Trade Alert: It’s The Next Note (The Next Investment) That Makes Us Right Or Wrong
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“It’s not the note you play that’s the wrong note – it’s the note you play afterwards that makes it right or wrong.” – Miles Davis
I’m a member of a three piece band mostly called “The North Creek Trio” but we also sometimes call ourselves, “Stop, Drop and Roll”. Anyway, regardless of our lack of a standardized name, we get together about 3-4 times a month to jam. My friend, Rod, who used to be a drummer in a band in high school and college in the late 1960s and early 70s is a gifted singer and good drummer. My friend, Piper, is a great guitarist and solo artist in his own right, but he plays bass for us most of the time in the band. I’m mostly our guitarist and backup singer (I’m not a good singer, but I sing like I’m in the shower and give it my all, so that’s that).
Anyway, a couple weeks ago, we broke into a jazzy, bluesy riff and I started improvising a lead on my Les Paul but quickly hit a wrong note in the wrong key. But I decided to play that same sequence of notes again, including the “wrong note” and it sounded pretty good the second time I went through it. By the time I’d repeated it for a fourth time, we all were bobbing our heads with the music and feeling pretty good about what we’d just created together.
There are some analogies here for investing and trading. We’re not going to get every trade right. We’re not going to nail every move in the market perfectly. We’re certainly not going to time every top and every bottom perfectly by going all in at the bottoms and all out at the tops. And in fact, the best trades/investments are often those that seem wrong the first time you do it. When I first started investing in Tesla (TSLA) in early 2019 after I’d bought the newly released Model 3 and loved it, the stock went down. So I played the same note a second time and bought more TSLA. It went down more. And I kept playing the same lead and eventually the music started sounding beautiful.
If you play the same music that everybody else plays in the stock market all the time, it gets redundant and, by definition, your returns (i.e. melodies) will be average. You have to allow yourself to do things differently to outperform over time. You have to be willing to hit some wrong notes to make great music.
Another quote from Miles Davis, to whom I just introduced Bryce this morning on Spotify as I started writing this article, is similarly analogous to the stock market:
“There are no wrong notes in jazz: only notes in the wrong places.”
Investing and trading are not stationary and what you do today with your money doesn’t have to be the same thing you do tomorrow. What you own today doesn’t have to be the same thing you own tomorrow. Great traders and investors know that we have to cut our losses sometimes. We know that we will play a wrong note here and there and that we have to have the flexibility to play another note next to make the prior note right or wrong.
And on that note, I think it’s time for me to sell Rocket Lab (RKLB) for a while at least. We’ve been in this stock for a while and it’s cost us a lot of performance as it has not worked well. I might come back and play this Rocket Lab note again this year or next, but for now, I want to clear my head of this, the only stock in our portfolio that we currently own that shows losses since we bought it. I issue another mea culpa here for now and I mean it. I am sorry that we have spent the last couple years with some of our capital tied up in a name that hasn’t worked as I wasn’t willing to play a different note after.
On another note, we stepped in and started building a new position in name that we have done months and months of work on — Toast (TOST). We will be writing up a full report on this name in coming days, but with the stock down 7% today even as they gave a great presentation that confirmed the growth and margins that we have been modeling for the company, I wanted to send out a Trade Alert for this one now.
We have started buying it today and will look to build it into a medium-sized position over the next few weeks.
Making music and making money are two of my very favorite things to do in this life and I plan to continue making music and money for many years to come. I’ll keep practicing my scales and I’ll keep analyzing Revolutionary trends and stocks and will keep playing new notes.
Some of those notes won’t sound great at first. And some will sound amazing instantly.
And some will sound a lot like melodies that we’ve played before and which brought us the 10-baggers and the 100-baggers that have helped create the symphonies of our livelihoods.
