And let’s say you do, and let’s say you make a ton of money over the next few weeks.
Did you make a good investment?
Think of it in the context of this from my blog post earlier today:
“It’s not at all wacky that amid what was arguably a slowly deteriorating global macro backdrop to begin with the COVID-19 threat would send stocks reeling. I.e., given the lock down in China, huge supply-chain issues, spread to other countries, travel restrictions, companies stepping up and lowering earnings guidance, and so on — regardless of whether this morphs into the next bear market — a strong selloff was/is the appropriate response.”
Well, rest assured that “slowly” no longer characterizes the pace of present global macro deterioration.
Okay — so what? Regardless of the state of general conditions, and of other things, if an investment made money it was a good investment, right??
Well, think of it in the context of my basketball analogy from 2018:
I play a lot of basketball, and, as my son and the dudes I play with will attest, I like to attempt three-pointers. In that success enhances the enjoyment of virtually any endeavor, I knew from the start (my late start [not surpassing the 5’5″ mark till after highschool and, thus, being a wrestler during my formative years]) that if I was to score enough to justify my itchy trigger finger, I had to learn good shooting fundamentals. While I’m fully aware that 100% from the field is infinitely beyond my reach, I know that if I can stay in rhythm, if my form is sound and if I practice good shot selection, my odds of maintaining a respectable enough percentage to keep me from being the lowly last pick come time to select the teams increase dramatically.
Different players bring different talents to the game. There’s a young man we play with, we’ll call him Bartholomew (just in case he happens to stumble upon this blog post) who possesses exceptional ball handling ability and plays the point beautifully. Surprisingly, however, his outside shooting leaves much to be desired. So much so that when he launches a three his teammates cringe; hoping the ball finds nothing but air. Now why would his own teammates want Bart to miss his shot, in embarrassing fashion no less? Because they know that if he drains it, their odds of winning will decrease exponentially.
You see Bart believes that a shot that goes in has to be a good shot. Therefore, when he makes one he believes that he possesses the fundamental makings of a good shooter — and good shooters shoot. So he shoots and he shoots and he shoots and, in reality not having mastered good shooting fundamentals, he misses and he misses and he misses and, alas, his team loses.
We can sum up basketball shooting as follows. There are:
1. Good shots that go in.
2. Good shots that miss.
3. Bad shots that miss.
4. Bad shots that go in.
#1’s are great. #2’s are fine, unavoidable, and possess a livable probability rate. #3’s, while costly, are the most predictable and, therefore — being costly — should be readily avoided. #4’s — as explained above — are an utter curse!
Here’s my point:
We can sum up investing as follows. There are:
1. Good investments that make money.
2. Good investments that lose money.
3. Bad investments that lose money.
4. Bad investments that make money.
#1’s are great. #2’s are fine, unavoidable, and possess a livable probability rate. #3’s, while costly, are the most predictable and, therefore — being costly — should be readily avoided. #4’s: I can’t think of a worst case scenario than a new investor hitting a #4 right out of the gate. The perverse feedback from that experience could absolutely send him or her to the poorhouse — as he or she might think that he or she’s discovered a high probability investing method and chalk up the subsequent string of losses to rotten luck. I.e., believing what are in reality #3’s to be #2’s. The emotional imprint from that early “success” may indeed last longer than his or her capital.
Unfortunately — as I’ve observed over the years — it’s not just “new” investors who are capable of falling prey to #4s…