The Monkey Scene: Jumanji — Next Level [2019]

Okay, so have you seen the movie ‘Jumanji — Next Level [2019]’ ? Specifically this one scene:

https://www.youtube.com/watch?v=opqge2XSR2A

So I am going to take this scene and apply it to investing [stock markets / crypto / whatever].

Here’s what is exactly going on:

1. The individual bars or parts of bridge [or stocks] are going up or down. You have to jump between them [on the right bars] to reach your destination — which is a cliff and is not at the level you are on.
2. Hoards of monkeys jump onto these bars and there can be multiple monkeys on each bar
3. If you jump on the wrong bar which is going down, you’re basically finished

Now while we apply this to investing, here are some of the things which are different than the physics of this scene —

1. More monkeys on a bar means more volume and hence more one-sided movement.
2. You can only choose one bar to jump here but in markets, you can split yourself and can exist on multiple bars at the same time
3. Unlike the scene, you can exit a bar at any time and jump on another bar at any point of time — distance between bars does not matter. You can even not be on any bar and sit at the fence.
4. In the long term, whether a bar moves up or down depends on the promoter / management controlling that bar + what they do in the background which is behind a bar’s movement and is ultimately responsible for the combination of numbers [value and growth] a bar depicts.
5. In short term, bar movement happens by the number of monkeys on that bar. More monkeys jump on a bar, it moves up. More monkeys leave a bar, it moves down.
6. You don’t know whether a bar that’s moving down right now will continue to do so. Bars follow a set pattern of upward and downward movement which can be predicted to some extent [Technical analysis]

So now that we have the model in place, how do we apply it in real life investing and benefit from it? Here are some ways I feel it changes my way of thinking —

1. Optimize at a portfolio level, not at a stock level — Most guys really cling onto stocks in which they are in loss from the buying price. Selling a stock in red wasn’t even my cup of tea, until recently. But once we have a set destination level and bars are just a means to reach there, we start thinking at a broader level. So basically if a bar is going all down, whether or not it is at a level where you jumped on it, should you still hold on to it? All that should now matter is the aggregate level you’ve reached vis-a-vis your destination level summed across all the bars you have your feet on, right?
2. Monkey action will tell you a lot about the probability that the bar goes up or down, in the short term. More monkey action [volume], more the degree of movement. The problem is that you won’t be able to predict when that action starts to happen on a particular bar. You can only jump on to one and hope that monkeys notice it.
3. There should be at least some monkeys on a bar to make it move. Avoid illiquid / low volume stocks and the ones no monkey cares about.