Don't Take Stock Tips From TV Touts

The following pictures were Tweeted into a conversation about Cathie Wood, Jim Cramer and Draftkings (DKNG) stock.

That's a chart of Draftkings puking down over a period of months. Supposedly, Jim Cramer yesterday said on CNBC that she (Wood) was buying the stock near $50 back in October and rhetorically asked "who would ever do that?"

If the second picture is real, apparently Jim Cramer would do that. I gave up on CNBC years ago, preferring Bloomberg TV. I have CNBC on in the background maybe an hour/week, otherwise Bloomberg.

I have no idea what Jim has ever said about Draftkings but in its short life as a publicly traded company it has been popular and widely followed. In rocketed higher for a time and how has been enduring a pretty long downtrend. For all of those factors, it is certain that Jim talked about the name several times. Where he spends many hours a day talking about stocks on TV, being asked questions, giving opinions, reacting to news, I bet if someone spent the time they'd find positive and negative comments from him about many stocks.

If someone wants to follow his advice about a given stock then arguably they can't afford to miss anything he says. I perceive him as being short term oriented, certainly much much short term than me, clients have owned some stocks for 15 years+. If you are short term oriented and interested in DKNG then you might have tried to trade that 20% bounce higher between Jan 25 of this year and Feb 1st and then that next slightly smaller bounce that followed. 

Some people are good at capturing those types of moves but that is trading that is not investing. Are you a trader or investor? I'm not saying being a trader is bad but what is bad is getting caught up in the excitement when a tout comes on to talk about what is really a trade and you, like me, are an investor. 

One thing that is important to me to understand about any stock or ETF I might buy is what its market attributes are, not the company, that's a different but obviously important thing, but how it behaves in the market. More volatile, less volatile? What, if anything does it correlate to or does not correlate to. In this context, Draftkings is heat, a lot of heat. It is volatility. When you buy the stock, even if you bought two years ago at $17 on the way to $60, you are buying volatility, you are making your portfolio more volatile, maybe a lot more volatile depending on how much you buy. 

If you have a diversified portfolio then you likely have some volatility in there and that's ok, I'd say it's an important feature in a diversified portfolio when properly sized. DKNG is not my type of holding. It's a good bet (see what I did there?) that sports gambling will remain popular but human emotion is such a huge component of the business model that I'd rather add volatility with other holdings. 

A while back I added a mining and metals ETF for clients. There certainly is volatility in that sort of holding but human emotion is not a first level component of pulling copper out of the ground. There's emotion in market pricing of copper, I accept that, but that is not the same to me if that makes sense.

So down all this way, is DKNG a buy? I have no idea and I am not a buyer but if we all accept that sports gambling is not going away, then I might wonder can sports betting go on without DKNG? The answer there is probably yes but DKNG has great name recognition. A small gamble on something down 2/3rds that you think won't disappear is not a crazy idea. If you do that regularly, you will be very wrong on occasion and of course very right on occasion. If you accept that, then you know that the next gamble you make could be the one you're very wrong about. 

That's a type of complexity that can be rewarding but that the typical investor just trying to have enough money when they need it (retirement?) probably doesn't need to speculate on.