As investors, we are always taunted by the worst case of “your word against mine” until the day of vindication comes. The main reason is that the market as we know it has become permanently erratic since the advent of crypto trading and meme stocks. So how is this related to the concept of hope? Since the final outcome remains to be seen and there is a huge dichotomy in the community, investors will have to rely on hope sometimes to stay on course. That said, since the outcome might not always be favorable, investors might be on the wrong side of the “bet” at times (pun intended), thus leading to devastating losses. In this week’s post, I will focus on investment honesty so that we can remind ourselves from time to time to respect the trend and not buy into a bubble and hoping for a solid return in the long run.
Level 1 – Hoping for a miracle
At this level, it is obvious that the investor is almost clueless when he or she bought into an investment. Basically, after buying, the investor immediately feels the pinch and suddenly every ounce of optimism disappears. This is common when it comes to amateur investors or basically trend followers that bought into a hype hoping that the price will continue to rally. To say the least, hope is actually counterproductive not because the price of that asset will never go up in the future. In fact, every now and then, random stocks will start rallying and crashing even when there is no news about it. However, the problem with this kind of hope is because it does not translate into confidence to average down when the asset price dips significantly. For such cases, my best advice is to avoid buying into assets that you do not understand and only buy into an asset that you will be willing to accumulate if its price drops unexpectedly.
Level 2 – Hoping for a trend reversal
Markets are often not as logical as we think. Sometimes we might spot bottom entry price zones on charts and buying in only after waiting for an extended period of time. However, despite having ample planning and patience. it does not guarantee that the price will head upwards from the time you enter. In fact, there have been multiple occasions where prices continue to plunge without warning or reason. Since such purchases are not initiated out of blind greedy or baseless rumors, I would say that you are in a much better position than the previous example. Fret not, such demoralizing events happen to all investors and the only way out is to be patient and hope for a trend reversal soon. Otherwise, always take this as a lesson to prepare yourself for future investments knowing that the market is never as predictable as you want it to be. Therefore, always set buffers and expect immediate paper losses to mitigate these negative emotions.
Level 3 – Hoping for a long term rally
Well, needless to say, we are referring to stocks that have become 10 – 30 baggers or more from IPO. Personally, no matter how patient you are, I can safely say that the proportion of funds vested in such stocks or assets will always be a conservative amount relative to your total net worth. I am not talking about those who only have already a small sum of capital but rather investors who have 6-7 figures and still a huge excess of cash left for the rest of their expenses. Essentially, this kind of “bet” is far too costly unless you can look into the future. Say for example Netflix, Tesla, or Apple, how many early investors who are active in the markets will tell you that these stocks will do so well over time? What about those times when the company was facing massive issues with cash flows and dips in revenue and profits? In such cases, hope is used purely as an exercise of “faith” more than investing therefore there is really little value in having such hope as well because no one can predict the future.
Closing thoughts
If you realized by now, real and sustainable investing has nothing to with having hope because when things go south, no amount of consolation will alleviate the doubt that you have in your heart. I hope (pun intended) that more investors will move back to traditional investing methods for the bulk of their investments because there are little rewards in following hypes and buying in only to realize that it is a bubble or an overpriced asset that will no longer appreciate. As for hope, I believe that there is still hope for us to use it effectively but outside of investments.
