We humans like to think we know it all even (and especially) when we don’t! Or we at least fool ourselves into thinking we know it all. And we make sure that others know we ‘know’ it all. What funny creatures we truly are.
It’s the classic Dunning-Kruger effect of when we frankly know next to nothing about a particular thing we overestimate how much we know or how good we are at that something compared to others.
The less we know something, the more we feel the need to compensate with confidence but the more we learn, the more we realise how little we actually know. This is right when our confidence tanks. But then, as we build our knowledge, our competence and then our confidence start climb.
Why am I rambling on about this? Well, I think that this theory applies pretty well to the land of investing!
When we begin investing, it’s so easy to fall into this trap.
We’re newbies and we overestimate how much we know and we underestimate how hard it can be.
Investing is simple but no one said it was easy!
The charging bull does all sorts of things to our confidence
Bull markets spur on all this dangerous thinking of ‘this is easy’, ‘I’m a pro’.
Those of us that began investing right when governments across the world flooded our markets with endless bouts of liquidity (cough, cough $3 trillion) enjoyed the beautiful stuff that followed: everything went up!
It was literally like magic.
All you had to do was to basically own any kind of unprofitable tech growth stock aka Cathie’s jam (except there was never any real jam was there?) and you saw your stocks go to the moon. And you thought you were on the moon!
But this was all a façade.
There was simply too much money sloshing around.
I think Jack Dorsey’s tweet depicts this perfectly: a guy bought Jack’s first tweet for $2.9 million hoping to flog to another idiot for way more yet only managed to get a top bid of $6.8k! OUCH.
When everything goes up, you feel like a genius. You think you know it all.
But guess what? Mr Market has humbled us all. And we’re feeling the full force of it.
Retail investors who piled into stock markets during covid have now been stripped of all their gains.
Most of these folk are right back to where they started. Or worse, they’ve even lost money. Gasp. (Read here which 1 asset can be your lifeboat during these turbulent times. But 99% of you will too scared to jump on).
If anyone tells you making money in the stock market is easy, they’re either lying or they’ve never gone through a bear market.
During bear markets that’s when our convictions (or lack of) are tested
In the end, we get what we deserve – not what we want!
Investing may be simple (money + time + patience) but it ain’t easy. And I think this bear market is proving exactly that. Just look at how many people are selling more than they are buying!
Yet when we look at past bear market declines (a fall of >20%) we tell ourselves we’d surely have snapped it all up.
Easier said than done I can promise you that. Plus no one can time when markets have bottomed.
So perhaps what we should start doing training our minds to look at current risks (and boy are there loads of that) as opportunities.
Because past opportunities were always there in hindsight. Yet when we’re in the thick of it, we think the bad times will last forever.
During your first bear market you’ll probably sell. During your second you’ll hold on. And during your third you’ll buy every single thing!
It’s all about perspective.
Though I wonder how many of these (now-humbled) newbie investors will accept the lesson, learn from it and stick at the game. Not very many, I suspect.
We’re sore losers. And nothing hurts us more than losing our very own dosh. That’s downright embarrassing. Is it not?
But if we aren’t prepared to put our ego aside (they’re too big for us anyway) and accept the humbling, then we’ll never be able to learn and more importantly, we won’t allow ourselves the chance. We not only give up on ourselves, but our financial futures too.
But it’s so not worth it.
In spirit of full disclosure: I was one of those who started investing in the stock market during covid.
I had invested when I started uni but those were in start-ups aka risky stuff that seems to be getting ever riskier as VC funding is drying up and valuations are crumbling! Though that’s a schmooze for another day. (If you’re curious – you can read about that here!)
Anyway, it was only in November 2020 when I finally dived into the stock market. Be it as it may, I knew that my time horizon would be 10+ years and since I’m young, I wanted the majority of my portfolio to be in growth areas.
I didn’t get the chance to invest in March 2020 and pounce on those sale items so I made sure I wouldn’t make the same mistake twice and I’ve been adding chunks to markets each month to take advantage of some (in my opinion) oversold stocks.
Don’t give up now!
I could’ve been a total sourcrout and said hey, you know what, this isn’t for me. I’m losing too much money. Everywhere. Forget it. It also hurt 10x more since I literally write about this stuff all day long. Probably too much!
And if I couldn’t ‘hack it’ at investing, then we’re all doomed, right?!
I am by far no expert. I am a twentysomething who’s learning as she’s going along.
I’m sticking to my guiding principles (like thinking in decades not days) in the hope of them standing me in good stead.
But trust my luck though to start writing about investing and personal finance and to begin investing myself when everything seems to be falling apart!
One thing it’s given me is conviction and strength.
To not follow the crowd and to not get sucked into the rabbit hole of fear. ‘Cause once you’re in, you’re in.
It seems to me that we’re living through one of the most difficult, strangest, confusing investment times of our lives.
Though what do I know?! I’ve only been on this earth for a mere 2 decades.
So I’ll keep on leaning. To draw comparisons from history and to remind myself that I don’t know it all and that I never will.
Allow yourself to be humbled.
Learn from others.
And don’t let your failures hold you back.
You got this!
Disclaimer: This blog is not investment or financial advice. It is my opinion only. This blog is not a personal recommendation to buy/sell any security, or to adopt any such investment strategy. Always do your own research before you commit to any investment.