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Accuracy of emotions as stock price counter indicator

Discussion in 'TSLA Investor Discussions' started by Orbit, Aug 2, 2018.

  1. Orbit

    Orbit Member

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    Having followed both TSLA and this board closely for over 3 years, a pattern has really started coming up for me.
    My sense of heightened "fear/greed" seem to quite accurately counter signal turning points in the stock, especially when the fear/greed is strong enough to make me think "this might be a time to sell/buy".

    So I'm curious to what degree this happens to others on this board as well.
    Do your peak emotional states of fear/greed correlate with TSLA local highs / lows?

    It has been years since I bought any more TSLA stock, (and have never sold any). I view it as a long term investment.
    So I'm not speaking about whether you actually DO buy/sell, just whether your emotional desire to do so has an inverse correlation to high/low turning points in stock price.

    For example:
    However, about 5 or 6 weeks ago, when the stock ran up past $370, I had a greed reaction of "surely it will keep doing this, ATH soon, so it might be a good time to buy more, or buy some short term call options".
    I think this was a collective feeling among many people, combined with things like Elon tweeting shorts stock positions will "explode" soon.

    Likewise, soon after, in the past couple of weeks and up to the ER, there had been several Elon "incidents". It was one of the first times I both had fear and also thoughts of selling run through my head. "Maybe the pressure is too much for any human or company to achieve Tesla's paradigm shifting goals in such small time period, maybe the stock is over valued like the shorts believe. Maybe my assumptions are wrong. Maybe this, maybe that, fear fear fear".

    On a rational level, I understand that Tesla was pushing through MAX Q on the M3 ramp, with Elon burning out neurons and getting mental scar tissue while working 110 to 120 hour weeks, which resulted in him coping with that by some erratic behavior.

    However, emotionally, I find it hard to separate the signal from the noise. Especially considering many facts can easily be interpreted as real signal which points in a negative direction.


    I get the impression this fear/greed is a collective delusion which the whole market goes through, especially with a company whose share price (and potential for growth) is as volatile as Tesla. That makes the price oscillate above and below what the deep underlying signal suggests.

    So if we are emotionally in tune with the market, (happens somewhat naturally if you follow Tesla/Elon), and the market goes through these swings of greed/fear, then could it be a feasible investment strategy to "buy when it feels like a REALLY horrible time to do so, sell when it feels like a REALLY horrible time to do so"?
     
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  2. jelloslug

    jelloslug Active Member

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    I have found that if you let the emotion take over, you will be wrong and lose money.
     
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  3. pz1975

    pz1975 Member

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    Paging @Hogfighter, the originator of this idea here (as far as I remember).
     
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  4. Orbit

    Orbit Member

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    Yes, me too.
    How strong do you think the inverse correlation is?
     
  5. bdy0627

    bdy0627 Active Member

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    Essentially, you are talking about a sentiment gauge, and this does often end up being correct. This falls under the Warren Buffett mantra to "be greedy when others are fearful, and be fearful when others are greedy." When sentiment is extremely high, you are likely to be near a top, though not always. Look at 1H 2017 when sentiment stayed strong for months. When sentiment is extremely low (Hog negativity index near 10), you are likely near a bottom. These are useful measures to keep in mind when you are contemplating doing the wrong thing - selling near a bottom and buying near a top. We all have our tendencies. I have found that I am pretty good at sticking with my strategy of adding on dips. I can handle the paper losses quite well because of a strong conviction for a powerful reversal. However, I do get caught sometimes adding on the way back up and I often pay for it.
     
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  6. jelloslug

    jelloslug Active Member

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    For me 100% :oops:
     
  7. WarpedOne

    WarpedOne Supreme Premier

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    We fool ourselves to be rational beings, yet we mostly use ratio to confirm our emotions.
    I am guilty as charged, I suffer from FOMO big time. I am fully aware of it and I can do little about it.

    There was not a single moment when I bought that SP have not plummeted on a short notice.

    I try to protect myself from myself with few simple cast-in-stone rules:
    - I do not use any leverage at all, just pure hard cash I can afford to loose
    - I do not do daily trading and similar high-frequency stuff
    - I only accumulate, I may sell a few shares when the M3 eMail arrives (upper limit at 50 shares=
    - I only buy when there is some accumulation, maybe few times per year
     
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  8. bdy0627

    bdy0627 Active Member

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    The trader Justin Pulitzer has a sentiment gauge survey he posts on twitter weekly. It works the same way. When sentiment is very high/low, watch out.

    Screen Shot 2018-08-02 at 2.36.44 PM.png


    Screen Shot 2018-08-02 at 2.36.30 PM.png
     
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  9. Orbit

    Orbit Member

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    Thanks, I checked him out on Twitter.
    I can definitely see how it would be helpful to keep an eye on, and especially to check if my views are just being largely shaped by current market sentiment.

    Looks like his graphs track the overall market sentiment.
    Would be interesting to also have a sentiment tracker which is specific to TSLA.

    If the TMC investors subforum had a button to "Vote now, will TSLA go up or down in the next week?", and tracked the daily results over time, I wouldn't be surprised if the vote summary was inversely correlated to upcoming share price movements in the short term /medium term.
     
  10. Orbit

    Orbit Member

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    That could be worth a lot of money....

    In theory, if you are consistently mistiming the market, then if could change your "goal" was to purposefully invest money in order to intentionally loose as much as possible... then could your emotions actually cause you "mess up" that goal of losing money and instead accidentally time the market and accidentally make money?
     
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  11. jelloslug

    jelloslug Active Member

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    Unless that was your intention....
     
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  12. Orbit

    Orbit Member

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    #12 Orbit, Aug 2, 2018
    Last edited: Aug 2, 2018
    Nicely said.
    The whole veil of rationality is such a facade, at least for myself, at least much of the time.
    I think accepting that is a much healthier approach than denying it.


    For example, when I first read your comment, the share price was around $347.50
    I thought "Ok, I'll reply, but first I'll wait until the price is above $350 to reply because I want to demonstrate a point." Then quickly realized that I was completely getting carried away with the whole emotional reasoning that it will continue going up. I had no idea what it will do.

    However, it goes in the other direction too, when the share price is down, my focus is on "oh no, fear fear it will continue going down", which collectively probably drives it down.

    (kinda funny that the high today was at $349.99, possibly because many people were thinking "$350 easy", and then it stalled just before).

    Here is the point I was wanting to make (and chose to "wait until it reaches $350").
    Today the price is $60 higher than Monday, yet for some reason I feel less interested in selling today than I did on Monday.
    It doesn't make any sense, because at some point it will go down. Probably the point of collective "peak high expectation for further rise" is the point where it will turn, because at that point there won't be anyone else to jump on board to push it higher.

    Reason for edit: stuffed up the quoting function
     
  13. Orbit

    Orbit Member

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    Yeah... perhaps one could go to a hypnotherapist and ask to be brainwashed into really believing it?

    Imagine saying to them: "I want you to hypnotize me into desiring to lose the most money possible by buying TSLA high and selling low for a period of 24 months"!
     
  14. MikeC

    MikeC Active Member

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    Absolutely agree that sentiment is key.

    Usually, items become more attractive to buy at lower prices and less attractive at higher prices.

    I think the difference with financial instruments is that their price is exactly equal to their value. There is no utility to be gained other than selling it, whereas clothes can be worn, food can be eaten, etc.

    So the result is that as they get more expensive, shares appear more attractive to purchase and this leads to an unfortunate tendency to buy high and, conversely, sell low.
     
  15. bdy0627

    bdy0627 Active Member

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    He did one on TSLA right before the ER yesterday. I was surprised the sentiment wasn't more negative. I actually voted flat because I couldn't decide.

    Screen Shot 2018-08-02 at 4.02.17 PM.png
     
  16. Orbit

    Orbit Member

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    Kinda like a Christie's auction where no one has worked out the intrinsic value:
    "This painting is for sale, and no one is bidding, so it must be some no name horrible artist!
    Oh wait, now people are bidding, and the price is going crazy, that probably shows it is a Picasso or something similar."
     
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  17. Orbit

    Orbit Member

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    Yeah I saw that on his Twitter, it looked surprisingly balanced to me too.
    I don't know much about the ratio of bulls/bears though. TMC has often been overly bullish, whereas SA for example is often overly bearish.

    Would be nice if there was a baseline to compare it to. For example, if we knew how those same 146 people (or the same demographic) would have voted over time, or prior to other ER's, then it might give some more color.
     
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  18. dhrivnak

    dhrivnak Active Member

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    Yes my sentiments exactly. And like you I am a longer term holder. And long term Tesla is positioned to take great advantage of what I think are three of the biggest growth industries I see on the horizon. Electric Cars, Solar and Storage.
     
  19. Orbit

    Orbit Member

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    Yeah exactly, long term, that is a deep underlying signal. By definition, in order to continue indefinitely, the human world must transition to sustainable energy generation and usage.
    Whether Tesla plays a role in that or not is irrelevant to that signal's existence. If humans are to survive long term, then the transition to a sustainable civilization must happen.
    It just so happens that Tesla is aligned with this vision, including CEO/many employees / business model, as are many of it's customers and shareholders, and it is poised to take advantage of the transition.

    On a more surface level, there are so many other conflicting signals, I think those are largely what cause emotional distraction. "Trade war? Oh no." "Delays? Profitability? Capital? Financing? Emotional health of CEO? M3 panel gaps? fear fear fear".

    In theory, all those are signals too, just lower level signals, pointing to smaller dynamics, much more limited in scope and scale and time frame. I guess if we really zoom out, "transition to a sustainable civilization" is also based on fear/greed... just a really abstract form.

    For long term investing it is relatively easy. Just focus on long term signals. Basically pointing in the right direction? Good, stay the course.

    But short term, there are many conflicting signals, and much more competition for signals, and probably more narrow investment goals too. eg, get rich VS own part of a business which is transforming humanity's future.

    So that probably affects the stronger emotional roller coaster that goes along with short term trading as well. It is generally focused on much smaller goals and more individualistic goals.
     
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  20. MikeC

    MikeC Active Member

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    Was listening to an audio book just now and found out there’s a name for this kind of thing. Maybe not exactly the same as a financial instrument but similar in that a high price increases demand.

    Veblen good - Wikipedia

    Veblen goods are types of luxury goods for which the quantity demanded increases as the price increases, an apparent contradiction of the law of demand.
     
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