This is Why You are Losing!

Weekly Plan 1.5.25

Hey there folks-

Let me get some burning questions and controversy out of the way first. There was a lot of un-productive noise about my decision to cut one of the stocks which I had been extremely bullish on just a couple months ago.

I want to share my thought process on this to help explain why I did it:

1. First off, I have been bullish on this stock back when this was 100. Then it went to 500. All this happened within a period of less than 2 years. Most recently I shared this when it was 200 dollars only 2 months ago! It ran up to almost $500 recently.

2. So, I hope this cuts me some slack if I don’t want it anymore!

3. The other reasons are both fundamental as well as somethings which are proprietary and better be left unsaid.

4. Generally I strive to share my ideas which are based on extremely solid fundamentals (fundies). This is true for most of my ideas (but not all). This particular one may have good fundies at 100 but at 500?

5. And then on top of that there are few things which I just can’t get behind as a person. This is just better be left unsaid so I won’t go there. Now I don’t care this goes to 500 or a 1000 or a 10000, I am pretty sure I will be able to find many other ideas which will also 2X, 10X and 100X. So its not like I am missing out on something huge! This does not mean this stock won’t go up, it just means I am not interested.

6. Now as far as Twitter goes, I will at times say somethings which can be provocative but the main reason for that is to elicit response in order for me to gauge sentiment. I do use sentiment to check for extremes. At end of the day, it is a Social media app. Social media game requires being a little extra.

7. I will reiterate that for professionals, like your self, this Substack is the ONLY source of TRUTH as far as sharing what I truly believe in when it comes to the market. Yes, there is cost to be on this platform, but what price will you put on alpha? If you don’t wanna learn, if you don’t want options that 5X, I am sure there are other options which are free. Remember, Free or cheap is not always good. You get what you pay for. Et cetera.

This is a good segue to talk about some of the more common traps when it comes to trading and investing.

Experienced traders amongst you may already know all this so can skip to the next section. This is more geared towards someone super new to the game.

I am sharing this as a personal belief. This is going to be long winded so my apologies if this bores anyone to sleep.

S&P500 over the last 10 decades has on average returned 10% every year. Now some years are better than 10% and some years can even be negative. Some years can be even down 50% but on balance, S&P500 smooths this out and returns 10% every year, year over year.

Being in the S&P500 saves you from the evil of inflation eating away at your savings.

In the US, long term inflation runs at 2-3%. This is going back a 100 years. In some developing countries, in Africa and Asia, rate of inflation can be 10% or even more. When you invest in S&P500, you save your savings from being eaten away. You wanna start when you are super young. As you get older, you have lesser time to compound. Compounding is the most powerful force there is. Keep compounding- whether it is market gains or gains in knowledge.

So then why don’t we all invest in S&P500 and why even bother about picking stocks and doing it ourselves? Let some professionals do it for us?

The reason as far as I am concerned is that when you invest in a stock market index like a VTI or SPY or a SCHD or any of the other low cost indices, you need to know that they never sell. They will not sell even in a 30-40% downturn. What this means is that if you are patient, over 20-30 years, your money will grow 10% on average a year.

But there will be years when your account is down 50%. This is based on past 100 year performance, it does not mean it will continue to return 10% in future but the history seems to say it will. The other reasons I don’t put it all in S&P500 is that there is no S&P500 right now, there is only an S&P5. Or S&P7. This is a recipe for severals years of downturn but we aren’t there yet.

So, from my perspective the only reason to be an active rather than a passive investor or trader is a) to save yourself from these 40-50% inevitable downturns and b) to try and beat the index consistently.

This above is the whole reason for existence of hedge funds and private equity .Its another topic that most of them will fail to do so and will still take your fees, but the reason the concept of stock picking exists is due to the reasons I listed above.

Now having established the reason why someone will want to be an active investor, let us talk about what are some common traps which will prevent you from being a successful active investor:

There are 3 main reasons why most people will fail in trading and investing:

1. They are under funded.

2. They trade too large because they are greedy.

3. They trade too much! They over trade.

#1 above is self explanatory. Let us talk about #2 & #3 a little more.

Let us say I have a 100K USD account. Let us say I am good at trading, I have figured out a consistent methodology, and therefore I can make 20% a year, thereby beating the long term market performance. Now what does this look like in terms of simple math and numbers?

A 20% on 100K is $20K. This equates to roughly $1600 or so a month. Now you could make this 20K by placing just one trade a year OR by placing several trades a year; you can say I wanna make one trade a month, making about 2% a month.

Both approaches have their merits. I personally think making 1 trade a year is probably not the best idea for me as it will be too risky since you are probably gonna risk 10% or more of your account to make that 20% in one sitting.

On the other hand side, I think placing a 100 trades a month is overkill too.

I feel like 2 to 4 trades a month or about one trade a week on average is a sweet spot for me. So now to make 20% a year, you are talking about risking half a percent to a percent point on any one trade, based on 50 to 20 trades. This is $500 to $1000 on any one trade.

Let us say half of these 50 trades you make will be wrong. So you are right only 50-60% of the time. In this case, using our example and the metrics from above, you risk $500 each trade to make $1000. You risk $1000 each trade, if you make 25 trades a year, to make $2000 on a profitable trade. You can further enhance this strategy by breaking even at 2X and letting some shares as runners. This is a generic example to drive my point across.

Now once in a while, you will come across an idea which is so good that you can break your own rules and can go big. However how often does this really happen? Once a year when TSLA was 100. When PLTR was $6. When Carvana was 3 dollars. While you wait for these big home runs, someone still has to pay the bills. Don’t force wifey to pay the bills. We all know what happens when it comes down to that.

Now with the options, the risk to reward is going to be much-much more skewed. If you are good in options, you need a lower win rate since your average winner to loser size will be much larger. For good options traders, she can risk a 500 dollars to potentially make 2000, 5000 dollars. We saw this most recently from that options trade in NVDA last week that went from 90 cents to 5 dollars within a matter of days! The key word here is “good”. You have to invest some time and you have to incur some losses for first 2-3 years as you fine tune and perfect your strategy. Think of this as going to school and paying tuition. It is better to risk small, and lose less when you are in your formative years. So go to a community college and get a diploma that actually pays rather than go to Ivy League and become a Sociology Major which are harder and harder to place in 2025.

Now while this is literally a prescription for becoming successful at this game of speculation, most of the traders are still going to fail miserably and the TOP reason is they will trade too large for their account size. They will trade big when their market knowledge is not fully formed yet. This breeds from a lack of understanding of the game, and more importantly from wanting “to buy that Lambo” right now. This is not going to happen unless you put in work upfront and understand the game. Very smart people from globally, PHDs, super computers, geniuses are trying to crack this game and most of them have years of experience in this game. They are very strong with huge bank accounts, insider connections, network of traders and insider information. For instance, Nancy Pelosi returned almost 50% this year beating the paltry S&P500 returns of just 24%!

If you survived reading this thus far, at the very least you understand now that the odds are stacked against you. If I don’t tell you this, you will remain delusional and continue to subscribe to one furu after another who promises Lambo. I am without a shred of doubt not promising any Lambo, at best I am saying continue to drive that Camry, keep your expenses and cost down while you are learning the game, and then go big once you get it. Skip the Lambo and buy that Lear jet instead.

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Levels for next week

So with this out of the way, let us review how our level did last week and what we may do this week. I am also sharing a new momentum idea this week after our recent new momentum addition did very well, it is up like 40% on the week and looking to gain more. On top of that a couple of options plays. GME. CVNA and much more. The markets are alive, lots of volatility, a lot of setups for active traders! It is anyone’s guess when this all dies down. May be towards 2028.

Last Saturday I shared a bearish Pivot at 6056 which turned into the weekly high before selling about 180 dollars on the week. See below.

Towards mid week, I became bullish at the weekly lows which coincidentally was the low of the week before a 125 dollar rally.

For the week ahead, consider that this is a fairly event risk heavy week with non farm payrolls to PMIs to the FED.

On top of that what you have is the SPY index making gaps lower.