Apple, the Twitter IPO and Emotional Investing

NEW YORK ( TheStreet) --

That's the response I received from TheStreet's Doug Kass after he told me he didn't understand the thinking I presented in my response ( Will the Drunken Twitter IPO Double?) to his most likely accurate prediction that Twitter will indeed double ( Kass: How Tweet It Is.

Outside of referring to my life as "modern," Papa Kass hit me with the one play on my name I have only heard three million times before.

In all seriousness, though, given Kass' knowledge and prowess as a trader and investor, there's no way he doesn't comprehend what I am saying in that article. In fact, he has likely forgotten more about investor psychology than I'll ever know.

Before reiterating thoughts on Twitter, consider Apple ( AAPL).

A classic case where some investors have nothing to blame for their losses -- realized or not -- but their externally influenced emotions.

You had cats like AAPL analyst Brian White (I'm not sure where he works now or if he uses an 'i' or a 'y' in his name) with cute price targets of $1,111 as the stock topped $700. Seemingly everybody (except for Kass!) jumped aboard the AAPL train. It turned into this Bushian battle between good and evil.

Tons of retail slugs and, I would assume, more than a few institutional guys bought Apple stock to fight against the unjust forces -- often referred to as "manipulators" (I think some of these hacks use that term, idiotically, to refer to Papa Kass) -- they perceive as keeping it down. It wasn't an investment thesis; rather it was fighting the good fight when these people bought AAPL at the top. And they had the perfect rationalization standing by their sides cheering them on. Folks such as White with their $1,111 targets.

We know the story there, epitomized in the extreme by all Apple hedge fund manager Andy Zaky.

Here's the background on that:

Apple Bulls Having Love Fest: Please Get a Room (October 11, 2012)

The rise and fall of Andy Zaky (March 4, 2013)

I love Philip Elmer-Dewitt (great journalist, even better guy it seems) and feel for Zaky's peril, however it is what it is.

That's just one illustration of investor psychology crushing people.

Then you have another -- the Twitter IPO as well as others (such as Facebook ( FB)) -- that can apply somewhere along this spectrum.

Had AAPL achieved White's price target of $1,111, making Zaky the foot instead of the ass, the folks who got long somewhere above $500 would have been emboldened. In this hypothetical scenario, they would have taken their gains and retired on an island somewhere. Or, if the profits weren't quite so large, banked the money and never, ever took got back together with a risk so lofty.

But that's not how the mind works. We always want more. Of everything. Food. Sex. Endorphins. Money. Whatever. You'll take the successful AAPL experience and attempt to replicate it elsewhere.

If you chase TWTR at the open -- or early on in its trading -- you could set yourself up for a similar fall. I don't care how you do it. With limit orders or otherwise. It makes no difference. There are just certain situations most retail investors should not get themselves into. And, if you find yourself in one (it's inevitable) and you actually make money, don't read your own press clippings. Don't believe the hype!

This confidence will make you feel like you can replicate the magic with the next big IPO.

Unless you're a #badass like Doug Kass, (that's way better than Papa Kass!) you can't. It's a primrose path (Mrs. Bueller!) to giving back all of the gains your fleeting success generated.

Trading. Investing. All of it. It's a risky proposition. There's no need for most investors, in particular, to get involved with battleground stocks, emotional turf wars and, most of all, IPOs that have real potential to be incredibly volatile, specifically in early trading.

If you dabble in these areas, you're setting yourself up to have your emotions take control of what can quickly become an uncontrollable situation.

-- Written by Rocco Pendola in New York City
Rocco Pendola is a columnist and TheStreet's Director of Social Media. Pendola makes frequent appearances on national television networks such as CNN and CNBC as well as TheStreet TV. Whenever possible, Pendola uses hockey, Springsteen or Southern California references in his work. He lives in Santa Monica.

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