PREMIUM: Trading SPACs, IPOs and super growth stocks with the odds
2021 is already gearing up to be a record-breaking year for SPAC issuance, with high-profile IPO unicorns like Coinbase set to list. Kathy Donnelly, veteran trader, IPO expert and author, returns to the Yahoo Finance Premium webinar series to join Jared Blikre as they explore trading methods and tactics for timing the volatile world of stocks with explosive growth potential, including those in the Reddit and WallStreetBets universe.
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JARED BLIKRE: Thank you all for joining today. Our latest Yahoo Finance Premium webinar, number eight if you’re keeping track. Trading SPACs, IPOs. And super growth stocks with the odds. I’m Jared Blikre. And we’re going to be joined by Kathy Donnelly in a minute.
She’s a proprietary equities trader, co-author of “The Lifecycle Trade.” And she literally helped write the book on IPOs and is going to share some of those insights as they apply to stocks and direct listings as well. And we’re also going to be tackling the trader psychology over these incredible run ups that we’ve had in these Reddit and WallStreetBets bet-based stocks here.
We’re also going to show you how to get the most from Yahoo Finance Premium and to show you how to use it to find stocks that show signs of promising returns and use it to analyze your portfolio and also some of the stock trades that we’re going to be talking about here today.
Now, if you’ve been to one of these webinars before, you know how the Verizon on BlueJeans’ software works. And for everyone else, you’re going to be able to interact with us in real time. We’re going to be running polls for the next 45 minutes, which you can see on the right-hand tab of your screen. You can post questions any time using that same tab on the right and feel free to use your name, your real name, or just post anonymously.
Also, on the bottom left side– could be right down there– you’re going to see you have several viewing options. There’s a slider where you can size the presenting screen as well as a video box or both of us. Now, let’s get straight to our first poll.
How much money did Isaac Newton make trading the South Sea Company? Answer the first. He quadrupled his fortune. Did he doubled his fortune? Did he break even? Or did he lose his fortune?
So I want to bring in Kathy Donnelly right now. And Kathy, it’s great to have you here again. You are our number two guest. And I want to address what’s happening in the markets, because this has been undoubtedly the craziest two weeks that I’ve ever seen. And I know there are a lot of superlatives out there. What’s your take on this?
KATHY DONNELLY: Yeah, I agree, Jared. It has been wild. I’ve talked to some of my colleagues who’ve been trading even longer than I have. And they have told me they haven’t seen anything like this. So we’re definitely, as I told you on Monday, we’re in unprecedented times. And so we better make sure we have our strategy down pat. So we definitely make sure we don’t get hurt. And then when we do go in, we’re taking advantage and making the money that we can.
JARED BLIKRE: Yeah. Let’s just hit GameStop out of the bat here. I’m showing my screen. You can see the stock. It’s obvious where the action has been recently. But what’s your take on this stock? You can even go all the way back to the beginning because it IPO’d at one time too.
KATHY DONNELLY: Yeah, it sure did. I remember this stock. In 2002, it IPO’d. It created the institutional diligence phase that we’ve talked about. And it had a great run. And that was definitely– I remember people were saying, you know, my kids keep wanting me to take them to GameStop. And sure enough, it was showing up in the stock. But then it had a really long downturn. It’s been in a downtrend since 2015.
Until just the end of last year, it created this really tight cheap IPO base from like, $3 to $6. I had to go and look at that. And if you were following GameStop and looking for something new to invest in or a new change for the company, people probably would have read that the co-founder of Chewy was getting involved and trying to help turn it around. And it actually broke out from a normal consolidation base. So if you were a long equity trader like myself, that would have been a place to buy even before the Reddit GameStop jump even happened.
JARED BLIKRE: Yeah, and it’s important to point out that there were legitimate investment theses in The Wall Street bets forum on Reddit regarding this stock. It just got kind of out of control. In this price action, we’re going to be talking about this a lot. I approach this phenomenon from a risk management lesson, because lots of traders are getting hurt by this.
We have new traders trading call options, which I think you need to be somewhat more seasoned to be able to do. When you have leverage, it’s easy to lose your money. Even though your risk is defined, you can still– if you bought– a lot of these call options are lottery tickets. You bought $1,000 worth of lottery tickets. You could go broke trying to cash them in. And I see this as kind of that scenario.
So everybody’s responsible for their risk management. And I just want to play a clip from an interview that we did with Jordan Belfort last week on this phenomenon. You know him better as the wolf of Wall Street. And he has some interesting insights here. Let’s take a listen.
JORDAN BELFORT: I used to battle with the shorts all the time. The shorts are usually right in the sense that they have the fundamental value, you know, pretty much worked out. But they have a way also sometimes of getting overly aggressive. So there’s different types of short plays. They’re short sellers that are healthy. They check the market. They bet against stocks. That works. It’s good. It creates liquidity– stops stocks from going up too fast.
Then there’s other types of shorts that actually conspire to drive stocks down. They will create press releases, investigations. And they will try to short a stock out of business almost. They often are so short. They have the potential to create a short squeeze, meaning that buyers come together on the other side. They can create a rally and literally wipe the shorts out.
What the small investor has been able to do here is shocking. It deserves an applause, I think, by the way. I don’t think it’s illegal, because most of them, by the way, if you actually go through the message boards, what they’re saying, they just like, they love the stock. They’re just having fun. And they want to kind of stick it to the man more than anything.
So it’s a shocking thing. But they better be careful, because when it’s over, it’s going to be like catching a falling knife. And it’s going to drop precipitously. So I just want people to be really careful when they’re playing in this space.
JARED BLIKRE: Yeah, and that falling knife is very evident in the year-to-date price action. I’m just going to show that here real quick one more time. We’ve fallen back to 100 which seems like a decent, perhaps, work here, potential support.
But this is– the experts value this at $20 to $30. So there’s going to be another potential war going on over the next few weeks. So let’s go over the results to the first poll question right now. I’m just pulling that up.
Isaac Newton. All right, so did he quadruple his fortune? Or did he lose his fortune? This is a meme that’s been circulating on Twitter. You guys got it right, 59%. He lost his fortune. And I just want to show something here because this kind of illustrates what he went through here.
Let’s do this and boom. All right, so it’s 1720– 1719 or so. Newton invest a little bit here, exits happy. His friends get rich. Then he decides he wants to re-enter with a lot. And on the downside, he’s broke. He’s lost his fortune. So happens to some of the more intelligent ones of us throughout history.
Let’s take some questions here. First, how does the individual investor access IPOs? Is it a process or access different if it’s a normal IPO versus a SPAC? So basically, what’s the difference between an IPO and a SPAC? And Kathy, I’ll just throw this to you. Oh, you’re muted, Kathy. That’s fine.
In the meantime, I’m just going to get my thoughts on that, because we have a graphic regarding the differences. And SPACs basically give you an opportunity to get into the investment before an IPO does in that similar phase. Yeah, you talk about these IPOs pops that we get on the first day.
Well, most people don’t get in at the IPO price. You’ve, got to have a great relationship with your broker, usually a lot of money. They kind of throw you that as a bone. But with SPACs, you can get in quite early when the deal is in its infancy. Right, Kathy?
KATHY DONNELLY: Yeah, exactly. I mean, a SPAC is a special purpose acquisition company. And so it’s a shell of a company that already has the investors. And they’re already being traded, although it’s not really doing much because nobody knows who they’re actually going to invest in. But all the hard leg work has already been done. So unlike an IPO, the company itself has to do all that legwork.
So it can take more work, more time and more effort to do that. And so then when the news comes out that the stock is going to merge with this particular company, that’s when you see that initial pop that you’re talking about. So before the deal’s even done, people are rushing in on the potential speculation that this is going to be a good deal and is going to run even further.
JARED BLIKRE: All right, take us through Virgin Galactic ticker, SPCE. We’ll try it this time here.
KATHY DONNELLY: Yeah, I’d love to. So is SPCE was really the first one or SPCE in 2019. And when I was looking back at the chart for this, the news came out in July of 2019. When you show of the chart, we’ll be able to see the reaction to that news. And it’s like minuscule, the reaction, compared to the reaction we’re seeing now when the announcement of a stack with a company comes out. And it was actually created a base and went down when the merger was complete in October.
So you actually were able to treat this exactly like an IPO and trade it as in the IPO advanced phase, which is actually what I did. I actually did trade the stock, and I treated it as an IPO advance phase. And I don’t see the chart. But when you show it up there, you’ll see it have that initial run, went up. And then it crashed down and actually went underneath the buy point of that first base that it created.
And it’s been very volatile ever since kind of creating that institution of due diligence phase that we’ve talked about where it kind of went sideways. And, again, very volatilly, I just want to point out, because I really have not seen so much volatility in those due diligence phases like that and at least of the ones that I’ve been watching. And now, it’s breaking out again to all-time highs passing that turbulence zone.
JARED BLIKRE: Yep, and in the meantime, I was kicked out once again. Hopefully, you guys can see the chart right now. Let’s move on to another one, DraftKings, because this is another interesting example. I know you’ve been tracking this. But we’re just talking about this before the show. It had a pretty interesting liftoff here.
KATHY DONNELLY: Yeah, DraftKings. So when its announcement came out, it did immediately go straight up from a base. The base was already created. And what I really like about this one is that you actually could have used the 40-week rule that we’ve talked about the book or even the ascender rule.
If you use the 40 week, I mean, it’s been very volatile. But it’s held that 40 week. And you could be sitting on a 200% gain. If use the ascender rule, which allows you to take gains on the way up, you wouldn’t have as much. But you’d still be holding the stock and participating in the move, which it looks like it could be hitting new highs.
The closest pattern, to me, this one, one of the IPO options that we studied, it really looks like the stairstep stepper to me because it hasn’t really gone sideways. We really haven’t seen that due diligence phase. But we have seen a lot of volatility, 30% to 40% consolidations but still stepping up to new highs, at least, hopefully eventually here.
JARED BLIKRE: Yeah, still stepping up there. I want to go to our next poll. And this is going to be, what is the most recent new listing that you bought? Is it an IPO? Is it a SPAC? Is it a direct listing, or is it none? Just going to get take on the audience’s experience with these things here.
KATHY DONNELLY: Yeah, I’ll definitely be curious on the answer about that. That will be really interesting.
JARED BLIKRE: Yeah, what’s great about this is we get a blend of new and veteran traders alike. So I’m going to take a couple more audience questions here. Let’s see. How do you determine which SPACs have the most potential for growth?
Personally, I don’t necessarily look at the fundamentals. I let the technicals kind of paint the picture for me. But I do have a number of ones where I like the fundamental story. We can get to those. And then I’ll toss it to you, Kathy. How do you determine what SPAC has potential or not?
KATHY DONNELLY: Yeah, I think you almost need to go to the credibility of the SPAC. I mean, think about Virgin Galactic. That was instigated by Chamath– and Chamath. And I apologize if I’m saying his name incorrectly. And now–
JARED BLIKRE: Chamath–
KATHY DONNELLY: –he’s–
JARED BLIKRE: [INAUDIBLE]
KATHY DONNELLY: Yeah, there you go. Thank you. And he was the first with Virgin Galactic or at least the first most recently. And now, he’s created IPO A though Z. And IPO B just turned into open. And I mean, he’s got that backing behind him. He’s got that like, you know about him. He’s not some fly by night.
So I think that’s one way you could think about, well, is this SPAC better than another one? It’s just look at the management team behind it and what they’re looking into.
JARED BLIKRE: Yeah, and you can see these SPACs. They all kind of follow the typical– not typical– but a similar pattern here where you get a little bit of pop when there’s some rumors or reports about who it might merge with. And then on the actual news, you’ll see a rally. You’ll usually have a really big day.
And let me just bring our attention to BIH. This is one that’s pretty interesting. And also I want to bring everybody’s attention to a feature of Yahoo Finance Premium where you have these events. And you can go through– you can look at corporate deals, products financing, accounting issues.
We have financing here because this applies to SPACs. But if you want to know the details of a deal, you don’t necessarily know what this SPAC is because we have so many coming out every day, this will tell you. And then even if you take a look at space here, right at the beginning, Virgin Galactic, Social Capital has a fiat to merge with– to form public commercial human spaceflight co. And these will give you information about what’s going on. You and I took a look at this. This was dilutive.
Virgin Galactic– they issued 31 million shares of common stock. That’s pursuant to an SEC filing. We saw what happened after that. But you put all these together, I was talking about BIH. This is going to reverse merge with Bakkt. And Bakkt is a venture by Kelly Loeffler, former senator, I guess, of Georgia whose husband is also the chairman of ICE. That’s Intercontinental Exchange– owns the New York Stock Exchange. And this is a big crypto play.
If you have some fundamental ideas, you can apply technicals as well. And your book, Kathy, lays out– what I like about it is statistical methods. And we can go through some of these now exactly how you attack IPOs and new listing. So why don’t you just give us a background? We got some slides here on some of the phases, just kind of an overview of how you approach this.
KATHY DONNELLY: Yeah, absolutely. I mean, I think that you can treat the SPAC like you would treat an IPO. And when the news comes out, you’re watching it. And it’s going to most likely, at least, right now, what we’re seeing is that it’s going to have an advanced phase.
So you need to make sure that you’re using rules that are fast. We don’t know right now. We don’t have enough data really to say how long are these advanced phase is going to last. I mean, in the case of Virgin Galactic, it actually didn’t last that long. But the case of DraftKings, it’s kind of still going.
But you still at the end of the day, you need rules to make sure that no matter what your kind of stock you’re trading. You know where you’re getting in and where you’re getting out. And over time and experience, you can adjust those rules accordingly for the volatility. So you’ve got that advance phase and a due diligence phase. Or maybe in terms of a SPAC, you’ve got 30%, 40% corrections going on.
And then hopefully at some point, it settles down, maybe creates a tighter phase and really creates an institutional advance phase, which is my favorite phase, because then that’s in my opinion the more rewarding part of the stock where institutions have decided it’s got that long-term longevity. And it’s going to have hopefully 100%– 200% run or more.
JARED BLIKRE: Yeah, well, let’s take another. question relevant to what we’re talking about from Sean. Is there a waiting period for the average Joe to start trading IPOs or SPACs? And I’m not sure if he knows your methods specifically. But you do advise kind of picking stock of the price action. You don’t have to jump in on the very first day here. Isn’t that right?
KATHY DONNELLY: Yes, absolutely. You’re absolutely right. I mean, that there, you don’t have to have a fear of missing out. With an IPO, we highly recommend you don’t buy on day one, because there is this– the volatility– you don’t have a pattern. You don’t know what the stock’s going to do.
90% of stocks will undercut their day one low. Most of them will do it within the first three weeks and even sooner. So it’s really good to wait for any type of consolidation. Even on a gap up from a SPAC, you would want to wait for some type of consolidation before trying to jump in.
That just increases your odds of hopefully being able to stay in longer and not to get stopped out at a 10% stop loss, which is what we recommend. We recommend a 10% stop loss with IPOs and I would say for stocks, as well, just because they are so volatile. You need to make sure that you preserve that capital so that you’ll be able to trade again.
JARED BLIKRE: Yeah, I can’t underscore that enough, because the name of this game here is risk management. It always is. And in this current trading environment, you can get blown out very easily, even especially on these smaller names, which tend to be illiquid where you have slippage on your fills. I think it’s all the more important to do that.
Now, I want to take stock of our second poll. Results here. What’s the most recent new listing that you bought? And the results are in. IPOs, we got 19%, SPACs, 39%, direct listings, 14%, and none, 28%. So some people haven’t dipped in yet. But SPACs are becoming extremely popular, no doubt. And I have on here, an IPO. This is Snowflake. And why don’t you share your thoughts with this stock with us?
KATHY DONNELLY: Well, one thing I like about Snowflake is that it is very liquid. And you should probably talk about that– said that in the beginning. We want all these IPOs, SPACs that we’re trying to be highly liquid so that us as a retail investor can get in the stock and get out of the stock.
And so that’s one thing that I really like about this one. This one trades over $400 million a day or more. It had a really nice base. When it first IPO’d, you could have bought that base. And then now it’s kind of been coming back down and consolidating a little bit.
I would say it’s starting to create that institution of due diligence phase. And so maybe from this point, another month or two, we’ll see. I mean, it could be 40 weeks. It could be six months. Hopefully it creates now a tighter base at some point. And then where you’ve got those crosshairs at the prior high from that IPO advance, that’ll be the turbulent zone.
So what we really like to see is a nice space created before that turbulent zone and then create a nice little buy point for us to buy and then hopefully then, pass to that turbulence and start that institutional advance phase. So this is definitely one I’m watching. Again, I like the liquidity. I recall it’s got some good numbers. And yeah, so we’re– that one’s, I think that’s one to stock. [LAUGHS]
JARED BLIKRE: [LAUGHS] Got you there. All right, let’s get to our next poll. And this is something that we’ve run in previous webinars here. It’s a favorite of mine. What percentage of new issues eventually undercut their first day trading price low? Is it 10% or fewer? Is it 25%, 75%? Or is it 90% or more? We’ll get those results in a minute here.
Well, let’s take a couple more audience questions. Let’s see here. We’ve already done this one. What happens to SPAC shares when value shares values? So what happens to the SPAC share value when proposed mergers do not take place? It is a total loss?
And, in fact, yeah, I believe they have two years to find a deal. And if you bought in in that time– they don’t find a deal, you basically lose your money. And the sponsor loses all their investment costs, which is a real risk here. So Kathy, any thoughts on this?
KATHY DONNELLY: No, it sounds like you’re more familiar with all those details than I am. I wasn’t sure about that. So thank you.
JARED BLIKRE: You got it. And here’s another one. How can you identify the best IPOs now? We’ve been talking about this. Do you have any kind of screening process that you go through, a list, especially with everything new that’s coming out? Do you wait until they just kind of pop on your radar? Do you wait for that institutional advance phase, or do those on its phase?
KATHY DONNELLY: I start my screen with liquidity. We’re talking about Snowflake. And actually, I just search all IPOs for the year. My minimum is $20 million a day or more. But I really prefer $100, $200, $300, and $400 a day or more traded, because that just means that other people are interested in, well, I’ve got the institutions behind my back.
JARED BLIKRE: Let’s play another clip from Jordan Belfort here. This has to do with some of the other goings on with the Wall Street Bets. Guys, my producers, this is SOT number two. Let’s roll that.
JORDAN BELFORT: What they did by completely eliminating buying, that was a bit of a red flag to me that there might be some other, more nefarious things involved like getting pressure from the people who are short. I’ll tell you why. They could have just as easily raised up the margin. That’s a phrase meaning to make it more expensive to borrow money, to actually not allow people to borrow as much money to buy. That certainly could have slowed down the buying without them to stop it cold.
So that knee-jerk reaction to stop it cold is a bit troubling. And, you know, at first I understood it, but now as I look more deeply, it is very strange they would just not raise the margin up because that would have accomplished the same thing without shutting it down. And meanwhile, the bigger problem, I think, for Robinhood is that now they’re going to be getting sued by everybody. And whatever, you know, side you’re on, you’ll say I lost money because of the decision Robinhood made. It’s going to be very, very hard for them to stay in business, I believe.
JARED BLIKRE: Whether or not they stay in business– and that’s up for debate here. I think no matter what happens, their IPO this year is going to be put on hold. We’ve got congressional hearings in a few weeks.
And this really just underscores, in my view, the necessity of having a good broker. And in times like these that we had recently, if you can’t pick up the phone when your trading app goes down or when you don’t even have desktop access, you need that lifeline here, and unfortunately not all of the retail brokers have that kind of access.
So let’s do this. I’m going to jump into our part of the presentation where I go over Yahoo Finance Premium. I know we have Kathy here, so we’ll get to her in a little bit here.
So let me just share my screen, and we can see this is the home page. When we come in for Yahoo Finance Premium, this is our dashboard here. Get that up. And I go through this each time. I’m not going to go through all of the ins and outs of this, the risk-management features. In a couple months, we’re going to be doing these presentations in a slightly different way, talk more about ESG in April.
But for now, I want to go over the investment ideas because these are actionable ideas that you can get in your– in this app or in your mailbox every day, both on the fundamental and technical side. So, for instance, with all the recent earnings– we’re getting a lot of these earnings updates here. MasterCard, for instance, in a bullish trend. All these reports are brought to us by Argus Research.
And, for instance, they’ll give you the reasons and also their targets, why they’re upgrading. And this is just a summary of the the quarter. If you want to see more in-depth, multipage reports, that is definitely available as well.
Now, what I also like are these technical setups here, and you get quite a few every day. A lot of these are some smaller names. But one that was catching my interest was Avis Budget Group. Let me see if I can find that here. And that would be– there we go.
So if you click on this, and it shows you a little diagram of the pattern. And you can see this stock has formed a pattern called upside breakout, providing a target price for the immediate term in the range of $47.75 to $49. And then you can load the chart, and it will show you exactly what that pattern is, which can be pretty powerful.
This is done algorithmically. Some of the patterns are better than others, but this is kind of a picture-perfect base that we’re seeing right here. We did see the breakout, and now we’re just testing that breakout area. So if this were to hold, for instance, the $40 level, I would think that’s a very good risk/reward scenario where you could have potential upside according to the report.
Let’s see. Their price target is $48.36. So decent reward/risk given that we can place a stop not far below $40 right here.
All right, so let’s get to the poll results, and then we’ll get back to Kathy here. What percentage of new– no. Is that the one we just did? Yep. What percentage of new issues eventually undercut their first-trading-day price low? It is 90% or more. 39% of you got that right.
All right, Kathy, let’s talk some more charts. You gave me a number of tickers. Just throw one out here. What do you want to go over?
KATHY DONNELLY: Let’s talk about Uber.
JARED BLIKRE: You got it. I’m pulling that up right now. Yeah, this is a stock that just had trouble getting off the ground initially. A lot of people bought Lyft and Uber with quite a bit of excitement. That was, what, early to mid 2019? How did you play this, or how did you do this?
KATHY DONNELLY: Yeah, so I actually didn’t trade it when it first IPOed. Like I told you, I like to wait for a good institution and due-diligence phase. So it had that initial kind of a little bit of a run there as you’re showing, and then it declined from there. And so then the question was, was it going to come back?
And I think what really got this stock moving again was, you know, the elections in California. You know, it was a big deal about the drivers and independent contractors and that kind of thing. And so it had a big gap up out of there. I actually did trade that after the election. I didn’t want to take the risk in case it went the other way.
Just recently had a little bit of a shake out there last week when we had that volatile week and now seems to be recovering. So I think it looks like it’s getting ready to start an institutional advanced phase or already has started one, and it’s gotten past that turbulence zone.
So this is one I think, you know, that’s got a lot of potential, especially as, you know, America opens back up and hopefully more travel. And then, of course, we were talking before the show about their new deal with Grizly delivering alcohol. So I guess we’ve got to find out if they have that where I live. [LAUGHS]
JARED BLIKRE: Yeah, we were talking about that too. Pretty popular in New York were those deliveries. If you’re just walking and carrying back an armful of bottles from the store, pay somebody else to do it. That’s going to be an interesting model as well.
All right, I want to take our next poll here, and let’s see. This is going to be poll number four. Brokers, they mitigate their customer risk by, one, ensuring that the customer is suitable for the account type– account type; two, adjusting margin requirements; three, halting trading in certain stocks and options; or four, all of the above?
And I just want to kind of get back to risk management here, Kathy, because I don’t think we can hammer this home enough. What discipline– what kind of tips and tricks do you have for discipline that you use over the years to just force yourself not to break your rule? Because when we break our rules as traders, that’s when disaster ensues. That’s when we lose money. And if you don’t have rules in the first place, well, that’s a whole other matter. But how do you– how do you do this?
KATHY DONNELLY: You know, I originally learned from William O’Neil, his book “How to Make Money in Stocks.” And so I’ve always followed and still follow the 7% to 8% stop-loss rule from your buy point.
Now, I mentioned 10% earlier, which I do make the exception for IPOs and SPACs if I’m going to trade them just because they are a little bit more volatile. But I still follow the 7%, 8% rule, and that has served me well. And if I only get a stock that goes up 20% or more, I don’t let it round trip into a loss. And if I have a stock that’s 50% or more, I don’t let it round trip less than 20%.
And then lastly, if I have a stock that’s up 100% or more, then I actually go into the mental capital preservation rule that we talk about in the book where I always want to retain 50% of my gains, 50% to 60%. So hopefully it never corrects more than enough where I can hold it through a phase as it continues to move up.
And a good example of that I’ll share with everyone, and I think I’ve shared it before, is that I still own Zoom, and I’m still at that point where I’m able to retain 50% to 60% of my gains if I were to sell it today. But I’m still holding on because I think there’s still potential there, and I bought it out of that institution due-diligence phase when it created that last base down there. Yep.
JARED BLIKRE: Right there. Well, that’s also our Yahoo Finance Company of the Year for 2020. We definitely like that stock even though it’s still pretty far off its highs here. I do think it has the fundamental story definitely working for it.
Well, I want to go for some questions here. This comes from Ben. Kathy, could you discuss buy points? What kind of chart– is it daily or weekly– do you use to look at a stock? And then how do you ultimately determine where a proper BP should be to put– BP should be to potentially dive in? I guess that’s buy point.
KATHY DONNELLY: Yeah, buy point.
JARED BLIKRE: OK, there you go. I’m learning something too here.
KATHY DONNELLY: [LAUGHS] That’s for short.
Yeah, I mean, when I’m screening stocks, I like to screen from the weekly chart, and I’ll plug William O’Neil again. You know, I learned from him, and he preferred a weekly chart. So when I’m screening through, like, 20, 30, 50 stocks or more, I’m going through that weekly chart, and I’m looking for good bases. So, you know, I’m looking for that due-diligence phase to be done and looking for that first mature base.
And then if it’s a stock that looks good to me on a weekly chart, then I’m diving into the daily chart to find my exact buy point. And I do like to look for early buy points, so maybe some type of consolidation or trend line in that daily chart to allow myself to start nibbling into that position before it actually kind of breaks out. So essentially that’s how I do it. I like weekly charts, and then I’ll fine tune into the daily chart for the exact buy point that I want.
JARED BLIKRE: Yeah, and I just want to point out an indicator. I don’t use a lot of indicators, but I happen to love this one. I’ve been using it for about 12 years. It’s called anchor VWAP, and it’s been around in various forms since the mid ’90s, but Brian Shannon also independently invented it. And this gives you a sense of the supply and demand characteristics of the market.
So, for instance– I put that on the wrong thing– 10, 19, 20, trying to do things as I talk here. But what this does is it shows you supply and demand. What is the average position in a gain or a loss? And that’s done by averaging all the prices, multiply by the volume and all the internal dynamics there.
But you can see the price is well below the anchor VWAP line from those highs. So that’s indicating that the average position is still underwater.
What the traders of this theory would be– would do is to wait until it starts breaking above this line here so that people are more in the money, and that’s going to lead to potential momentum as more money chases it in here. But as long as the average position, at least from this perspective, is in a loss, probably wouldn’t be adding here by this particular method.
Well, let’s go ahead and take the results of our prior poll here. Brokers mitigate their customer risk by ensuring the account is suitable for– excuse me– the customer is suitable for the account type, adjusting margin requirements, halting in certain stocks and options, or all of the above. And 77% of the people said all of the above, which is the right answer.
And this gives us the opportunity to talk about what happens when brokers themselves are facing margin calls, as we saw with Robinhood last week. And not going to spend a lot of time on this, but I just to– I want to lay out the dynamics because there’s a lot of information and misinformation and outrage about what went on last week.
So we had Robinhood famously stopping all new buys in GameStop and other stocks, and this is because it was getting squeezed by its counterparties like Citadel on the other end, and it just had to pass that risk management– that risk onto its customers in the form of higher margin.
So it raised margin, which most of the brokers did, but it also disallowed trading in certain stocks. I don’t know of any other brokers that did that exact method or took that exact measure. That’s really the controversial ones. But it’s very common for brokers to take away a portion or all of your margin if you’re trading on a margin account. That’s how they mitigate their risk.
And if you can’t handle that, you know, it’s tough for retail traders because you’re not going to have maybe the broker support that you would if you had $100,000 or a million dollar account. But it’s very important to select your broker and, as I said before, to find someone where if things are really hitting the fan, you can at least pick up the phone. Your thoughts, Cassie– Kathy?
KATHY DONNELLY: Yeah. No, I agree with you. I don’t have anything to add to what you said. I mean, I just– I just don’t even want to even think about that.
JARED BLIKRE: That’s quite fine.
All right, I do want to hit another poll. This is going to be poll five, guys. What percentage of IPOs increase 100% in their first year? Is it 10%, 20%, 50%, or 80%? And we’ll get to those results in another minute.
And I’ll just hit some other questions here. What are your thoughts on Roblox? They already extended their IPO, and they’ve got private capital already. Do you think their IPO is still worth it? I’m just going to cover this quickly.
I’m not going to touch or even think about touching an IPO until after it’s begun trading. Buy them on day one, the stats just don’t support that kind of investment for me in particular. And I know Kathy’s on the same page, so I’m just going to move on to another question here.
What benefits do SPAC investors get versus IPO investors? Any advantages? Now, we covered this earlier, and I just want to hit it again. With a SPAC, there is a little bit more risk because you don’t have the due diligence– the enhanced due diligence that you tend to get with an IPO where you have all the big underwriters looking into it. But on the flip side, you do get into it a little bit earlier. Isn’t that right, Kathy?
KATHY DONNELLY: Yeah. No, I would agree with you. I think investing in a SPAC I feel like is more speculative than investing in actually trading an IPO, in my opinion, because you have to do more work to find out the details and the fundamentals, and you’re really just trading euphoria– oh, a deal was made. All right– versus this is, oh, we just came out with this new thing and we have more subscribers, so I’m investing on more subscribers versus I’m investing because now is a final deal.
JARED BLIKRE: All right, well, I did promise in our tweets prior to going live here that we were going to hit some cannabis names, so I’m going to put up MJ. That’s the Harvest ETF. And this is a space that’s really come alive over the last few months, and it had been left for dead for years, and for good reason because we had the speculative mania. Let’s see. Let’s go to a five-year chart. This is going to show the price action really nicely.
We had the speculative mania, and this was in 2018. Came after the Bitcoin euphoria, which I think is instructive because it’s kind of trading at a lag to Bitcoin, it seems like. But after all this decline, we had a nice base down here. I’ll draw it in. And, Kathy, what do you see in a stock like this? Or I know you were looking at Tilray too. We can hit that as well if you like.
KATHY DONNELLY: Yeah I mean, what I’m looking for– so in general, I prefer trading IPOs and looking for those advanced– institutional advanced phases. But I also like when a stock has declined and has kind of consolidated for a while, and now it’s popping up like Tilray. It’s like, OK, something new is happening. Something is changing. And those are still tradable technical patterns that you can trade.
And so it looks like, yeah, marijuana stocks, Tilray, CGC, Canopy Growth, I mean, they’re turning around. So I think, you know, because some of them are low priced, they’re going to be a little more volatile. But the patterns are still there, and as long, again, as you have your rules, you can trade them.
JARED BLIKRE: Yep. All right, we’re going to take– or not take. I’m going to share the results of our final poll here. What percent of IPOs increased 100% in the first year? The answer is, what– 20%, Kathy? I think that’s your answer. But that was not the leading answer that the audience gave. They chose 10%. Is it 20%, Kathy?
KATHY DONNELLY: It is 20%, yes. So it’s not– it’s not a large number.
JARED BLIKRE: Yeah, and so I think it just highlights once again that you can take your time with these. There’s always going to be another trade. There’s always going to be another market.
And any parting thoughts here because we just– we have to wrap up within the next minute or two? But I’ll give you the final floor here, Kathy.
KATHY DONNELLY: Well, thanks, Jared. Well, yeah, I mean, I think the point here is just like I was saying. The top IPOs from 2020 were from 2019. So, you know, those are the ones that we want to look for. And I just wish everyone the best of luck, and make sure you have your rules down, and protect yourself. And I wish everyone a great year.
JARED BLIKRE: As do I. Kathy Donnelly, thank you for joining us. Thank you for everybody in the audience. Despite the technical difficulties here, I learned something. I hope you do too– or did too.
And I want to stress our next webinar. It’s going to be in four weeks here, Wednesday, March 3, 2021. So if you register for this one, you will get an email reminder for registration for that one in your mailbox. Again, thank you, everyone, and have a great trading day.