Over and over again, average investors seem to totally be on the wrong side of the trade. As crazy as it seems, common sense logic is all it takes to be on the right side of the trade but it apparently does not exist. The bottom line is, I hate seeing hard working investors duped again and again. A large part of the responsibility is on the media who spew nonsense 95% of the time. But investors shouldn’t be so dumb as to think news media TV is giving you straight facts with no bias. Investors need to understand that the media has a job and it is to sell advertising spots. That is all!
A good example of this was the recent post Brext rally in the stock market. In particular, the massive financial stock rally. Many of the financial stocks like JPMorgan Chase & Co. (NYSE:JPM) & Goldman Sachs Group Inc (NYSE:GS) rallied almost 10% in just days, post Brexit. Of course, the average investor would not buy at the lows when epic fear gripped Wall Street but was tempted last Thursday and Friday when these stocks rallied back to their highs. Institutions have a great way of luring the little investor back into the market. They succeed over and over. After the monster rally late last week, today, the financial stocks are taking a beating, Goldman Sachs $144.30, -3.95 (-2.66%), JPMorgan $59.60, -1.66 (-2.72%). The hot potato has been passed off once again, and average investors are losing their shirts.
My ultimate point here is that common sense logic would have kept average investors away from buying financial stocks. Why is logic so hard to come by in this day and age? Is it because emotion (mainly greed) is powerful? Let’s look at the facts. Just over a week ago the UK decide to leave the European Union aka Brexit. In addition, we know that financial stocks need bond yields (interest rates) to move higher to improve their earnings. So when the stock market rallied back so sharply…did Brexit suddenly not happen just days earlier? Did yields magically jump back up? No and no!
So what on earth would make investors want to jump back into the financial stocks late last week when they almost recovered all their losses from the Bexit sell off? Especially when the 10 yr yield has fallen from 1.75% to $1.40%. This is actually a huge negative for the financial stocks like Goldman Sachs and JPMorgan who rely on lending money to make money post Dodd-Frank. If anything, the big name financial plays should be shorted on every bounce until yields start to pop back up.
This is exactly what I did. I bought $FAZ, a triple short financial ETF last Friday. This gives me 3x the bang for the buck on any fall. So far I am nicely in the money. It just drives me nuts that average investors don’t look at the facts but they will believe anything the media or internet spews!