Zucker Punched!

12/04/24 Prospero.Ai Investing (175th) Edition (Midweek)

As a reminder at the top this is the only week this year we will be running 50% off this letter we will extend it in some form for the holidays but it will be lower.

Here at Prospero, there are times when even WE are blown away by our screeners' predictive precision. We just got blown away, again. The last two day's (impressive) rise in META was something our numbers have been screaming at us for two weeks. We didn't add it, and we regret it. We also pride ourselves in admitting our mistakes, so that we (and you) can learn from them. So let's unpack why we chose not to buy META and how we would have done it differently.

On November 22nd, META's Upside score rose to 100 and stayed there. Then last Friday, November 29th, its Net Options Sentiment score hit 100. Slam dunk right? Our CEO George Kailas almost added it, but reluctantly, he chose not to. Why? Because as we often teach, our predictors are eerily accurate, but they're a tool that must be used in conjunction with other forces at play in the market; like macro, or socio-political forces that sway market sentiment. It's always a balancing act between the two. In this situation, we placed way too much weight on the outside forces (we thought) might impact META. It's been well documented that META's CEO, Mark Zuckerburg and President Elect Donald Trump have butted heads in the past. That was enough of a red flag for us to pause on META, and choose TSLA (Tesla) and COIN (Coinbase), which also had high Net Options Sentiment and Upside. This is the perfect time to teach a lesson. You will never be done correcting your journey toward excellence and this is a classic example. Our CEO was pretty proud of himself for nailing these picks going into the election as well as the associated press coverage in CNN, Fortune etc. To be fair both stocks (TSLA & COIN) looked very good in the signals and COIN was looking better than META up until late November. But nonetheless, he oversampled on his own faith in reading macro forces, instead of being “radically open minded” as Ray Dalio prescribes.

One of the phrases we throw out there quite a bit is "Somebody always knows something". Institutions often have access to information before the general public, and so they'll make Options bets on that information. That's the genius of Prospero. We can see that information in real-time through our numbers. Well, it's obvious that "Somebody knew something" because META's numbers were high for a reason. It was announced that Zuckerburg was going to be working in conjunction with the Trump administration, essentially eliminating our macro concerns about META. META took off and we missed it.

Historically, this is the second time we've gotten "Zucker Punched" and missed out on a strong rise in META based on our own biases. What have we learned through all this? We've learned that when META hits 100 in both Upside and Net Options Sentiment, that is a very accurate predictor of its future performance. We likely won't make that mistake again. We love to share these lessons because it shows the human part of investing. Even when you invest 13 years of your life building AI signals to make your decisions more informed, you are still able to miss what is right in front of your face.

A WORD FROM OUR CEO

Despite the META miss we are having a nice week and are beating the S&P 500 by 88% annualized, with a win rate of 60% against SPY benchmarks.

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Zucker Punched!

Sector / Earnings Analysis Sector Update