Why do stonks only go up? Also, what is a stonk? In internet slang, stonks are a deliberate misspelling of stocks. It is often used to refer to such stocks—and finance more generally—humorously or ironically. They only go up because that’s what stonks do. Stocks, however, are a different story.
Do Stonks Only Go Up?
I’ve got a few popular answers as to why do stonks only go up. Of course, this isn’t an exhaustive list, but then it really can’t be because stock prices, like many complex phenomena, are subject to over causation.
- A company’s revenues and/or earnings have increased.
- Positive catalysts like news stories or economic forecasts
- A cutting edge new product or service promising to bring the company to new heights
- Perhaps a situation where a stock has a low P/E ratio or is trading at a deep discount to its intrinsic value.
- A shout-out by a famous analyst/celebrity or TV/social media investing guru. I’m going to drop Elons’ name here; just google Elon and bitcoin, you’ll know what I’m referring to.
- A big institutional investor is accumulating a position.
If you’ve heard of Dave Portnoy, then you’re very familiar with why do stonks only go up. He got into the trading game during Covid and stonks came to the forefront as he is a trendsetter.
Have You Heard of the Term Over Causation?
Why do stonks only go up? Over causation is a favorite term used by defense lawyers who invoke it to show that many factors besides their client’s (alleged) negligence might have led to a personal injury.
If, for example, they can show an employee’s fall from a ladder was “caused” by “other factors,” they likely can get their client off the hook. When I say “other,” it can be anything from an employee’s poor choice of footwear, bad ladder design, or perhaps recreational drug use.
For investors and traders – those who try to anticipate a stock’s price in the future, the principle of over causation can be a vexing one.
The lesson of the principle of over causation is that stock price movements are more complex than many people think. Nothing guarantees that a stock will go up, not increasing revenues, not earnings surprises, not new contracts, not a dive in price that drops the P/E into the basement.
The Reason Why Stonks Only Go Up
Why do stonks only go up? The truth is that stocks go up in price because someone believes they can make money by buying them. And people’s reasons for that belief are all over the map. As you know people are predictably unpredictable, and you can’t reduce an over-caused behavior to a simple set of rules.
But the fact of the matter is, what goes up, must come down. This means all good things must come to an end.
Stocks or stonks, as we cheekily refer to them, must come down as well. Now, this may seem all doom and gloom, but you can actually make money on the ride down. And you can do this by shorting a stock. How fantastic is that?
Shorting stocks involves selling batches of stock to make a profit, then buying it back cheaply when the price goes down. By repurchasing it at a lower price, the short-seller pockets the difference. However, it is an advanced strategy that’s risky. It should only be undertaken by experienced professionals taught by experienced traders such as those in the Bullish Bears trade rooms.
How Short Selling Works
Let’s say you believe FB is overvalued at $100 per share – I wish FB was only $100 a share. After doing your duty, or research, you think FB is going to plummet in value. With your thesis solid, you tap your broker to find someone who is willing to loan you 100 shares of FB.
Once the 100 shares are in hand, you sell them. Quick math and you’re left with $10,000, along with the duty to return your 100 borrowed shares to their original owner.
Now, let’s say that after a month, Facebook falls in price to $50 a share. At this point, you’re in a lucrative position, so you buy 100 shares of Facebook for $50 per share, or $5,000 total.
After you return the original 100 shares to the person you borrowed them from, you get to pocket $5,000 ($10,000 – $5,000) — less any commission or transaction fees.
At this point, I hope you’ve realized that you can make money in the stock market regardless of its direction. If the market goes higher, crashes, or moves sideways for the next 50 years, it’s irrelevant to me. I really could care less. What matters is that you have a clear, easy, and identifiable strategy to make profits. Because without a clear strategy, your odds of success are NO better than a flip of a coin.
Where are you going to find this strategy? I suggest checking us out. We have a multitude of strategies to fit any trading style and personality. By joining Bullish Bears, we will show you how to make consistent, small, short-term gains rather than trying to hit a home run on every trade. Moreover, in our day trading chat room, we focus on trading the first hour of the market.
Trading the First Hour of the Market
If you look at any daily chart of any index or stock, you’ll notice the most volatile and the most significant opportunity for profit is during the “First Hour” of the stock market’s opening. The popular thinking and conventional wisdom are that you should wait about an hour before you start trading.
But if you do, you’ll miss the big, fast moves that stocks make as all the amateurs let their emotions out through their online accounts, usually right after they read some news headline. For these reasons, it’s crucial to know the right strategies and approaches, and this is where we can help you. Why do stonks only go up? Because they do. Happy trading.