Facebook, Tinder, and the Battle for Our Time and Attention

Charts in this post are powered by MarketSmith.

Last week, Facebook announced that it is officially entering the dating world. The market reaction: shares of Match Group went down 30%. It is clear why FB is making this move. They need more young people to spend more time on their platform. There are two main ways to achieve that: dating and games.

Facebook’s new features are not going to kill Match Groups’ offerings. Tinder is not going anywhere. What has changed is the market perception for MTCH’s future growth potential. Perception is half of the stock price in momentum stocks.

MTCH’s bulls say that Facebook’s news is irrelevant and the market has overreacted because 75% of Tinder’s users don’t use FB to log in. The market is forward-looking. The market will assume that the appearance of a new player like FB will slow down MTCH’s growth. And when your stock is priced to perfection, the slightest wind can topple it.

In stage one of the price history in many momentum stocks, price often runs ahead of fundamentals. Stage two is fundamentals catching up with price. I think we might have entered stage two for MTCH. The market wants to see their earnings growth catching up to the price hype. Don’t forget that MTCH doubled last year.

The process of fundamentals catching up might be already underway. Match Group just reported the best quarter since their IPO. Here’s Tinder’s head of product on some of the numbers:

MTCH might spend the next few quarters building a new base – going sideways in a very wide range. There are better places to allocate your money if you want to participate in the dating industry growth.

One way to do it is the so-called Chinese Tinder, MOMO. After a big earnings gap a few months ago, it has been consolidating through time. It managed to retake its 50-day moving average again this week, which will put it on the radar of many traders.

Disclaimer: everything on this website is for informational and educational purposes only. The ideas presented are not recommendations to buy or sell stocks. The material presented here might not take into account your specific investment objectives. I may or I may not own some of the securities mentioned. Consult your investment advisor before acting on any of the information provided here.

A Dozen Things I Believe About the Stock Market

  1. The stock market is an opportunity machine. Times change, gas prices change, fashion changes, regulations change, but there are always companies that find a way to monetize on an ongoing social and business trend and make their investors rich. The only things that change on Wall Street are the names of the winning and losing stocks.
  2. There is always a silver lining. One company’s rising costs are another company’s rising revenues and the market usually does a good job identifying the winners and the losers. Money never sleeps. There is always a trend somewhere.
  3. Simple is better. Complexity is the enemy of execution, great returns, and good lifestyle.
  4. Trends exist because people tend to underreact to new information; then fear of missing out kicks in, people get anxious and overreact. This creates fantastic opportunities for both momentum and value investors.
  5. The stock market tries to be forward-looking. Sometimes, it is spot on in predicting the future. Sometimes, it even impacts the future. Other times, it ends up very wrong and prices events that will never happen.
  6. Intrinsic value is overrated. In 2018, a rare 1793 penny was auctioned for 300k. You can take this penny and go to the supermarket and you can buy exactly a pennyworth of food there. Or you can tell a good story and auction it for a lot more. Supply and demand, which depend on perceptions and expectations for future gains are often more important than any fundamentals.
  7. Prices change when expectations and perception change; the latter can change for many reasons, including price action.
  8. Early adopters (trendsetters) usually sell early and end up making as much or less money than people who hop on already established trends.
  9. Every trend needs skeptics and doubters; otherwise, there won’t be anyone left to buy.
  10. Buy and hold forever doesn’t work with most individual stocks. Most trends eventually end. Have an exit strategy.
  11. In trading and in life, sometimes being wrong is not a choice, but staying wrong always is. Cut your losses, cut your losses, cut your losses, so you live to fight another day.
  12. There should be a very clear distinction between trading and investing. Long-term investing is essentially a bet on how other people’s perceptions will change over time. It is about answering the question What are the catalysts that will change market’s expectations? Trading is about understanding the constant cycle of range contraction and range expansion, it is about taking asymmetric bets where you risk a little to make a lot, it is about adapting to changing markets.

Stocks Showing Relative Strength – HTGM, UPLD, NUS, QDEL

If a high-beta stock doesn’t correct with the rest of the market, it is because it is under accumulation. Stocks under accumulation tend to do very well when the market pressure is lifted.

If you believe in the notion that relative strength is a great equity selection tool during market pullbacks, consider adding the following stocks to your watchlist: HTGM, UPLD, NUS, QDEL.

 

 

The Three Best Performing Stocks for the Past 15 Years Will Surprise You

Netflix recently hit new all-time highs and it ended up on the first page of many newspapers. 10,000 invested in Netflix’s IPO in 2002 is worth about $2.3 Million today. This amounts to about a 40% average annual appreciation.

As impressive as NFLX’s return is, it is not even the best-performing stock for the past fifteen years. Here are the top three. They are all consumer stocks – a Chinese video game maker, a U.S. energy drinks producer, and a U.S. video content creator and distributor.

NTES +11,706%

MNST +77,230%

NFLX +23,467%

I know that I should be telling you who the next Netflix, Monster, and Netease are but even if I knew the future, the odds are that you would not be able to hold through all the pullbacks and volatility associated with huge long-term returns.

Just because NFLX has appreciated at 40% per year for 16 years, it doesn’t mean that it was up 40% every single year. Its price history has been a lot more volatile. It had one 50%, two 80% drawdowns in its history (one of them happened in just five months), and multiple 20% pullbacks.

NTES had three 50% drawdowns.

MNST had two 50% and one 80% drawdowns.

No human can stomach such drawdowns. No machine is programmed to do it either.

What is a lot more achievable from a psychological and emotional perspective, is finding stocks that have the potential to go up 50% or 100% in a year, ride them until their trends are over and then jump on the next ones, compounding your gains along the way.

Holding stocks that double in a year also comes at a price of significant drawdowns – not 50% or 80%, but 15% to 20% pullbacks are normal along the way. Such types of corrections are a lot easier to stomach. There are many more stocks that go up 100% in a year than there are stocks that go up 2000% in a decade.

We can go even one step further in our analysis and find out that there are many more stocks that go up 20% in a month than stocks that double in a year. And holding a stock for a 20% gain in a few weeks doesn’t really require to go through significant drawdowns. Small 10% to 20% short-term gains can compound quickly.

In other words, you can have your cake and eat it at the same time. You can achieve a significant return without having to go through significant drawdowns. As usual, there is no free lunch. As Henry David Thoreau said once “the price of everything is the amount of life (time) you exchange for it.”

 

The Best-Performing IPOs of 2017

Financial Times reports that there were 1700 new IPOs around the globe in 2017 – an increase of 44% compared to 2016. China has been the clear leader with more than 400 listings. In the U.S. companies raised $49 billion or 2X the amount raised in 2016.

Here are some of the notable movers among new listings in 2017:

The crypto-mania has entered the stock market. The stock of any company with a blockchain press release has been hot in the past couple months. LFIN and VERI are two examples.

Coal is back. Believe it or not, coal stocks are gaining attention again. Is it because of Trump’s administration’s relaxed attitude towards coal or is it because the new crypto-mania has boosted energy demand, no one really knows.

The biotech sector was one of the best performers in 2017. Naturally, select biotech IPOS shined. ANAB and ARGX proved once again why price momentum is one of the most powerful equity selection tools.

Quite a few new Chinese companies started trading in the U.S. in 2017. The Chinese education company, BEDU went from $10 to $30 before it had a sizable pullback.

ROKU staged a massive short squeeze. It went from $20 to $60 in two months.

The Canadian maker of goose-feather jackets, GOOS almost doubled in 2017.

Redfin went public and now Zillow is not the only publicly-traded play in real-estate listings.

Let’s not forget to mention the disappointments in 2017: SNAP, APRN, YOGA, HAIR failed to live up to market’s high expectations: