Don't Chase the Low-Hanging Cheese
There’s been a lot of talk in the media lately about Robinhood traders, Barstool getting into the “stock betting” game and more. The general conversation is that a combination of boredom, lack of sports betting, etc. has led to a rise in millennial activity in the markets.
Combine all of that with excessive money printing and you have a bunch of people jumping into the equity markets, buying some random stock that someone like Dave Portnoy recommends and then thinking they’re some kind of stock genius after it rallies 30%.
The Hertz situation sealed the deal on my line of thinking that we’re in an “easy money” market where people are chasing after returns with a very short-sided mindset.
As long as the FED keeps brrrrrrrr’ing, we’ll have a bunch of folks out there who think they are stock geniuses. What happens when a correction takes place? What happens to the people who jump in too late on these “Hertz-esque” buying frenzies?
Short-sided thinking is dangerous and I believe that we’re going to see a lot of people blow up from this rampant stock market “gambling”.
At the end of the day, we’ve got people who have a lack of financial education who are jumping into this big ocean of HFT, algo’s and experienced fund managers who have spent decades finding the best ways to beat the little guy and make money in the markets. At the end of the day, for every winning trader there is a losing trader.
I believe that anyone who enters the financial world and trades/invests conforms to different standards over time. We’re shaped by our experiences and we are constantly entering into positions that change the way that we think about our future actions.
When I started out trading, I was still in High School. At the very early stages of what would be a long-term obsession with finance, technology and the general space of investing. I was infatuated with quick returns and high % profits. Buying puts & calls on things like the SPY and gambling that it would go up or down.
Granted, I actually made some money with this strategy.. What I was too arrogant and inexperience to see at the time was that it was short-term “lucky money”.
The results I was getting were not those of a trader who has found some kind of “edge” over other traders. Instead, I was participating in a global market that I could not comprehend. The nuances of why something like the SPY goes up and down was not in my knowledge base.
I was smart enough to stash my winnings from good trades away in a separate account. Taking the profits from my trades and moving them into a long-term investment strategy called DGI (Dividend Growth Investing). Doing this is what saved me from “blow-up risk” — where a trade loses everything.
Instead, I lost everything in my active trading account after a year or so of heavy activities in the put/call arena. This loss stung and it became the cornerstone for my investing activities today.
My main takeaways from that period of time:
- Create a separate portfolio for “safe” long-term investments and hedge your profits by regularly moving a portion of your capital into it
- Admit that you’re not a genius and any next trade can be your biggest loser
- Think long-term directionally correct, not short-term cash in my pocket
Think long-term directionally correct, not short-term cash in my pocket
This phrase is something that I repeat to myself often when looking at my portfolio and thinking about what to invest in and why. When I look at adding a stock to my portfolio or consider jumping into something like Bitcoin & crypto, I am thinking about this phrase.
What this means to me is that I want to be directionally right over the long-term time frames. I often envision my investing journey as a sailboat. I want to establish positions in stocks, technologies, etc. that are going to position my sail in the right direction of profits over the long-term.
If I ever enter a position for a short-term gain, I need to have a very solid reasoning behind it and I will never enter that position with a major chunk of my portfolio — no matter how “right” I think I am.
Short-term thinking hasn’t gotten me far in life. If we’re talking about profits or health & fitness or anything else in life, long-term thinking is what driven the vast majority of the progress I’ve made.
My public service announcement to all the people who are trading on Robinhood (and really to anyone about anything in life, not just trading) is to pursue this idea of being long-term directionally correct instead of spending all your time thinking about how many $$ you’ll make off this trade or that trade.
Obviously, I’m no genius in the markets. I’m not nearly as knowledgable as people who’ve spent decades in the space learning about the nuances of public markets.
Given that, I think the “edge” that I have is my ability to think long-term about my investments. When I buy something like BTC, I’m not wondering what the price will be 1 week or 1 month from now. I’m making a bet that my assumption that BTC is going to explode in value is going to be directionally correct over the coming 5+ years.
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