“Become more humble as the market goes your way.” – Bernard Baruch
Lately, it feels like every time I time I log into check my investment accounts the market values are higher than the previous time I looked. The stock market continues to hit all-time high after all-time high. I have to admit, it feels pretty good when things are going your way in the markets and it seems like everything you touch turns to gold.
This is easy. Everything I buy just keeps going up.
It would be nice to assume that my intelligence has risen along with my skills as an investor, but I have to admit that’s not really what’s going on here. We just happen to be in the midst of a strong bull market. So I have to remind myself. Seeing your investments rise is no way to validate your level of intelligence. In fact, it can be extremely dangerous to your wealth when the music stops playing.
Who needs an insurance policy when all of my risky investments have been rising for years?
Researchers have found that the brain activity of a person who is making money on their investments is indistinguishable from a person who is high on cocaine or morphine. The brain of a cocaine addict who is expecting a fix and people who are expecting to make a profitable financial gamble are virtually the same. The danger in allowing a bull market to increase your confidence as an investor is that it can lead you to take unnecessary or avoidable mistakes to continue to get that high.
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Monster stocks are those wonderful beasts that make you look like a genius trader.
Shorts think that they are way too expensive and will crash, so they go short and have to cover en-mass after another 10 point run; they create even more buying pressure. Traders that short monster stocks do not understand the momentum that earnings expectations and growth cause for a stock’s price. They do not understand supply and demand. A stock that is $300, $400, or $500 based on earnings per share, could still be fundamentally cheaper than a $10 junk stock that has billions of shares floating around with tiny earnings per share.
Sounds great, but where do we find these beasts?
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