It was December of 1996, Alan Greenspan (then Chairman of the Federal Reserve) gave his infamous speech about the irrational exuberance of the US stock market. Over the next 3 years, the lofty market valuations Greenspan spoke of .... increased another 40%!
Greed and Envy, two emotional sins that I’m guilty of having over the past year watching one of my regular weekend golfing buddies amass a small fortune in a stock he took a gamble on back in 2020. The stock you may ask???... Ah yes, Nvidia! And notice I said gambling and not investing…
I was confident in the advice I was giving:
Sports were shut down, but the stock market was open so buying stocks was a way to satisfy one's gambling fix. He purchased the stock (amongst a handful of others) because he was bored….and well,…Buy The Dip right.....markets always recover...
In what other field does someone with no education, no relevant experience, no resources, and no connections vastly outperform someone with the best education, the most relevant experiences, the best resources, and the best connections? There will never be a story of a Grace Groner performing heart surgery better than a Harvard-trained cardiologist. Or building a faster chip than Apple’s engineers. Unthinkable.
But these stories happen in investing.
- Morgan Housel, The Psychology of Money
I recalled a story from Morgan Housel’s book “The Psychology of Money” in which he describes two individuals who came from completely different backgrounds; one had tremendous investment success while the other ended in bankruptcy.
My friend has no PhD in finance, no cash flow valuation models, couldn’t rattle off Nvidia’s financials, has no knowledge of computer chips nor does he have access to insider information (that I know of..) Assessing the degree of luck vs. skill in an outcome can be very difficult in the investment world because....
It can be distracting to watch our friends and even random strangers boast of their investment successes while we are left telling ourselves…..I could’ve done that……how did they do it..? Social media has only amplified these emotions and we now have a generation of young investors who believe...
As I thought through all of this, I now know why Warren Buffett has a door to his office…
I don't know how this story ends and I'm not rooting against NVDA nor my friend. I hope he realizes his fortunes and makes the intelligent choice. Until that time comes, I will simply keep my door shut.....and focus on taking some of his investment earnings on the golf course this summer!
Interesting fact: When I first began writing this blog post Nvidia was trading just below $700 / share, as of this morning it is at about $970 / share in less than 3 weeks' time......markets move fast....in both directions!
This content is for informational and educational purposes only and should not be construed as personalized investment, tax, or legal advice. All opinions expressed are as of the date of publication and are subject to change without notice. Any historical, hypothetical, or backtested performance data referenced herein has inherent limitations: it does not represent actual client accounts or actual trading, is not reduced by advisory fees or other expenses that would apply to a real account unless stated otherwise, assumes reinvestment of dividends and other earnings, and was calculated with the benefit of hindsight. Actual results will vary, and past performance does not guarantee future results. The value of investments will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. References to specific securities, funds, or investment strategies are for illustrative and educational purposes only and do not constitute a recommendation to buy or sell any security. Not all recommendations will be profitable. Any testimonials or client comments referenced are not representative of the experience of all clients, are not indicative of future performance, and no compensation was provided in exchange for such statements. Information has been obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. Nothing herein is a solicitation or offer to buy or sell any security. Meredith Wealth Planning, LLC is an SEC-registered investment adviser; registration does not imply a certain level of skill or training. For a full description of our services, fees, and any conflicts of interest, please review our Form ADV Part 2A and Form CRS at meredithwealth.com/disclosures.
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