“An investment in knowledge pays the best interest.”
– Benjamin Franklin
“The stock market is filled with individuals who know the price of everything, but the value of nothing.”
– Phillip Fisher
“The individual investor should act consistently as an investor and not as a speculator.”
– Ben Graham
Hey everyone! Sorry I did not release my newsletter last week. I’ve been dealing with some health issues around a bacteria infection in my lymph node, my son had his second birthday, and I am still trying to work through all the content to go on to the new blog which, as you can see, has missed it’s August first release date. Our new expected launch date for the blog is going to be September 8 and moving forward, this newsletter will be getting released every other week instead of every week so that I can make sure I am able to take care of everything else I need to take care of in life, including my health.
A question I have received quite often lately is whether or not it is a good time to still be investing in the market.
I want to relate a story that I recently heard from another advisor friend of mine who was having some work done on this house. They were working on their computer when the plumber walked by, saw some stock charts on the screen, and asked them, “Do you do stocks?” His reply was “What do you got?” The plumber pulled out his phone, said he has $130,000 in a trading account, and said “I have no idea what I’m doing.” When he took a look at the portfolio. It was your typical Tesla, Nikola, Apple, Amazon, Netflix, Facebook etc.
There is no doubt that this portfolio would have been up over the last four months or so. And this gets to the question about whether this guy was smart, or lucky.
I remember many such stories like this told to me around the end of the 90s and at the beginning of the 2000s. People had assumed because they’ve made money day trading stocks, that they had uncovered this unlimited source of money. I think we know how all that turned out. The Nasdaq was down roughly 80%, top to bottom. Are we getting to that point right now? Possibly.
You see more and more stories popping up of people opening up Robinhood or TD Ameritrade accounts and trading stocks about which they’ve done little to no research, other than what they have seen on CNBC. There is certainly a chance that they will end up being successful for some period of time. But if we are to use history as any guide, we know that one day the market will be volatile.
Is this the top of the market? Who knows.
When all you’ve done is trade in a bull market, where everybody is making money regardless of what they do, that just becomes the norm for them. Even people that have previously traded in down markets use recency bias to make themselves believe that it will never go down or they will see it coming.
I certainly wish the best for this guy and his Robinhood account. But, I think we’ve all seen how the story ends. those trades that that person is making may or may not be right, but we need to have a strategy when investing, otherwise, we are just gambling like we are at the craps table.
We need to have some rules upon which we operate. We cannot go by our gut instinct to try and tell us when we should buy or sell stocks. This strategy must be something we are willing to believe in even in the face of adversity.
History shows us that over longer periods of time the markets tend to go up. There is no guarantee this will remain true in the future and we can’t tell what those companies will be.
We can say the largest companies now will be the largest in 30 years, but that was said about IBM and GE at other times as well and we see how that turned out.
We should all have an investing theory that we have heavily researched and build a set of rules around that theory. If we have not properly studied why we are investing, we are prone to change it at the first signs of trouble. We cannot get to our destination by constantly changing course.
If you don’t want to put in the time and effort you can easily hire someone to do it for you. That way, when you inevitably have questions or doubts, you have someone to talk it through,
To answer the original question. Yes, it’s still a good time to invest, you should just know why. and for what purpose you are investing, before deciding to flip on Mad Money and open up an account.