Beating the Game While Never Forgetting We're Betting the Underlying Equity

If you're anything like me, and if you're reading this oftentimes silly blog you probably are, you find this game incredibly fascinating. 

There's just nothing like sniffing out a winner, and there are so many ways to do it; some of which make an already confusing game ever more confusing. 

I was checking out a penny stock last week of a company I was involved with at one time, and still held shares in. 

There was a brief signal that something may be happening. I looked at the "PP's" - previous press releases - and there was nothing too exciting going on, but they did raise some money and were doing work on a project. There was enough in the buy side market depth where I decided to take a shot and sit a bid where I got filled. 

The volume continued, the stock was up about 30%, and I had to make a decision with completely imperfect information. How real was this action? Was it momentum traders trying a flip, was it something more concrete? 

Looking at the project and the work they were doing on it, it felt pretty unsexy, and to my eye, any news that could possibly move the market seemed low probability. I decided to close my trade. 

Today that looks smart. A press release was issued and it is kind of blah. The stock is down. Maybe there is something to the noisy trading, and next week it'll be roaring again, but I sold my flip trade because in my view the "horse" wasn't fast enough, and the price offered didn't match it. 

We notice this exact same thing every single day in horse racing. 

With so little public money, and so little bet early, the odds board is all over the place. Sometimes the pricing gives signal and sometimes it yields noise. It's our job to differentiate which is which.

Make no mistake - just like the trading on my penny stock told a story, so does your average odds board, from TO Elvis on Derby Day to the third at Delta Downs. Understanding how a race is bet is an edge. The people who can read it best are probably playing the game with pocket queens. 

But in the end, yes, we can let the market uncover things we can't see. It does a great job of showing us its hand, even though the sharpest money tries its best not to. And yes, we can let it guide us. But we still have to be able to spot if the market is right or wrong. 

Despite being a big believer in markets, I still live this game with a heuristic: I never forget that the horse I choose is the thing doing the running; it's the underlying equity. 

It still has to be fast enough to win, and I still have to be able to bet them at the price I want them.

Have a nice Tuesday everyone!