Be patient. If a stock or ETF trades at 100 and consquently drops to 50 it has dropped by 50%. BUT you would need to see a gain from 50 to 100 (100% gain) to get back to break even. It’s easy to lose money.
Symptoms of a healthy market:
Dogecoin millionaires.
Armies of GameStop holders (no matter the price).
SPACS (Special purpose acquisition SCAM companies). - Think of all these “new” Electronic Vehicle companies that have never made one vehicle.
Option trades standing as a popular form of leverage which leads to a blow-up of an entire investment bank (Credit Suisse and this crazy GSX exposure).
I hope you can hear the sarcasm in your inside voice. I am writing this article to spite the idiots who run the central banks for thinking they can beat fundamental common sense with idiotic ideas that HAVE been tried before and HAVE failed every time. Growth does not come from paper, growth comes from education, infrastructure, and a healthy environment.
A part of me wonders if they are smart criminals, who just understand how to steal power on a grand scale - inflation tax, or if they are stupid academics who are peer pressured by governments to do their bidding. From history, it seems like it’s a bit of both, but more leaning towards the fact that they are stupid academics rather than master-mind criminals.
You want to drive growth and innovation - EDUCATE.
Now, I don’t know how old most of my subscribers are, but I am young. I have not personally experienced financial recessions for I was too young to be investing. Fortunately, by learning from my parent’s many mistakes, of which I am one of them, I have picked up a great skill- reading. Once you start reading, especially history, you can learn from mistakes humanity seems to enjoy making time and time again.
The ‘Market’ is in fact a giant mind itself. It seems to exhibit a certain main-depressive trait, coupled with a group-herd mentality. Trends catch on, people get anxious to not join the herd, fueling a seemingly never-ending bull run on bull-shit assets. Funnily enough, addictive gambling which is defined as a disease (literally an illness) has a very common symptom- anxiety. Or like us, younglings like to call it “FOMO”.
Due to the birth of call and put options, retail traders can move the market by way of forcing market-makers who sell these calls and puts them to hedge themselves by buying the underlying stock. It is well documented, but in today’s time rather exaggerated due to ease of access to trading platforms.
Trading platforms like RobinHood and others (they are not just to blame) have caused the stock market to be further disconnected from reality and fundamentals. I wonder how many people who have ‘invested’ in stock have actually read a financial statement from the company.
Most of them wouldn’t accept a meager 3% a year return from the company but will easily buy a stock trading at a P/E of 30 - which equates to earnings of 3%~ on the price they pay for the stock.
You and I are only human, we see the memes, we see people making it big! We see the S&P constantly hitting new highs! Is this how to invest?
Fuck no and absolutely not.
Let’s sober up.
Markets have displayed this excessive greedy, manic, delusional behavior before. Many many times before. And if you want to read something that could sober you up a bit then here you go https://economicprinciples.org/downloads/Paradigm-Shifts.pdf
It’s important to look at this link. It shows that we have gone through this time and time again.
I’ll summarise quickly:
1) booms are created with money printing and rates heading lower. Lower rates mean projects that were not deemed profitable before suddenly become profitable. The financial manager says “Hey CEO, we can lend at 4% now, this 5% project is worth it! We can make that 1% using other people’s money!”
2) Stocks go up, because companies are earning more and because stocks are discounted using interest rates, which are going lower. The lower the rates go, the higher stocks go!
3) Everyone joins the party, and for some time (years) the party is fun…until binge drinking and cocaine lead to one of the worst hangovers ever…a recession.
Ray Dalio states in his research that these trends can last between 7-15 years.
In his recent post “paradigm-shifts” which I have linked up above he takes us through the ages. (Please read it, it is way more detailed than this post). He describes how from a previous “bust” the market will suddenly discount more pain ahead, but it will normally always be wrong (the herd is always normally wrong long-term). The market will, in the same way, forecast more ‘glory’ ahead when times are good.
Well if today was good, tomorrow should be too right? In fact, people are normally terribly bad at predicting these things.
So what can we control?
We can control the price at which we choose to invest or not invest.
We can choose to be patient and not look at market prices as if they are some sort of football match that has a result.
People who make it big now, based on false fundamentals will generally lose it all because their principles will not change when markets finally do
The same principles and thinking that led someone to make BIG money off a meme(fundamentally damaged investment) will equally lose BIG money by repeating the same process.
Radio Corporation of America made radios. Imagine this fantastic new device, the radio. Suddenly speculators are getting rich! It’s a self-fulfilling prophecy. They start to rationalize owning the stock at increasingly higher prices, these radio companies are not just about radios, they are going to be making electric cars next! Maybe even rocket ships! How about an entire taxi fleet!
Idiots then will a few common mistakes:
They underestimate competition from other market competitors.
They don’t account for the actual size of the target market.
It’s easy to get lost in this market
Real investing is for the long run, try not to get caught up in the hype, and if you do and you make money. Good for you, try to keep that money safe.