In this edition of the Alpha Letter, we cover:
Crypto: Mark Cuban gets rug-pulled
Stocks: E-commerce stock that could lift off soon
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Mark Cuban got rug-pulled on the Titan token. It went from a daily high above $40 to under $0.01 in just a few hours. It’s unclear at this point what caused the huge drop. Coming into the day, Titan had a market cap of about $2 billion but is nearly worthless now.
But Cuban says he was able to get out before his investment completely went to zero.
What’s the lesson here?
I think the takeaway is that a well-known investor taking a position publicly is far from assurance that an investment will do well.
I often hear traders use it as justification; “Bill Ackman is in this stock,” for example.
There’s a few things wrong with this logic. For one, every investor has big misses every so often. Second, your risk appetite and portfolio don’t match up with a billionaire investors.
People like Cuban and Ackman have thousands of positions across hundreds of asset classes. A chunk of those positions are definitely entered into knowing that they will likely fail but have a high potential payoff.
Without access to the actual research and reasoning behind someone taking a position, it’s very dubious to simply mirror investments of billionaires and expect to do well.
After taking that grain of salt, let’s now look at a stock with high institutional ownership and lots of social media buzz.
Let’s take a look at ContextLogic, Inc, better known by its ticker symbol WISH.
Wish is the e-commerce company famous for its quirky Facebook advertising.
Wish has promising institutional ownership and an ongoing buzz on social media. We’ve been seeing stock picking “gurus” like Zack Morris talking about it on Twitter.
I’ve also noticed bullish option activity over the last couple of days. Here’s Wish’s option activity from Thursday, thanks to the Options Matrix:
The low put/call ratio indicate a bullish trend. Usually, I’d look to make sure there wasn’t already a large run-up, which would cause a low put/call but wouldn’t necessarily be bullish. In this case, Wish has gained a modest 4% over the last 5 trading days.
Wish is priced relatively modestly for a high-growth e-commerce company in terms of price to sales ratio, which was 2.25 as of close yesterday.
Wish is unprofitable, with a P/E of -3.16 on a $11.23 share price.
Usually with a trend trade based on option flow and social media sentiment, I won’t be holding long enough for fundamentals and financials to matter. But it’s always good to understand the state of the company before entering any position.
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