You’re Not Paranoid. The Market Is Out to Get You.
Thanks to today’s incessantly twitchy, infinitely networked markets, it has never been harder to be a disciplined and independent investor
By Jason Zweig, The Wall Street Journal, Oct. 18, 2024
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The companies behind Robinhood and other popular trading apps often describe them as “gamification.” A more accurate term would be “gamblification.”
These trading apps are fun to use, but have three pernicious features. They are designed to encourage short-term trading. They are potentially addictive. And they rely on manipulative techniques perfected by the gambling industry…
Because you may never realize how much a group is influencing your decisions, it’s vital to protect yourself before you join the crowd…
Look for posts that:
steer clear of hot takes on the latest headlines;
- avoid anger, boasting and mockery;
and reveal their sources by linking to long-term data and peer-reviewed research, rather than just making assertions without evidence.
Instead of investing based on the whims of the crowd, follow policies and procedures… [end quote]
The philosophy of METAR is to invite all investing perspectives, from bulls to bears, from the boldest to the most risk-averse, in order to gain a broad range of opinion and prevent information cascades.
Clear-minded discussion and data are best when making decisions where real money is at stake. Understanding risk in the context of each person’s life circumstances is intelligent investing and not gambling.
Zweig makes the faulty assumption that “short-term” trading --however quantified-- cannot be extremely profitable, or at least as profitable and less risky than “long-term” investing (however defined). But why make it an ‘either-or choice’? If wallfall profits can be grabbed in a short time-frame, why not do so and reduce one’s chief risk, which is having market exposure? OTOH, if holding makes better sense, then do so.
E.g., this morning, I sold something I bought 4 days ago and made a 41.6% profit. OTOH, I also own positions bought decades ago that won’t mature until long after I’m dead. In fact, my heirs might not outlive them. So, ‘short-term’ vs ‘long term’ are merely two of the many choices there are, all of which can be misused or abused, and any of which might be what is required in specific markets and at specific times.
As for the trading platforms provided by Robinhood, Schwab’s TOS platform, or that of IB, they are a blessing that supposedly “long-term” investors should be thankful for and should be making active use of, because they allow a would-be investor to see the order queue and to make more informed entries and exits when they do (finally) decide to buy or to sell.
No doubt you borrowed that tactic from Jim Rogers who advocates patience while waiting for the no-brainers opportunities to come to him rather than torturing charts or financial statements into confessing to what is hoped to be seen rather than what is actually there.
At the same time you need to have some review guidelines. For example, you could have bought CVS five years ago at $65 or 10 years ago at $85. Yesterday it closed at $60.
Very infrequently, and certainly not on any schedule. I’ve made many investments that have either dropped or stagnated, and others that over the years have done extraordinarily well. Many of the apparent laggards or losers subsequently bounced back, some never did. A couple of high flyers later lost some or all of their gains. But on the whole, I’ve done well.
You can choose “never”. And it isn’t a terrible thing. Because the most you can lose is 100% of what you invested. Meanwhile, selling something that will continue to go up can often cause you a much greater loss overall.
For example, back a few decades ago, I bought a stock called TDFX, a graphics card/chip company (should have chosen NVDA instead, but that’s another story). I bought it in the 20s, and then when it dropped, I doubled down in the teens. The stock went to zero. So I lost, call it $20 a share. At roughly the same time, I bought UNH in the 20s, and it went up to the 40s. I sold half my shares in the 40s, and kept half until today. But I lost (foregone gains are also losses of a sort) over $500 a share by selling those UNH shares! So, in my view, the risk of selling is way higher than the risk of not selling, so my bias is usually to not sell whenever possible. Obviously, this isn’t a direct relationship because of the time value of money, and the allocation of capital, but overall the principle stands. I lost 20-something (100%) on each share of TDFX I held to the bitter end, and lost 500-something on each share of UNH that I sold in haste back then at a small gain (~100%).
But there is also an opportunity cost. Let’s say that five years ago you bought $10K positions in both Nvidia and CVS. Since then, one has increased 25x and one has gone down 10%. You can keep you $9K in CVS or you can put it to work somewhere else with better prospects. That would be part of the occasional review I think should be included in investing plans.