roll over is now impacting the bottom line, not just that particular stock but your account. You have got 3 that are doing well and 1 that is really not. So suddenly the average of the 4 isn’t that great and you don’t know what to do, so you just let it go. That one stock keeps going, and then it keeps going. It gets lower and lower and lower. Pretty soon you’ve got 3 stocks that are doing well, doing pretty good, and the one stock that was doing well is going lower, and lower, and lower, to where it is finally, as bad as this stock is doing, it’s completely erasing the profits that are made here. Instead, your whole account value is now down here or even down here. And it is all because of this one stock.

So what do you do? You say, well, I can’t sell this now. I can’t sell, I cannot sell this stock right now because if I do, if I sell this stock right here I am going to take a big loss and totally wipe out the rest of this. So what do you do? You hold it, and you hold it, maybe you are even buying more. Finally, it gets to a point where you either sell this stock or leave the game. The ultimate conclusion is this, you have allowed this 1 stock to absolutely decimate the gains that you have made in these 3 others. These 3 other stocks, you know what? It didn’t even matter, they didn’t make you any money because this stock hurt you so bad that all of these other gains are just out of the ballpark, you are done.

Here’s the moral to this story, have a damn stop on every single stock that you own. If you have a stop and setting stops is an art in and of itself; the typical response when I tell people you have got to have stops, they say, well, I don’t want to sell just before the stock goes up. Or yes, you know every time I have a stop I’m stopped out, and then the stock goes up without me. Okay, that’s an issue with how you are setting your stops. That’s an issue with where you are buying, how you are managing your risk, etcetera, etcetera.

For all I care, set a stop at 15 percent. If you set a stop at 15 percent, guess what? The maximum you are going to lose on a stock is 15 percent. I would never want to lose 15 percent on a stock but I will tell you what, if I did, it doesn’t take me out of the game. If I lose 80 percent on a stock, that takes me out of the game. Suddenly, I’m looking at the last 3 years of work that I put in, and that’s all gone. Now I am looking ahead at the next 3 years and I am going, well crap, I have such a smaller account than I used to I am probably going to have to double this thing or triple this thing just to get back to where I was before that stupid loss that I took.

Every big loss starts with a small loss that you didn’t take. If you have rules you will make this money here. You will make this money here. You will make this money here. And on this one, you will lose a little bit of money, and that’s the end of the story. But if you have no rules you can have one stock, whether it’s a stranger or an employee or a close friend or a family member, that one stock can screw you and the rest of your work is all for naught. It is not because of that stock, that stock didn’t hurt you, you hurt you because you didn’t respect the #1 rule that Fitzpatrick has always had for probably 25 years, everybody say it together, don’t lose your dough. So if you have to be emotional about stocks, that’s fine. But at least have a stop loss because if the stop loss is there it will protect you from any blind spot that you have.

I am serious about that, go ahead and embrace any stock as a family member or a stranger or however you want to look at it. But ultimately, what it gets right down to is this, all we want to do here is make money. We don’t want to be right. We don’t care if we are wrong. You can pound the desk, you can do whatever you want to do on any stock but you have to expect to take losses. And so the way you can ultimately be a winner is to make those losses small. Never let one single stock get away from you so that you are getting screwed by that stock; because it is amazing, the one stock that you think is bulletproof will turn out to not be bulletproof and that is the stock that is going to bite you more than anything you ever thought. So if you can do that just keep a good philosophy on why you are trading. Never deviate from that and I am sure you are going to do fine.

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