Speculation
It’s hard to stay disciplined
These days, it feels like there are so many individual stocks that are exploding in valuation. Meanwhile, while the major indices are up this year and up big from March, they certainly aren’t up 100, 200, 300 percent or more like many popular stocks out there.
In times like these, it’s easy to feel like you are missing out. The pressure to jump in and make speculative bets is immense, especially when you see certain stocks multiply in value day after day after day. It’s easy to write off a day or two of big gains. But, when the consecutive days of gains are so relentless, it’s really easy to say, “I thought about investing in that a week ago and I would’ve made so much money if I just did!”
This speculative phenomenon builds over time and intensifies. Over the last ten years, who hasn’t thought, “if I had only just invested in Apple! I would’ve made so much money!” In the last year, who hasn’t thought, “darn, if I had just invested in Tesla.” And, maybe in the last few days, Palantir.
The worst part of all this, the gains of any speculative episode are often the best near the top of the cycle, as more and more investors are swept up off the sidelines. It’s really hard to stick to a conservative plan when other people are blindly throwing money at the popular pick of the week and making returns in days that usually take years in the broader market.
If I could offer one piece of advice, it’s to focus on fundamentals. Maybe you see Palantir and Tesla and you think, “well, these are crazy times but I like these companies and would invest for the long term even if there wasn’t a frenzy.” That’s important. Would you have invested in the company and would it have even been on your radar had it not been for all the noise and commotion? For example, when Kodak’s stock exploded suddenly a few months ago, did the underlying fundamentals make any sense? I mean, come on, Kodak?
The grass is always greener on the speculative side. In practice, achieving the gains you think you could have gotten is absurdly difficult. It’s well known how hard it is to exceed just the S&P 500. Sure, some people do it. Some people make a lot of money. It’s easy to think it’ll be you. Maybe it could be. But, if you’re rushing in to a burning speculation, you’ll have lots and lots of company and competition. When everyone rushes for the exits, it’s going to be crowded.
At the end of the day, if you think the pain of missing out is bad, trust me, the pain of losing real money is even worse. That may seem impossible when stocks only seem to go up. But, the odds of disaster when making speculative bets is much higher than sticking to long-term, BORING, tried and true plans.
Invest consistently. Invest broadly. Invest for the long run.
Oh, and avoid too much news - it’s much easier to resist a speculative hype cycle when you don’t have to read about it all the time. So, I’ll do my part by ending this post now!