Although I’ve admitted to disliking the stock market, there are those rare days when everything goes right and I just love it. Those days are when your shorts go down in an up market, when your longs go up in a down market, your longs go up more during an up market, and your shorts go down more in a sell-off.
Plenty of people proudly proclaim their investment prowess now that the stock markets are back. You’ve got recent college grads who can’t even get an interview at a investment house recommending stock ideas on Motley Fool and Seeking Alpha as freelance writers. Are they confusing journalism with investing?
You’ve got grocery store clerks highlighting their latest stock ideas to customers during check out. Why work at Safeway for $9.25 an hour when you could make more trading stocks full-time?
You’ve got folks who put all their net worth in the stock market and think they’re brilliant because they’ve never seen a bear market having only started four years ago. The best attitude is when asked what if the markets go down? They say they’ll just buy more, as if they have infinite capital and courage.
Even people like me are writing more on the topic of investing while working on a new investment forum. Bubbly bubble perhaps? Probably. At least we’ll focus on short ideas as much as long ideas. A large reason why I’m writing this post is to remind myself not to be delusional in my investing abilities.
It’s very rare to meet someone who has admitted to losing money in the stock market. Perhaps it’s natural to talk about our winners and keep our losers hidden. If you’ve never met anybody who has lost money in the stock market, well let me be your first. I lost about $30,000 in a company called Gastar Exploration (GST) in a span of six months when I kept doubling down thinking gas prices would rebound. Now that was an expensive lesson in commodities trading!
What I do wonder now is whether people are once again being led to slaughter by becoming overconfident in the stock markets. If you start extrapolating 15% a year returns in your portfolio due to the past four years, many of your other assumptions change e.g. age of retirement, rate of savings, spending decisions, and so forth. You might think, “Why work hard and save as much if my investments are going to make me so much money? My $100,000 investment portfolio will turn into $1 million in 10 years!” I recommend everyone run scenario analysis on their portfolios. Be conservative in your assumptions please.
Are people confusing investing with simply the process of saving? When you are mindlessly buying a index fund, mutual fund, or a set list of dividend stocks on a list with every paycheck are you really an investor, especially if you consistently underperform? Let’s discuss.
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