Auspex · @AuspexResearch

10th Jun 2016 from TwitLonger

A $GEVO-Inspired TwitLonger. Enjoy and HAGW. I'm headed to the water.

Thanks to this GEVO debacle, I have been motivated to put together another TwitLonger. Every once and a while, one of these shams comes along that gives the opportunity for me to explain a lot about my particular strategy. Today, I will seize that opportunity. Hopefully, my ramblings will be half as meaningful to you as they are medicinal to me.

If you have read my Pinned Tweet, then you know that I am a huge proponent of Understanding Human Psychology, and especially the psychology of a lot of humans acting together as a Crowd, if you want to gain an upper hand in trading. Thanks to a massive move in GEVO's stock price coupled with insanity volume, you will get to see the entire cycle play out inside 72 hours ... which is rare ... on this scale.

Before I get into dismantling the GEVO situation, let me say that I have become genuinely bored with Twitter. It has been an interesting experiment. But, it is an experiment that might soon come to an end, as we have learned about as much as we care to learn about how social media affects markets. I am on the proverbial fence. Like any good chess game, trading involves learning about your opposition and then positioning yourself advantageously against them. There is a constant ebb and flow to this process (if you are not one of the sheep who simply gets slaughtered on a daily basis), and perhaps I am sensing the shifting tide. Information is the most valuable commodity on earth, no matter what the gold bugs might tell you, and there was a time when putting information out there was advantageous. However, as expected, the other side wants to adapt. And, maybe I have an answer for that that many of you would enjoy. But, that answer remains only as a remote hope in the empty space between the rocks rolling around in my skull. If it comes to fruition, then you will know it. Trust me.

Anyway, back to GEVO. My level of disgust is so high that I am actually having trouble figuring out where to begin. As you well know, I am not a fan of chat rooms or Gurus or Furus or whatever these people are called these days. The chat room and the social media following, when broken down to their bare essence, are nothing more than vehicles that allow front running to those at the top of the food chain. Enter, my disgust. The people who run these places are not complete idiots. They are brain dead, for the most part, but not complete idiots (Come on, now. You know I say this in good humor!). Point being, they have been around long enough to know the difference between providing useful information and shoveling nonsensical fecal matter to those dumb enough to listen to them in order to improve their position taken immediately prior to shoveling said shit (Let me also say that this is not a blanket statement. There are plenty of good guys out there, too). Here is a prime example. I will not include the name of the person who did it, because the name is irrelevant. The action is what is deplorable.

The tweet from a guy with damn near 25,000 followers went something like this: "hearing there is interest from big oil."

Who the #$$# at "big oil" is calling a guy in a chat room and telling him that his company has an interest in GEVO? Nobody. This guy had to have known this, despite being brain dead. Yet, he chose to put it out there because saying some stupid stuff like that to 25,000 people might improve his crappy position in a crappy company. The price was roughly $1.15 when that happened - up some 400% in 2 days or so - and this guy is suggesting people buy it because big oil was interested. This is but one stark example of the myriad posts of mindless Misinformation that took place during the run-up of this circus side show.

To that end, this is exactly how these anomalies develop. A series of hype jobs using what is essentially horse manure information. But, you already know this (and if you do not, then please stop trading now). Here is my point: I could put the Information on which I will base my trade out there or keep it to myself and it would not change the outcome. The information that I have is factual data - the so-called Governing Dynamics of the system. The Information is the Fundamental Analysis on which every, single one of your trades should be based. The facts of the matter will always dictate equilibrium in a system. The "not-facts" ... the "speculation" ... the "misinformation" ... that is what disrupts the natural system and provides us with these wonderful opportunities to make money. You might be saying, 'Yes! They provide us opportunity in both directions!' I will concede that point. However, the long trade of which I speak is based on what are almost always at least perversions of the truth, misrepresentations of facts, general stupidity, or sometimes, and quite sadly, outright lies. If you are running an "investment community", then you must know that people are at least to some degree relying on your information to be credible. Relying on misinformation leads to a response I received today from someone who was not a fan of the "perhaps more factual" information that I was putting forth:

That person's tweet went something like this: "can you just be nice for the people stressed now and hoping for the best"

Which led me to remind everyone out there that "Hope is not a viable investment strategy."

If you do not realize that very important fact, then you should take a moment to reflect on nearly every book ever written about investing. The market cares not about your hope. It cares only about your money and the money of every other person within that market. As you might know, I like to compare the laws of investing to the laws of physics. Good time to inject some philosophical nonsense. Your money has a relationship with all of the other money in the market that is similar to the relationship of 2 celestial objects - Each of you will have a gravitational effect on the other if you get close enough, but the degree of the effect will be determined by your relative mass. That is to say that you will ALWAYS be at the mercy of the Crowd's behavior (unless your account is "Mass"ive - then you get to move the market - and things become much easier - a story for another day). This is why it is, in my opinion, of the utmost importance to understand that human psychology is the single, most important aspect of this game. Your hope does you little good in interpreting what the person to your left and to your right and those people to their lefts and rights and so on will feel in the future regarding their investment in the same stock. Do you know what does infinite good in predicting their behavior? Research. Real research with real facts and figures. Again, they are the governing dynamics of the system in which you are operating. They will exist with or without you. If you do not understand them ... far worse, if you are not even aware that they exist ... then you are cannon fodder. You are ALWAYS at the mercy of The Crowd. Now, if you are looking to understand more about The Crowd, then feel free to pick up a copy of "The Crowd - A Study of the Popular Mind" by Gustave Le Bon, which holds a position on the top shelf of my library behind me (no, I am not getting any royalties).

* You would be amazed at how well the story flows when it first enters my head. An hour later, as I try to put it on paper, the fluidity turns to mud. I apologize. This is scatterbrained. Hopefully, it makes sense in the end.

Back to the governing dynamics of the system. I enjoy governing dynamics because they care zero about your wealth, your skin color, your motivation, etc. They simply exist. People are always wanting to qualify someone's research based on their assumed motivation. You may have seen Andrew Left on Bloomberg TV a while back when they grilled him about his motivation regarding his information about Valeant. Left chastised their narrow-mindedness, and reminded them that facts are facts and facts care nothing of the messenger. They exist no matter what you might personally believe. A wise man once said "Just because you do not want to believe something does not make it untrue." As an investor/trader, I believe that a key to unlocking greater success is realizing this very basic fact of life. The messenger and everything about him/her have zero bearing on what is true. And the underlying truth will ultimately guide The Crowd.

So, how do we begin to Understand The Crowd? The Crowd is a coming together of buyers and sellers - The Crowd is The Market for a company's stock. Therefore, if I want to excel, then I should not only do my best to figure out everything I can fundamentally about the company, which we will get to in due time, but also I should try to put myself in the shoes of The Buyers of the stock as the price goes up as I attempt to figure out what The Sellers will be doing in the future. As previously stated, I figured the buyers to be the typical chat rats chasing garbage info on a hype job. That is par for the course. I rarely like to fight something with Buyers that have more than 1/4 brain, as I , myself, have only a few rocks in my head. You always want to be playing a game against someone dumber than yourself. In my case, that is difficult ... but, I try. Having put myself in the Buyers' shoes long enough to get a handle on their motivation and their expected reaction to any change in price pattern, the next part is figuring out The Sellers. Now, I could probably write an entire chapter to this, so I will refrain from doing so here and stick to the point in this particular case. What made GEVO so incredibly attractive is the fact that they have a history of diluting like crazy. No amount of insanity buying by unsophisticated inves ... investo ... cough ... umm ... people ... can overcome insider dilution dumping. If you are able to find these situations, then you have a silver bullet. It is the ace up your sleeve as a short seller. This Dilution speaks to a greater concept that I use to explain to people who ask me why I prefer short selling:

A rock is not just a rock. A rock wants to be part of a wall. Someone wise said that (I think). I can't remember who. But, his point was that even inanimate objects have a greater purpose. Stock is no different. It is created, and it is stock. But, why is it created? What is its purpose? It is created to be sold. Plain and simple. Stock is created with the sole purpose of being sold to someone else. If that is true (which it is), then it is probably in your best interest to do your best to figure out when this will happen and sell along with them ... or hopefully front-run the selling that you anticipate (like GEVO). I should now drive home an earlier point. The guy who is humping you with some BS information about why a stock is going up is doing so because he understands the underlying principle I just explained - he knows that he must find someone else to whom he can sell his stock ... because stock yearns to be sold ... to someone else ... hopefully, at a higher price! Now, if someone really believes in a stock and his time horizon is truly beyond 10 minutes, then he is allowed to say whatever he wants, in my book. He is a true believer, and his intentions are not to hump you so that he can profit at your expense. He is just an irrationally exuberant cheerleader. Enter my next character.

Today, I caught more flak than usual - again, due to the volatile nature of this play along with the unprecedented volume. There was a guy who was letting me have it for what he must have perceived as my negative comments. It is important to Understand something here. He PERCEIVED my Information as negative because it did not fit his perception of reality. Now, only time will tell who is correct. So, for me to declare victory today would be awfully premature (although looking at this insanity dilution at tiny prices, I am closer to victory than he is). Also, this guy is a True Believer. So, his motivation and intentions I do not question. However, this guy's attitude is one that I have seen play out at least several thousand times in all my years doing this. I already know when he will break, who he will blame, and how it will all end for him. The truly interesting part - and you had better read this 3 times - is that I also know that I could hand this guy a 1,000 page dissertation that outlines exactly how and why he would lose all of his money if he held long enough ... and it would not make a lick of difference to him. He is blinded by his own perception. Consequently, his capital is imprisoned by the impermeable wall of artificial reality that he has constructed, and it is within that place that his capital will ultimately die. If you want to survive and ultimately produce Alpha in this game, then you must be able to break down those barriers, to disassociate yourself from what you might want to believe, and to think for yourself, using rational logic, concrete facts, and real-world numbers to form the basis for your investment. In a nutshell, take profits and cut your losers if the fundamental story suggests that you do so.

Wow. I could have summed that up a lot quicker, couldn't I have? But, then I would have sounded like the 100 stories before me. Cut the losers. OK. Why? Get it? :)

But seriously, if you choose to ignore reality because reality doesn't fit your agenda, then you will eventually perish.

Good time to introduce my reality.

Follow this string from beginning to end:

I put it out there several times during the run-up. Read it. Then ask yourself if the Information in here is factual. Many accused me today of posting things that were not factual. Yet, the story played out exactly as I said it would. The dilution came as expected. The stock price tanked because there is no fundamental story underneath the puffy PR. I was right about the buyers - they were day traders who would jump ship at the first sight of adversity because none of them ... almost none of them ... actually believed in the company. They didn't believe in it because they had not done enough research and found enough concrete evidence to support their holding it long-term in the absence of momentum. The Sellers (the real sellers) are doing exactly as I thought. They are re-pricing the warrants to insanely low levels. They are printing more stock at discounts to market. When they dump this cheap stock, the price will eventually go lower over time. They might try to pump it up again, but they cannot change the Governing Dynamics. They cannot change the fact that they are all selling stock. The CEO gets stock and what does he do? He sells it. The BoD gets stock and what do they do? They sell it. The financiers get stock and what do they do? They sell it. The guy running the chat room who just suggested that buying at $1.15 was a good idea ... what does he do? He sells it.

Do you get it?

Ones like GEVO come around once in a blue moon - where you have all the info up front, and the story line plays right into your hands. Perhaps the best way to explain it is by likening it to The Matrix. Once Neo was able to See and Understand the code that controlled his world, he became quite powerful. What I am describing to you is no different. I want you to See and Understand the Governing Dynamics that surround your trading world so that you can become powerful enough to exist on your own.

This desire of mine stands in stark contrast to some of the negative feedback I received yesterday from GEVO longs who accused me of being arrogant, selfish, and a basic a$$hole. If my comments are perceived as arrogant, then I cannot help you there. I do my best to be as humble as I know how. Selfish? I searched the Internet, and as far as I can tell, I was THE ONLY person on the entire Internet who laid out the GEVO story for everyone to see. True, some people yelled prolific words like "it's a pump and dump" or "a short might work here" or "take profits" or gave bits and pieces of Information about this or that. But none of them ... zero ... put anything together in a string that explained the WHY. And maybe this is where I splinter from everyone else, but if you do not know WHY something happened, then what do you really know other than something happened here at a certain time? Did you ever play Clue as a kid? Professor Plum killed her in the Kitchen with a Candlestick. I always thought that was great to figure out, but I always thought to myself - "Why did Professor Plum do this and why did he choose the Kitchen instead of the Conservatory and wtf was he thinking using a Candlestick when the Knife was clearly the better choice? I suppose that would be an entirely different game altogether. Anyway, a little self-exploration there as to what motivates me. Point being, I do sometimes go overboard on Twitter with the "negative" Information. But, my sharing of this information is intended to help a few people ... if they will open their minds to the Information that I have put forth.

The information I put out there goes far beyond that moment, though. It serves as a searchable string for the future. And this is perhaps the most important message I have for this TwitLonger. I am afraid that there are a lot of people out there who do not yet recognize the power of having quality Information at their fingertips. We live in an on-demand world where we only absorb and reflect those things that benefit us in the most immediate-term. I just had a discussion with a group last night about music these days. Can you name any current "pop" or "rock" music that we will still be playing in 20 years because it was a quality song? I still play CCR, Rush, Led Zeppelin, AC/DC , Jimmy Buffet (along with some jazz and classical ... on rainy days), etc. because the music has great delivery and/or tells a great story in a way that never gets old. You can apply this theory even to something as atrocious as rap. Artists like Pac and Biggie will always get play because they had a meaningful story with a powerful delivery that, for many, never gets old. Today, however, it is all about "the hook". Get a few words that you can say over and over and dress them up with a catchy beat and you are on your way to stardom ... even if only for a short time. "It's a pump and dump" ... "I like the price action" ... "This has legs" ... "Typical ABCDEFG pattern" ... "Hearing big oil has interest" ... "Going to the moon" ... "MM walking down the stock" ... "shorts scrambling" ... "warning signs were there" ... "I told you to sell" ... the list of meaningless financial hooks goes on and on. Read all this mindless garbage and ask yourself if any bit of it will help you in the future. Any of it. Will you search back to anything anyone said in the past 3 days if GEVO runs again after they reverse split the stock and hump it again 6 months from now? Will you sit there and say to yourself, "I gotta know who thought this 'had the juice' back in June 2016. If I can figure that out, then I can make a great decision today"? God, I hope not. None of that has any substance. The delivery is weak and the Information contained therein ... sucks. That is why none of it will stand the test of time. Like music these days, it's value (what little there is of it to begin with) exists in the moment and then is gone forever.

In contrast, the string of data that I amassed over the past year plus might have looked at the time like "Auspex is beating a dead horse again". Let it be clear to you that I will beat the #@$% out of a horse until it is 6 feet under. If you do not like that kind of animal cruelty (metaphorically speaking, of course), then as I said in my Pinned Tweet - do not follow me. However, what I want you to realize is that there is a purpose to my floggings. They serve as a guide for me in the future. I am sharing what is essentially my guide to my trades (presented sometimes with a little bit of meme'd-up attitude to keep it interesting) with anyone who cares to watch. This is my WHY when people rant at me "WHY ARE YOU BASHING?!" They are misinterpreting my presence. Those are not "bashes". Those are as close to a real-time diary as I can produce. I keep all of my notes in a database - far more than anything you could imagine being on Twitter. The limitations on Twitter for me are incredible since I am restricted to 140 characters at a time. It is that limitation that requires my Information sometimes come across as "beating a dead horse" ... there is simply too much of it. But, once I have it tagged in a string, it is there for me ... and for you... to use now ... or in the future. So, how does this help us?

GEVO is the perfect example. Once I saw GEVO running, all I had to do (aside from pulling up my personal database) was to go to the Twitter Advanced Search and put in search for Words: $GEVO from Accounts: AuspexResearch

The entire last year's history was at our fingertips. Anything we needed to remember about this play was right there, laid out. So, as the stock began to run, 95% of my (and your) homework had been completed. From there, all I had to do was to decipher the PR, which was easy. We all knew that the flight had been scheduled long, long ago. The fuel had been purchased, the clearance hurdle had been made, etc. IE - This wasn't some ground-breaking announcement. Moreover, we also knew that they had done this many years ago. Tons of other airlines have been doing it. We also knew that they were in need of money and that any spike would lead to more dilution. There is also a boatload of debt on their books, warrants, etc. that would all certainly get re-priced and dumped (Knowing The Sellers), which is exactly what is happening. Now, this is where I could get into all kinds of research presentation that I would rather not get into in this post, since this is already turning into a small novel. Suffice it to say that we put on some good music and waited for everyone to make the same mistake at the same time, which they did ... on a grand scale.

If you were a long, then accessing my string of information might have led you to question the economic sanity of chasing this stock up 600% or even 300%. If you were a short, then the Information hopefully reduced your decision-making process by 90% or more. That is my intention here. To help you grow your capital, and to, more importantly, protect your capital from the mindless idiots out there who will do everything they can to separate you from your capital. Unlike the tide that changes with every tug of the moon, my Information USUALLY does not waver. I am not going to tell you today that "THIS COULD CHANGE THE WORLD" and then tell you tomorrow "I KNEW IT WAS GOING DOWN". That is Misinformation, in my opinion, and it has little Value to any of us in the Long-Run. It is the stuff that the Monday morning QBs say to make themselves look better ... maybe in hopes that you will follow them ... since their entire livelihood depends on being able to find more Greater Fools to Sell to in the end. You see, they end with selling to you. Always. I, on the other hand, begin with selling to you. I am up front about it. I tell you in the best way I know how exactly how I think you will lose if you buy from me. I can do this because I understand that human nature does not change. I've watched it every day for a couple of decades now, and it literally never changes. I know that I can tell you not to buy from me for X, Y, and Z reasons and it will not make a lick of difference if 1 of 2 things is taking place:

1) You are a True Believer
2) You are watching the price go up and you are watching the person to your left or right make money

It is simple human nature ... and it is the most important thing you can ever learn about trading. It is what leads The Crowd to make the same mistake at the same time. It is what produces Opportunity. Learn to remove yourself from The Crowd. I think you will be better off for it.

This has certainly gone on long enough. If you were hoping for more answers to the research part of GEVO, well, I am sorry. That is a different type of story for a different day. Hopefully, this story that turned out to be a bit more philosophical was worth something to some of you. In closing, let me remind you of something that is very important to me:

"Through detailed research, I will ensure to the best of my ability that the positions I take are against companies that can do me the least amount of harm in the long run. Think of this as Fundamental Analysis."


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