This is Part 2. Be sure to listen to episode 181 in order to hear Mike’s entire journey. Mike (chat room alias, “afroge”) and I pick back up our discussion with a deeper look into his actual trading strategy. Although I am not someone who uses a whole lot of fundamental analysis myself, it was still an enjoyable conversation hearing about how he mixes fundamentals and technical together. For you longer time listeners, you’ve heard it said time and time again, but there is no Holy Grail in trading. It’s all about finding what works for you and going with it – we get to see a detailed example of exactly this thanks to Mike’s willingness to share.
Notes:
Mike talks about how earnings are essentially a forecast for the future. It’s intended to show the value a stock has at a later date based on what they’re trying to do. If stocks were only priced on current value it would only utilize assets and liabilities in a simple math formula but that’s not how the market works.
Clay and Mike talk about HMNY and the various red flags that presented itself. There is lots of information in the fundamentals that should have prepared investors to realize there was a concentration in that business.
He talks about his easiest trade that involves momentum and reversion to the mean. Utilizing fundamentals and technical analysis is crucial for Mike to catch the meat of the move, whether that is to the upside or downside.
Mike utilizes advanced option spread to facilitate his trades. He can construct these strategies so that he can only lose money on one side of the trade with a cushion even on his downside. Since his strategies involve multiple legs, he’s taking advantage of people who don’t understand the math behind his trade thesis.
Quotes:
Stocks are valued based on the future. If it was valued on today’s amount we would take total assets versus total liabilities.
Just be aware of your surroundings and that instantly makes you better than the average trader.
For me personally, the first thing I look for is swing activity in value investing. That’s the easiest trade you can ever make.
If you’re good at math, good at setting up investment thesis and an option play that make no sense to the buyer, as long as they don’t understand the math you make money over the long haul.
If you’re not willing to learn you will get punished.
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