12May11:29 amEST

The First Mover Fallacy in Game Theory

In 1923, Jesse Livermore wrote,

“One of the most helpful things that anybody can learn is to give up trying to catch the last eighth---or the first. These two are the most expensive eighths in the world.” These eighths have cost traders billions of dollars over the years.

Over the years, this is a lesson I have tried to learn over and over. 

Applied to the current market, we must decide whether bears are offsides trying to catch the last 1/8th of this bear trend, or whether bulls are much too hopeful to try to nail the first 1/8th of a possible new bullish trend. Of course, that context may be too simplistic: We could also see a prolonged bear market rally like in the winter which inevitably fails. 

But as we see the old meme stocks like AMC GME scream higher today, ARKK surge to green with the likes of BMBL BYND COIN all sharply higher, it smacks of a market which near-term caught some overly-aggressive shorts in the "hole" in high beta growth names. 

My take is this: We are still in a bear market until proven otherwise, which means trying to time a new bull market amounts to trying to have a "first mover advantage."

So what is a First Mover?

According to Investopedia, a first mover is a service or product that gains a competitive advantage by being the first to market with a product or service. Being first typically enables a company to establish strong brand recognition and customer loyalty before competitors enter the arena. Other advantages include additional time to perfect its product or service and setting the market price for the new item.

Hey, if you are coming to market with a brand new product or service, then the first mover advantage can work splendidly. But even then, you are going to need to break through preconceived notions from consumers about what works and what does not. 

As for speculation in equities, being the "first mover" more often than not leaves one on the side of the road on the frontier with an arrow through one's chest. In other words, it is vastly overrated and far riskier than the folks on financial news television would have you believe. They may have unlimited dry powder from their clients to keep buying all the way down. 

But what about you, the individual market player? 

More often than not, as we witness these vicious intraday squeezes, the correct play is to either stay sidelined or carefully play the overall trend by shorting pops. 

Eventually, bulls will be correct and we will get that big bottom which is durable. However, with so many folks still adamant about calling bottoms and relief rallies in lieu of respecting the technical damage, you can continue to count me out of trying to be a first mover in this market. 

Reminder: It's a Bear Market... A Series of Battles


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