CAVEAT EMPTOR
11/14/24 Prospero.Ai Investing (169th) Edition (Midweek)
The Oxford English Dictionary has the earliest-known written instance of Caveat Emptor as 1562. It translates to “let the buyer beware” and it should absolutely be comforting to know that centuries before memestocks people worried about transaction value.
Over the better part of the last 3 months we have been in a volatile market. Even though the market has been reaching new highs, here at Prospero, we've been playing defense. But we're starting to ask questions like, "Is this an extended Bull rally or more of a volatile Bull market?" The reality is that we're currently in what many including us have called the "Trump Rally". Stocks have been heading higher based on the incoming Trump administration and its expected impact on certain areas. And while the upside gains have been good and there are certainly signs that we might see some significant gains, the Trump administration is still 3 months away and there's a difference between what candidates say they are going to do and what actually happens. Or even if someone is going to do something; the “when” is important, not to mention that Trump is known for speaking on social media and changing directions. Could he say something even more definitive that could make people miss the boat on a good price to enter? Absolutely.
Something happened yesterday that forced us to look at these questions. COIN is typically tied to Bitcoin pretty tightly. But yesterday, Bitcoin was up 3.31%, yet COIN was down over 10%. Granted MARA, a Bitcoin miner, reported disappointed earnings but a few key things to note:
COIN and MARA do not exactly have similar business models.
These securities were all running high on future expectations, not exactly based on their current numbers. Our CEO was quoted in Forbes talking about the current factors driving up Bitcoin’s price. And it all has to do with anticipation.
It’s not a big deal to us, that COIN had a correction. That happens a lot when stocks run big, and it’s honestly healthy. What gives us pause, is there might not be as much clarity on the future value of these catalytic events as we’d like, to be more sure of a big, sustained, Bull rally.
Our CEO was interviewed about how to be a “Modern Warren Buffet.” He and I were discussing that for most of the history of Prospero’s newsletter, we’ve either been a in a Bear market (2022) or volatile market (2024). In the article he argued that just because the market is currently friendlier to stocks, that doesn’t mean you should relax your research principles. George and I discussed some of the quick value checks he did this morning before adding ASTS.
ASTS (AST Spacemobile), is a company that is bringing text, phone calls and streaming to everyday smartphones (without any additional devices) through Satellite technology. They have had a monumental run up over the last several months, going from $2 to over $30. Today after market close, they are posting their quarterly earnings. Earnings are always risky. Even if they do better than expected they could guide down or issue concern on some important partnerships they have in progress.
Despite Proepsero’s key signals, Net Options Sentiment and Upside, going in a Bullish direction George was initially nervous that the stock was running up because another Space sector company Rocket Lab, posted great earnings. But after more research, the only similarities between these companies is they are in the Space Sector. Their business models are entirely different. Also, when he dug a little more, he saw that many of the analysts' price targets on ASTS were still above where the stock was trading. Finally, B. Riley just upped their price per share estimates. That's always a good sign. It wasn’t a long analysis or the best but he wanted to point this out because a lot of retail investors are dealing with similar time crunches. This is where the Prospero signals support our high win rate on riskier bets, sometimes without the time we’d want to research an event. But do not let a green market change your research process, people tend to do more work to avoid losses but maximizing gains is how you can really change your life.
But, we titled the article, "Caveat Emptor" (Buyer Beware)?? That's right. You see, if we were in an unquestioned, face-ripping bull market, there would be no hesitancy about this pick. But, as we pointed out earlier there are some signs of trepidation and reasons for that as well. We did the check we had time for and are hoping for good things for ASTS. But if earnings are disappointing for whatever reason and from the movements today it does look like it got a bit of a Rocketlab bump we will look to quickly exit. It is always important to remember that even in a sustained Bull run not all stocks go up.
A WORD FROM OUR CEO
The Trump rally has stalled on some of the key stocks we’ve been long on but we are still on a very nice run and beating the S&P 500 by 81% annualized, with a win rate of 60% against SPY benchmarks.
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