Over many years of doing this I’ve observed a few things.
One of them that stands out is how much more time investors spend focused on how much money they’re going to make, and less time on what the market needs to do to prove them wrong.
You see, I don’t care how high you think the stock goes. I want to know what the market would need to do to prove your thesis invalid.
That’s way more important.
Any idiot can buy a stock that goes up. It’s what you do with the stocks that don’t do what you think they’re going to do that separates the winners from the losers.
Barry Ritholtz has always talked about how people who play the lotto are paying for those 5 minutes of imagining what they would do if they won. That’s why they play. They don’t actually have a chance to make any money. They’re really just throwing it away. So what they’re actually paying for, by purchasing that lotto ticket, is the dopamine hit from thinking about how they’ll spend their winnings.
“Lotto tickets are a tax on the stupid”, is how I learned it.
But how is it any different than gambling on a stock without a plan?
Isn’t it the same dopamine chase as a scratch off?
If you don’t know where you’re getting out, before you get in, and you don’t have a plan to manage risk, then you’re no better than the lotto junkie holding up the line at the bodega.
We ALWAYS ALWAYS ALWAYS want to know where the market has proven our thesis to be invalid.
Remember, it’s not about being right. It’s about making money. That’s the only reason we’re here.
And if you can’t identify where you’re proven wrong, before getting in, what does that actually make you?
An investor? I don’t think so.
A gambling addict is probably a better description.
You know those people who can’t overcome their ego and admit they were wrong?
Like those permabear losers who were forced to pivot. “Hey I know I was wrong about stocks for a decade, but I’m doing crypto now!”
They’re too weak mentally to overcome their ego. They’re not here to make money. They’re just addicts.
Sometimes stocks are in uptrends, and it’s important to recognize it. Sometimes they’re in downtrends. Sometimes Bitcoin and other cryptos are going up. Sometimes they’re going down.
It’s not one or the other. It’s both. There’s a time and a place for everything.
You don’t always need to be a contrarian. Asset prices trend. We know that for a fact.
“If you’re always contrarian that makes you a cynic. If you’re always a cynic that pretty much means you’re an asshole” – Jeff deGraaf
So keep an open mind.
Identify what the market needs to do to prove you wrong BEFORE entering into the investment.
Are you ok taking that loss?
If you are, then you’ll never be surprised, you’ll never be disappointed. You’ve already mentally accepted it.
You’re not here for that dopamine fix. That would make you an addict.
You’re only here to make money, which makes you an investor.
There’s a big difference between the two.