Consider the often repeated argument on playing (even in very short term circumstances) penny stocks vs more liquid, larger priced real company shares. Now if you ask tons of folks who think they know how to trade, most will tell you they are too risky, and repeat a myriad of common assertions about penny stocks that are “common knowledge” and considered to be sage advice.

Sykes has made the brilliant observation that those playing FAZ are more likely to be gambling on outcome than a well prepared penny play is, because the VARIABLES are easier to isolate and *limit*, whereas on the 3X ETF liquid beast you are competing in an arena where you, at least as a little guy, have no edge. You cannot isolate the parameters to predict outcome with a greater than 50% accuracy short term, since most of those moves are indeed random.

Ironic that a well timed pump and dump offers Joe Schmoe a better shot (save for short locates and barriers, like big boys having pre-borrows, etc.) for the little guy than does the same little guy trading FAZ, but it is usually true-if it is done correctly.

But if you ask the average advice giver on which is the better odds, they will shoot down the penny play and go with FAZ. Why? Because they have it brained into them, like most of us did, that they are sucker plays. Conventional wisdom kills.

The herd is influenced by what the peanut gallery says about it. Reality does not get in the way. I keep this in mind whenever someone says something like on CNBC they heard when gold rises the market falls, the dollar falls the market rises, etc. It is possible to give people too much credit for logically analyzing relationships, and that can be a very expensive lesson when the herd of bozos believes hooey that drains your account against all logic!

And yes, I’m aware of proxies. But they can be annoying to use.

Big admirer of you and also Tim Sykes. You do a wonderful job on your sites, and I have found your posts over penny plays to be useful, especially the scan method for locating supernova possible candidates, using stockfetcher, IIRC.

I am not arguing Reaper is wrong regards DJIA/gold ratio, etc.

…but one incredibly simple point (but often put in blinders even to very well informed folks) is that the stock market for some time can and does operate not on the reality of economics or conditions, but the PERCEPTION of those by the herd, aided and abetted by a monkey see monkey do and safety in numbers dynamic.

For example, many are aware that the “Elliot Wavers” who follow Prechter argued from the beginning of the rally in stocks since March that it was not supported by fundies, and that doom was imminent.

Well, if you took that approach and listened to his repeated warnings over the latest good short the market entry, you’d be broke on margin by now, even if you were eventually proven right. The same was seen in the tech bubble and bust. Being right and making money in stocks are often very different things.

If the government props up the economy artificially, printing money, stimulus, etc. you can argue til blue in the face that it is fake, but the herd assumes it is workable if for no other reason that that others are risking it by piling in and that the seemingly improving numbers, artificial or not, are meaningful. The long term reality does not matter for at least some time.

In short, self fulfilling prophesies abound in the stock market, based on psychology, not sound economics.

I am *not* arguing this is the case with the gold/dow relationship argument being discussed, but that it should always be kept in mind whenever any such theory gets disseminated into the public sphere, in analyzing the practical effects vs the correct logical position, to gauge honestly the effect on one’s conclusions, if any, fairly.

Heck, tons of folks are going to come to your site and argue with you based on what they “read” and think they “know” over this dow/gold connection, etc.

You know what a good propagandist says, if you repeat a lie/or b.s. long enough, it becomes the (in effect) truth!

I really could not care less about the incremental profit of selling y’all DVDs and shit. I care more about my sanity.