Off the Record with an Industry Leader - Tom Sosnoff

I always try to live up to Kim's Kim's introductions who stuff for me thank you all for coming this is awesome I'm used to usually they have me speaking after the you know everybody has some drinks and walks around the exhibit hall then and then I'm the nighttime show to see who's gonna hang around before they go gambling I am excited to be here as I always am Kim was right I will go to the ends of the earth or to valleys because you know to find customers because it's so damn hard to do what we do and to talk to people about you know markets and trading and and just to find kind of people that are passionate about you know finance I love it so anyway tell you OUP's kind of loud move over here so I do a daily show for about three hours a day well three three and a half four hours we do it eight hours a day at tastytrade.com it's a live show we talk about finance and everything else dogs kids life and the whole deal but I love my show so I do the show in the morning when I have an event in the afternoon and I fly out of Chicago so I got did the show for two hours this morning and in order to make this event I try to catch an early flight out to Vegas from O'Hare as as usual the case I get to my gate and United has technical issues so I'm kind of like so I had to make kind of the you know one of things I love about trading one things I love about investing and and for those of you for some of you this your first time hearing me and for others you've heard me you know maybe dozens of times over the years and my big pitches the reason we're all here is that we learn to not just assess risk but to make decisions really quickly like the the the art of success is really based on your ability to make decisions and so I had this decision to make wait for United to come up with an actual departure time or a second plane or booked a flight on American which was two terminals over if you ever been to a Harry United flights out of Terminal one American flies out of Terminal three which is a for me for a normal person walking about twenty minutes for me about two hours so so I I decide to make I had to make the instant call to jump on American flight that was leaving two hours after my original flight figuring the United flight would never didn't take off so made it over to the American flight hopped on a plane got here you know it all worked out fine but the funny thing was markets were busy today and real busy Dallas I think down six hundred SPS were down the end of the day maybe 52 or 53 and the Nasdaq was down when I logged off when they made me log off you know when the flight attendant actually closes your laptop that's that's usually like the message like okay all your additional time is up they were down a sec features without 199 so it was a pretty nasty day on Wall Street and I've got a lot of positions on it's it's kind of in the option world it's expiration week and so I'm sitting next to this woman who was kind of trying to sleep but you know listening to we have a on our platform we we say we love the ding which is basically the sound that an order makes when it gets filled and I don't like no I don't like turning my sound off so I try to turn it really low but it doesn't really go super low because it's an old laptop so every time I make a trade the ding goes off so I'm sitting next this woman and I made 90 trades on the flight out so the ding went off 90 times BC when you fill an order like like let's just say it's a single order and it's a one lot that ding goes off one time but if you feel like a 20 lot and it fills in partial like it goes certain places the thing goes off like 20 times so it's busy today I filled a lot of orders with a lot of partial you know fills coming back from multiple changes the Dean went off about three hundred times and all this woman heard me say the entire flight was I stink cuz as you get older do you talk to yourself like I never used to talk to myself when I was I went through my whole life I was like pretty quiet you know I just you know I don't really like talk out loud when I'm walking down the sidewalk I'm not a crazy person or I didn't think I was as I got older I start talking to myself and like I hear myself out loud just saying things so on the flight I was saying to myself you know I mean the mark was down big I was chasing some of the down move I'm kind of like chasing my deltas trying to stay short and and I kept saying to myself you stink you stink like just I stink I couldn't believe how bad I was on this flight you know it's bumpy and and I'm chasing stuff on a on a wireless you know gogo connection and I kept staring stick and then finally the woman looks to me and the gig is going off about you know 200 times in the and and I keep saying sickness she's like is there something wrong with me and I'm like seriously I promise it's me I'm just talking to myself I stink I go she goes I don't even know what you're doing but you're talking to yourself I go I know I know sorry I didn't mean that in you know an obvious obvious from my performance said you know what I was doing either so so just take it trust me that I I think I know what I'm doing it most of the time so anyway I'm excited to be here because Bally's is not only the not only the venue for this but it's also a place that I've actually been coming to Bally's believe it or not not that often but it's the scene of my largest and only win ever in Vegas 1995 we're at a bachelor party we played bacharach for two hours when they used to have a crack table down there we didn't lose a hand for two hours my single greatest weekend in Vegas ever I have not won since 1995 so they're way ahead but I'm still up on valleys anyway but I I do love coming here and just like Kim says I I don't think I missed a show in in many decade in well in the last two decades and I love these events because and I don't understand why you know I always say kind of same thing but you got to hear it one more time I don't understand why there's not 5,000 people here are 10,000 people or 20,000 people because it's so important and I also don't understand why all the firms in the world of finance don't understand how important these events are to go out and to meet everybody there is a huge value in just being able to see somebody's name to be able to network to be able to talk to other people that think the same way you think that act the same way you do that make the same kind of decisions and also just to talk them and just get different opinions it's tough this investing stuff this finance stuff you know the markets are incredibly efficient and the edge today is in understanding how to apply the content the edge the technology has commoditized everything the analysis is virtually the same everywhere on everything the difference between success and failure or even success and marginal success or marginal failure and you know a little bit of success whatever it is is your ability to understand how to apply strategies and concept so what I've done today is I've been using the same for the last month or so I've been giving kind of a the same speech a couple of places around the country haven't done it here yet in Vegas so I'm excited to do it today it's pretty fast pace I know the exhibit hall opens at 5:00 and so we'll be done at 5:00 I promise you really good with time it's one of the few things I'm really good with and and so I hope you enjoy it it is it is a piece today focus on some of the things that that are just some of the things that strike me is interesting about the world of finance and about things that that you can take away one of the really important thing or the really important reasons I'm here is not just to have an opportunity to say hi to everybody over the next couple days to take a picture to shake hands to answer questions which i think is incredibly important because every time I've had an opportunity to do that with people that I'm interested in whatever they do it's changed the way I think you know when I've had an opportunity to meet incredible entrepreneurs it there's always a lasting impact and I pick up something from it so what we do is we focus on takeaways every 10 15 minutes every 7 minutes whatever it is there needs to be a takeaway in order for something to be valuable in order for people to really get something out of a interesting discussion there needs to be takeaways so what I've done is I put together a series of takeaways so that whether or not you trade stocks options futures we are completely product and different which means we're strategically and different we're product and different and our focus is on risk assessment it's on decision making it's on entrepreneurship in general which just means taking control of your own finances it's about making all the decisions yourself there's no reason that every financial decision you can't make yourself and there's no reason that anybody else out there should have any advantage edge or know-how edge over anybody in this room I believe that that that the the group that we talked to almost on a daily basis which is a hundred or 125 thousand people strong has as strong a foundation as strong a knowledge base as anybody that's managing any amount of money anywhere and you'll see me talk about that today which is which is kind of so important so without further ado I'll take you through this presentation which is like I said it's pretty fast paced it's fun and afterwards I'll be in the booth which is right inside that's our tasty works and tasty trade booth if you have any questions we've got like five or six people here and we have a grool nothing's off-limits also tomorrow just as adds up because usually I do one speaking time and then I'm out of here but this time tomorrow I'm speaking for the CME at 1:30 to mark to noon and I'm doing a short futures discussion on it's about six or seven actually it's about seven takeaways in 35 or 40 minutes just on futures trading so if you're interested in that again I'm product agnostic but but they're sponsoring that event so I'm doing on futures trading so if you've never been to one of our futures events I think you'll you'll like it it's all strategy that's it and everything we do is free just so you know so everything that tastytrade does everything I do we have been doing this for 20 years we've never charged for a single event for anything so enjoy so my discussion tonight perfect starts off with just talking about wealth and what concerns me there is an unequal distribution of wealth in this country and and actually it's global it's not just this country and you've probably read about this but it's interesting because because here the top 1% own over half the country's wealth but when you talk about it globally there's it's happening everywhere anytime you get this huge concentration of wealth and huge concentration of decision-making and huge concentration of risk-taking in the same passive environment it gets a little bit scary not since 1962 have we see anything like this in the only reason I say 1962 is because we're really not sure before that you know so so we don't go back much before 1962 but it seems like we've reached almost a pinnacle with respect to a concentration of wealth and again it's not just wealth when you get a concentration of wealth you had a concentration of decision-making you get a concentration of risk-taking and by the way for anybody that that wants this presentation when you're done I am more than happy to share it with you and give you the entire presentation all you have to do is send me an email at Tom at tastytrade.com and we will send you the presentation as we're doing it today so you don't even have take a picture or take notes or whatever just Tom at tastytrade calm and we'll send you a well send of the entire PowerPoint you can look at as many times as you want the u.s. in the u.s. the wealthiest 1% have captured 95% of the post-financial crisis growth that since that since 2008 and for those of you that are trading in 2008 you have now seen the after-effects of an incredible meltdown you see how long it takes for markets to distribute and to kind of lies and it's really fascinating because throughout time I mean a lot of us were around in the 1987 crash I was still in the trading floor in 1987 and and you know we've experienced these these kind of historic events and it does take a long time to kind of work yourself out to distribute after that but that's interesting that that most of the again most of the post crash wealth has been acquired by just a few people Blackrock Vanguard State Street and seven other firms each managed over 1 trillion dollars in assets now if you remember long-term capital management which was when genius failed long-term capital management was a meltdown on 2 and 1/2 billion dollars we basically in 1998 almost took the market down because again there was a famous book when genius fails but but because you know it was just we there was a kind of errors in judgment with respect to you know what can happen to a position this short volatility size kills basically and that was on 2.8 billion dollars now Blackrock Vanguard State Street and 7 over 7 other firms have over a trillion dollars on your management Blackrock alone has 6 trillion over 6 trillion now in managed assets now just when you see this all the physical cash in the world is just over 7 trillion dollars so black rocks managing six trillion all the physical cash in the world is 7 trillion now when I talk about a concentration of wealth that's a concentration of wealth you've got a handful of decision makers managing the equivalent amount of cash as all the cash in the world so what happens then because ultimately everything gets disrupted there's nothing in the world that doesn't get disrupted nobody stays at a certain position or a certain spot forever so none of the market leaders from 1987 and like I said a few of us were we're trading in 1987 are still we're still at the top in 2001 when you think about market leaders in 1987 you think about kind of the old blue chips like you know IBM on down and when you think about the market leaders in 2001 you're thinking Cisco and Intel and that whole group of chip makers and Lucent and all those other firms when you think about the market leaders in 2018 the only stock that's even in the image in the team picture is still Microsoft but when you think about that that's just normal cyclical disruption and disruption happens in 2018 way faster than it happens in 2001 and 1987 because technology is much more commoditized and it's much cheaper so the statistical chance of disruption now in virtually any marketplace is so much greater I mean it could be this what's happening in the next garage it could be what's happening the next dorm room it could be what's happening next company but there are fascinating stories out there so it's reasonable to assume based on everything we know that today's narrow group of market leaders which until the last couple of days was really just five or six stocks where most of the capital flowed into where most of liquidity is the amount of concentration focused on just a few stocks with respect to liquidity and the top of the funnel we're talking about a world of passive investors that don't make their own decisions and there's only so many other places that can handle all that passive investment so it's reasonable to assume that in 2030 none of those stocks or very few of those stocks will still be at the top of the funnel so why are trillions of dollars flowing into those stocks how is that possible why are trillions of dollars if everybody's thinks like that or if more people thought like that if more people thought independently if more people were able to stand alone then then we then I don't not sure everybody would be so short-sighted I'm not sure we could expect a repeat of 1987 or 2001 but we're looking at right now is is more passive investors in 2018 than we had in 2001 and more than 2001 then in 1987 I mean we've gone the other direction we've gone away from being strategic we've gone away from individualism we've gone away from decision making on a personal level and we've gone to this concentration of just massive amounts of passive investment so common sense is kind of losing out or the commitment to individualism is losing out so I have a question for you would you rather own Amazon its current market value or buy all the outstanding shares of the spiders the Q's IWM and the Diamonds those are the four major index ETFs and if you still have enough cash left over if you bought them all if you traded Amazon bought all the outstanding shares you'd have enough money left over to buy them all again that's every ETF that you trade stocks that you trade options on that you track all those ETF's those top four you can buy them twice for the value of Amazon where it's currently trading how about Google at a thousand sixty just came down from 1,200 bucks you can own Google a thousand sixty and buy out the company or all the silver ever mined in human history Gold's worth a little bit more but all the silver so you got a pass on gold but you can own all the silver ever mined would you rather on Facebook at 145 or on every professional sports franchise and every television network in the globe I'm just putting some context what I love doing is putting context around the value of certain companies when you have this massive concentration of individual of risk taking a decision making where people assume that it's safe I mean some of these stocks have had big sell-off so a Facebook's already down almost 25% you know I mean Amazon is only down about 10% off its highs but but or 15% but some of these stocks have had pretty big sell-off already would you rather on Baba at 144 dollars after their huge singles day on over the weekend or would you rather own every share of every Chinese ETF 50 times over that's the massive amounts of some of these stocks and when you think about that you're like how's that even possible would you rather own Netflix at 300 well it's actually lower than 300 today I was on a plane so I couldn't change these numbers but would you rather on Netflix at 302 or every movie ever made real quick story for you I don't want to go off to I don't want to go off track too much but I got to tell you this one story because it's one of my favorites about Netflix so so my my last long Netflix was I bought it at $9 I sold it at 950 so don't get too excited my last short trade in Netflix was probably the last 10 years but I got to tell you why so years ago when we built our last company which was thinkorswim the firm that invested in us was was a private equity firm from Palo Alto called technology crossover ventures tcv and they invested 22 million dollars less and we had never really had an investor before we we bootstrapped everything we had ever built in the prior thirty years of building businesses and so when they give us 22 million dollars we didn't know what to do with the money so we kind of just put it to the side in a checking account at 0% interest mind you because we weren't sure and we had always read the story about how eBay raised their force the first four million dollars never cashed the check and kind of just held it off to the side and we thought that was that's kind of a cool story so we didn't cash this twenty two to twenty two million dollar check at our first board meeting that summer when we had all these private equity investors and we never had board meetings before that all these private equity investors came in they sat down in our boardroom and they said and the market had been slow volatility was down that summer the market had been slow and there was about eight people or 10 people sitting at the table and they looked at me and and Scott my partner and one other person they said I have to tell you guys you're the worst company we've ever invested in and we're like we you've only bested us three months ago we're the worst already and they go you're the worst company that was the we overpaid by a ridiculous amount of money so we said to them we'll tell you what because we loved our company and we realized right away that taking investment meant that we didn't meant we lost a little bit of control would you really understand we took the money we said here's the deal we never cashed your check so we'll give it back to you and they're like what and we're like yeah we'll give it back to you we'll give you back your check we never cashed it we've cashed it but we'll give you back we never spent a dime of it so we'll give you back your money because we think we can more money at a higher rate later on and they said you're bluffing we said you're bluffing cuz we're not the worst company this went back and forth for about five minutes you're bluffing no word Bluff and we said no we'll get your ol ready to check right now just don't cash it till tomorrow so he make sure we move the money over no you've done that before right we did all the time so so the private equity firm Huddle's up and they said and they talk you know kids talk loud so when you when they think you can't hear them but you can actually hear everything they say they were doing this on purpose and they said do you think these guys are really worse than Netflix now we heard the whole conversation and we're and they're like and we're like what do you mean and they're like well Netflix was our first investment and we put like 50 million dollars less I don't remember the exact number into Netflix and we think they're worse than you guys because we don't think we're ever gonna make a dime in Netflix so after they said that they ruined Netflix for me okay they ruined it because number one I have never bought a subscription to Netflix and number two other than buying the stock one time in nine dollars I've been shorted for the last 300 points pre split so they totally killed me but that was just kind of a funny story that I just remember them saying they ended up selling out their Netflix for about a three and a half billion dollar profit so it was a really good trade for them on the other hand I never got a penny in there and I'm think I'm the only person who but you can correct me if I'm wrong I do not have Amazon Prime and I do not have Netflix and it's purely a result of my hatred for those companies by being short than both is anybody else here not not have Amazon Prime and oh there's a couple and Netflix that is a parlay bet that's that's you know that should win here so would you rather own Apple close a little bit close they actually hit Apple pretty hard today close about a little under 195 but which it was 203 on Friday would you rather on Apple at 203 or the GDP of Russia you know we freaked out about we freaked out about Russia but nobody freaks out about Apple I mean Apple has more cash than Russia I mean Russia burnt their own cash but but Apple it's Apple at a trillion dollars is almost greater than the GDP of Russia GDP brush is probably hovering around 1.2 trillion so it's a pretty close fidelity Blackrock and Vanguard control 11 trillion dollars a passive investments that happens to be very close to the GDP of China we worry about finance and we listen to everything from tariff talks to discussions about trade to everything that went when it really boils down to China this China that Russia this Russia that but we don't think that three companies with ten money managers are managing the equivalent of the GDP of China without the oversight in six stocks and when you start to think about that you got to be like okay well it's worked so far yeah it has worked so far we had a meltdown in 2008 it's worked so far but can it continue so I get it I don't it's interesting we run a financial network but we actually don't have cable we have cable in one of our offices but in the office that I'm in I refuse to have cable because I refuse to you know if you drink Coke you don't have Pepsi in the refrigerator I feel that way strongly about about business so we don't have cable in our office so I don't watch that many other shows but we hear experts all the time from Buffett on down and and they are experts but we hear the concept of a level head a level head drives me crazy because that's too easy that's an easy out life's not about okay always maintaining a level head level head just makes the assumption you don't know anything that's the heart that's the heart of the conflict in the world of finances that everybody's told from day one you don't know anything we have an entire generation we have a whole generation of Millennials right now that are being told since they were about 14 or 15 years old with respect to financial literacy which my definition is completely different anybody else's but they're being told that effectively financial literacy is manager credit cards learn how to balance a checkbook maybe or just learn about money but don't think about managing your own money so we're an entire generation behind because you know what happens the next thing you know you wake up one day and you're 50 and then you're wondering where the did my life go and how come I didn't learn anything you just wake up and you're like I don't know what just happened I wish I had learned I wish I had learned when I was 22 how to take risk I wish I had learned when I was like whatever you know what a stock was what an option was how a future works you know the only thing that kids today do or I shouldn't even say kids Millennials or any younger generation it's all 100% asset speculation everything is about asset speculation you know why Bitcoin and digital currencies were so popular because how do you turn a hundred dollars into a thousand dollars asset speculation now that digital currencies have a have an implied volatility of about 20 nobody trades them anymore that's not finance and that's not learning about something what we do is we focus on strategies and focus on you know how do you do things how do you make decisions sometimes your decision-making ability defines the rest of your life my son came home he's 25 26 now and he came home one day to me he said dad I he was looking for another job and he said I got an amazing offer from a company that I wanted to work for I said I said that's great so you took it right he goes no I told him I need the weekend to think about it I'm like well are you my kid would I tell you make exam decision like you don't need the weekend think about you want the job right he goes yeah I go you like the job right yeah he goes they make a good offer goes yeah I go on to take the job because he goes well everybody else told me I should take a weekend to think about it I'm like just think how stupid that is he's like yeah what do you know Robo advisors drive me insane as well Robo advisors drive me crazy you know why because it's just a perpetuation of this passive mentality there's no decision-making you want column a column B column C and then in case something goes bad just close your eyes wake up in 25 years we call that getting Vanguard into death drives me crazy I can't listen to the concept to the to the Jack Bogle mentality which is just close your eyes and in 25 years you'll have more money than you know what to do with it doesn't work that way life doesn't work that way you can't be successful with that approach the most successful entrepreneurs in the world the most successful business people the people that we hire for every job the first thing we wanted to figure out for them is can you make a decision can you can you define a problem can you answer a difficult question and can you make a decision can you take risk how do you know if you're invested properly for your goals if you've never done it before and you're just trusting what somebody else says how do you know what it's time to invest it's easy to say buy low and sell high you ever tried buying low so how many people bought today I was in an airplane we're in the middle it looks like the market was crashing to me and all I was trying to do was sell anything I could I'm sure I sold three bottoms today and I've been doing this for 37 years and I sold three bottom say it's freaking hard to buy low and then try selling them when they're exploding like last Wednesday after the midterm elections and the ESPYs were up 55 the Nasdaq was up 200 try selling into that rally it's not easy how do you know what it's time to sell damn hard how do you learn about diversification if you've never done anything very few people realize diversification it's not just product diversification diversification does not mean that you buy stocks emerging markets and then you buy a little technology a little emerging markets a little commodities commodity stocks that's not that's not diversification diversification when we go up everything kind of moves in their own way when we go down everything converges to one and that one means there's no product no parts of thing as product diversification I mean there are I shouldn't say no such thing there's certain commodities obviously them that have no correlations or certain stocks but in general stocks have a correlation of one to the downside and they have some diversification of the upside so what is diversification then it's different products it's different durations and it's different strategies and how do you know what to do there because you've been watching this market from a distance you've been watching finance from a distance but now you're 60 and nobody's ever done anything because you've always been told hey let the pros do it but you are the pros that's why we're here that's why there should be 10,000 people here how do you learn about strategy if you've never done it it's freaking hard how do you learn about different products in different markets how do you learn the difference between a stock and an option and a future you know what I make I shouldn't say I make I begged my kids and I've only got two to trade every day I don't care if they make or lose money I want them to make decisions that have an emotional and a monetary outcome every single day of their life because when they're 35 they're going to have an opportunity to do something extraordinary if you don't make decisions and you don't take risk it's hard to do something extraordinary there's a couple of amazing entrepreneurs I'm from Chicago and in the Midwest we kind of have our own entrepreneurial community and and in our firms right in the middle of this whole tech scene and everything else we've been there for like 20 years and some of the most amazing tech entrepreneurs and venture entrepreneurs I've ever met the one thing I could take away from each person if I was to throw them all a room they can make a decision at the blink of their eye they just blink their eyes they make a decision it could be a five million dollar decision it could be a five hundred million dollar decision it could be a five dollar decision they they make a decision instantly and I love that and every successful entrepreneur a business person you are into makes immediate decisions how do you improve your chances of success it doesn't it's there's no such thing as I I don't like one-hit wonders I don't like you know luck means nothing to me what happens if the market doesn't bounce back what do you do with new monies if you've never done you this stuff before what do you do what if you realize that you know more than your advisor what if you realize that you know more than the Talking Heads on cable more than the expert newsletter writer you know a couple years ago and I don't want to go over here so let me just watch a couple years ago I hired somebody from from CNBC actually the person that that started Fast Money Dylan Ratigan and I love Dylan he's a really close friend of mine he left this year to go run for Congress which he didn't he had lost in the primaries but but I really do like him he's one of the most brilliant people I've ever met and I could sit in a room and talk to him for you know 20 straight hours fascinating character he was the he started fast money he was the youngest he was the youngest editor on the Bloomberg news desk and like I said he has a photographic mind he can remember everything when he started working for us the reason he came to work with us is because I challenged him I challenged him and said for a brilliant guy you don't know jack about trading and markets and he goes how do you figure I've been talking about on the air for for ten years straight to the hole you know I have a million YouTube is I have a million people on Facebook I've got this and that have you ever made a trade no I go so you're the expert you've never made a trade you're invested in a couple of index funds I said you stink you're an embarrassment to what we're trying to accomplish here and he took that as a challenge and he said you know you're wrong and I'm gonna prove you wrong and I go beautiful that's what I was trying to do the whole time and and it was very interesting working with him to get him excited about markets because his entire opinion of everything changed almost overnight as soon as she saw hey this is pretty hard this is pretty difficult efficient markets man there's no edge it's just you don't want to give up any edge like it's it's all you want to be completely fair and he saw that almost instantly and everything he had never done before that changed and so I say this but I say it also in a in a in a really friendly respectful way because there's a lot of brilliant people out there talking about finance but until you've actually done it which drives me crazy about some banks and large financial institutions they don't let you trade like we encourage every one of our employees go out there and trade we'd love it trade all you want we want you to be knowledgeable about our products but then we have people that call supple of time say hey we watch your show I'd love to trade but are not allowed to I never understood that what do you do if your portfolio doesn't grow and you're sitting there in the markets goes the markets go sideways markets go down we haven't seen a bear market we haven't seen a decline we haven't seen a market that's gone lower for any significant period of time since 2008 2009 so you know you forget you forget quickly what about learning to take risk what about learning to make financial decisions what inspires you what engages you where does the passion come from you know what just making money because you flipped a coin and you were right means absolutely nothing to me it has to be scalable and it has to be repeatable and that's so freaking hard to do so catchy one-liners they sound good but they're meaningless and what's worse so are the firm's that promote those so bull markets some of my favorite lines bull markets make dumb people look smart and they make rational people look crazy what do you think about that for singing like that yeah so if markets are truly random which we believe they are then it's all just a math equation that will eventually normalize itself now let me explain price is not mean reverting which means if a stock goes from $10 to $100 it doesn't mean it's going back to $50 it's not mean reverting but volatility or expected move is a math equation so fear is mean reverting and there's a big difference between the two and if you learn how to incorporate fear and as another fear is another word for opportunity and if you learn to incorporate fear and opportunity into kind of a big thought process then all of a sudden it's a math equation so the crazy people somehow become geniuses and the smart people go back to being clueless that's called being a hedge fund manager a very successful one at that so mean reversion as it applies to expected move is a wonderful thing expected move when you hear the term implied volatility which everybody freaks out about all that means volatility is just another word for expected move implied volatility is another word for expected move historical volatility is realized volatility which is what's happened in the past implied volatility is what's expected to happen in the future so when you hear things like you know what's a reasonable expectation for the market it's always based on implied volatility because it's a two-sided market and if it's tradable it's real so here are my suggestions for succeeding in today's opportunistic marketplace don't be afraid of heightened expected move because it's a gift not a curse opportunity is a gift strategic diversification is as significant and as important as product diversification stay small we used to say trade big or go home the whole deal if you weren't a big trader you didn't even deserve to be around now entire mentality all our research has shown us we're a think-tank basically we tastytrade as the think-tank we have eight to ten full-time researchers all the time all data scientists and all we do is try to bust every myth that's ever been created about trading and investing so stay small aggressively manage your winters aggressively manage your directional risk and there's not much you can do about losers so don't worry about those we've always have been told to manage your losers and let your winners run it's exactly the opposite manage your winners and deal with your losers as you made because there isn't anything you can do keep your decay numbers which is the amount of premium that you've sold out there when you get to that point and remember most important liquidity rules for individual investors if you're going to a a if you're going to invest stay liquid there is no reason there's about a hundred and fifty what we call four-star liquidity underlyings you don't have to go outside of those you go to three stars that's fine but two and one stars which means there's not a lot of volume or there's fees whatever it is focus on liquidity liquidity is your liquidity liquidity means that nobody can take advantage of you manage your capital efficiency and be product and different it should make no difference to you what the underlying really is if you're being strategic sometimes you want to buy gold so you invest in gold but but other times you're just looking for opportunity based on fear don't hesitate to adjust there's no such thing as over trading anymore because the fee structures have come down so dramatically that it's a notch over free it's cheaper for individuals to trade invest now that it is for the exchange members that are actually making the markets take advantage of implied fall to the rank which is implied volatility measured against itself when it gets over seventy five and we're there right now in many cases lean more towards ETFs and indexes when implied volatility gets over the mean that means fifteen so it gets up to seventeen and a half there's some edge in there because remember volatility is mean reverting which means sixty five percent or seventy percent of time it it contracts thirty percent of time it expands and taking advantage of that is something you need to learn how to do as a strategist keep your available capital to at least forty percent and you're always around to play most people over invest when we bought when we built our first brokerage firm the average-size trade the average-size trade was a $50 stock because the market was lower at the time was seven was seven hundred to a thousand shares so say the average sized trade was about $45,000 in notional value the average customer account is $40,000 so the average customer was trading their entire notional size of their accounts with every trade they made it's insane today with our new firm it's all retail - we have no institutional customers no professionals nothing just customers the average customer trade is a few thousand dollars like two or three thousand dollars and the average customer went from trading 170 times a year Faramir let me rephrase this when we built our last firm the industry average was 22 trades a year when we built our last firm we got it up to 170 with our new firm we have it up to 1200 trades a year per customer the reason is people are trading a fraction of the size because we've commoditized rates so you can trade really small you could trade often and make adjustments and it cost you no more than it cost you to make 20 trades you know 20 years ago staying active in volatile markets is a confidence builder nothing feels better than when the winds howling and you're on the golf course and you've got a hundred and let's say a hundred and seventy yards shot into a into a gale-force win and you stick it and you're like I can't believe I just did that because you figured you were reaching in your bag to get another ball it's the same thing when you trade in volatile markets like today if you trade it today and you had some success or you felt good about it you're gonna forever be better if financial opportunity was obvious and obvious worked everyone in the room everyone in Las Vegas would be filthy rich fortunately though obvious does not work and for those who stand to the side to stand alone when the herd comes racing by they will ultimately benefit the most I know that sounds like it's so cliche but it's so hard to do here's what we know this is just masters of the obvious right now tax cuts lead to buybacks which leads to an earnings boost which you've seen global growth looks great this is what you're told in relation remains at bay the dollar is ridiculously strong Amazon is taking over the world so give up on these noticeable red flags greatest concentration of wealth and decision making in history markets that don't correct until recently we had two Corrections this year one recent and one in February but over the last ten years Corrections have been few and far between we have a flat yield curve that means the difference between long term and short term rates is at historic lows and bonds by the way have sold off dramatically anybody's been long bonds for the last three years you understand the term convexity now that's that's bond risk that's principal risk in bond market there's nobody up money in bonds the last three years nobody so that's another reason to be nervous about stocks volatility is consistently 20 to 30 percent below historical norms until the last couple weeks there is a record percentage of people that have no idea what they're doing that should scare everybody for me that makes me feel amazingly good because because and it should make everybody here feel good because anybody that's spending their their their Monday night in the room listening to me at four to five o'clock is in a completely different stadium than the rest of the world there's record margin debt but we've seen that before this is something that I love and you've heard me say this before Robert Shiller who was who is the head of Finance at Yale University and runs their graduate program of which we have many a professor that our tasty traders Believe It or Not from Yale in the finance group we still we don't know the probabilities of future events still you have to take action and so you do it on gut feeling now Schiller won a Nobel Prize for saying something and I quoted him on this because it is idiotic we do know the you can actually you can actually make a bet on the future of virtually anything in a listed marketplace which is centrally cleared and fungible you want to bet that the Dow is going to be 300 points higher at 300 points lower 3000 points higher 3000 points lower 18 months from now go right ahead the markets three cents wide you want to bet that gold is going to trade 1500 or 700 two years from now the market is a nickel wide you want to bet that soybeans are going to be up trade 15 or five two years from now the market is one tick wide how about SPS are they gonna close it at three thousand or two thousand fifteen months from now the market is one tick wide so that market since its tradable gives you an exact number it's fascinating what's out there now so there is no such thing as gut feeling gut feeling it doesn't make any sense so never underestimate the power of stupid people in large groups that was our friend George Carlin who is no longer here but you know I love talking to this group because you actually remember who George Carlin is I did an event somewhere I was talking to a bunch of high school kids never I was like googling George Carlin that really threw me for a loop by the way so let's stop rewarding luck and start embracing know-how because that's what we that's what we should be doing we shouldn't be looking at investment gurus and people out there because because they made five billion dollars or because you know they were managing somebody else's money or whatever it was or they're saying something on TV there needs to be a certain amount of rewards for passion and engagement that gets people to do certain things this is why brains work and why bots are iffy everybody talks about artificial intelligence taking over the world but the reality of artificial intelligence is you need one thing to happen for artificial intelligence to work and that's inefficiency and if you can make a market two years out right now in the SPS and make it one tick wide there's no such there's no inefficiency there so there's no such thing as artificial intelligence being able to help two years out where the espys are gonna be our official intelligence needs a failure of efficiency to work so you're not up against some market that is delivering this that has this huge advantage everybody worries about high-frequency traders and high-frequency this and that I read it all the time I read an article this weekend in the Wall Street Journal from last week about high-frequency traders and how this one brokerage firm was selling their order floor and I'm thinking to myself oh my god you ever done any research you can do have we're not a high-frequency firm by the way we're just a retail firm you everything you can do today you can do it because there's an amazing amount of technology being delivered by high-frequency traders that allows that improves your technology that lowers your fee structure and that makes tight markets that none of the exchanges have ever been able to accomplish the whole world of high-frequency is what allows us to do everything that we want to do there one tick wide on 1500 markets what do you want to do it's the most beautiful thing out there but nobody gets it that's why editor is it that just all these different financial publications tried me insane and when I have these discussions with them that kind of a that's interesting Tom now let me go get a quote from Goldman Sachs decision-making skills are learned through doing there is no other way to do it being contrarian allows you to remain consistent being passive is destructive to wealth creation and wealth doesn't always just mean money wealth can mean lots of other things wealth can mean hey you know what you're 32 years old and all of a sudden you make a lot of decisions and I've you've heard me say this before I've talked about this at many an event there's such a thing called economic bias economic bias is the inability to decide what something's worth here's an iPhone for somebody that's never seen an iPhone before there's two types of people out there those that make thousands of decisions that can look at this iPhone for whatever reason assess it in a couple of seconds and make some kind of market okay my mark on this iPhone it's used six hundred seven hundred something like that somebody that's never seen this before number one they won't even make a market if they do they'll say I'll pay a hundred I'll sell for ten thousand that's called economic bias it's the inability to make markets it's the inability to assess value the reason that that exists is because people don't make decisions those who make decisions are much more valuable when we hire somebody all we care about obvious we care about how smart the air but we also care about their ability to make decisions it's critical part of the thinking process you can't create you can't create lifetime wealth without the ability to make decisions Extreme as the speculation happens when too few people make too much money they make too many decisions and they have too little experience welcome to 2018 sometimes logic common sense and gravity don't work but that's ok because most of the time they do 85% of the time just remember this just in the back of your head 85% of the time most stuff 68% time everything falls within some distribution curve but 85% of the time is kind of your ballpark number 85% of time things are you can make a reasonable adjustment 15% of time things fall outside that range that's why we say logic common sense and gravity you know what sometimes they don't work most of the time they do that is my discussion today [Applause]

Channel: MoneyShow

Views: 3,967

Rating: 4.8956523 out of 5

Keywords: day trader lifestyle, trading on the go, chasing the delta, Tom Sosnoff, Off the Record, Trading Industry Leader, trading expert, day trading network, day trading networks, financial advice, financial networking, entrepreneurial leadership, entrepreneurial networking, entrpreneurial network, entrepreneurial thinking

Id: OW1jE0YkC0U

Length: 50min 10sec (3010 seconds)

Published: Wed Nov 21 2018