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🦉 How to Stop Buying High and Selling Low
do you wanna be right or make money?
Al Atencio
September 25, 2024 • Estimated Reading Time: 8 minutes
Do you want to build wealth, or stay stuck in that mindset where you're always waiting for the next disaster?
A few minutes of a podcast completely changed how I look at investing, and I want to share that lesson with you—especially now, with markets at their highs
waiting for perfect conditions is a losing game
I used to hate new market highs.
The stock market would go up and up, and all I could think was that the train had left the station - and I was not on it.
It felt like the golden years of market returns were behind us, with dark clouds always looming.
In hindsight, I realize now how wrong I was.
Since mid-2018, when I first started managing money and grappling with these thoughts, the S&P 500 has risen about 85%, and the Nasdaq nearly 120% (before dividends).
So very wrong.
Despite reading dozens books, podcasts, and articles about investing, compounding, and market cycles, I was stuck emotionally.
And then, one day, a random podcast episode flipped everything upside down.
It was shortly after they announced the first COVID-19 vaccine in late 2020.
I remember the episode started, and straight away, the host began talking.
No chit-chat, no sponsor announcement.
And it felt like he was speaking directly to me about the fears that had been troubling me.
“Can we just talk about the vaccine? …here's why I really, really love it.
It's just revealed the truth about investing in such a crystallizing, precise and perfect way that I don't think there will be a better teaching tool for investors about this one specific concept to come along in a very long time. Like this is it. So let me lay it out for you.
So, in 2014, we were hearing from people who said, well, stocks just went up 30% in 2013, and the market is now at all-time highs. I can't invest now. That was six years ago, homes, six years ago.
We're still hearing that, but we were hearing that then. Can't invest, the market just made a record high. I can't buy it a record high.
All right, so I understand that. I understand that. It's called the gambler's fallacy…
…But then the second thing that we hear is, and this is like a direct quote, I just wanna wait for the dust to settle. I'll invest.
I understand long-term, blah, blah, blah. I'm gonna invest, but I just wanna wait for the dust to settle. I wanna wait for there to be an outcome of [fill in the blank].
Now, what is blank? Well, you know it's always some bullshit with like an election somewhere or some kind of like a political, geopolitical thing or a war or whatever. So as soon as blank happens, then I'm gonna invest, but I don't wanna invest before that.”
Okay, so what happened this past week (announcement of covid vaccine) is just a remarkable example that I will use forever to help people get past that concept where essentially they're saying they need the certainty of a binary event in order to make a long-term investment decision. So, the vaccine happened at an all-time high and so did the election. And in fact, both produced big, big gap up opens.
And in the case of the vaccine, I think it's the biggest gap up to an all-time high ever, ever. So, if you're one of these people that was saying like, oh, yeah, no, I just wanna see what happens with the virus and then I'm gonna invest, that's not how it works. The market doesn't let you in.
Or to let you in, you're paying up. And if you do that repeatedly, your returns are gonna be garbage. Like if you always need the certainty and you always wanna buy after the potential negative or the big bad event comes and goes, you're basically, you're buying high all the time.
And then something new and unexpected happens, throws the market for a loop and then you're selling out on that news.
So, what you're doing is buying high, selling low. And as my friend Carl Richards likes to say, repeat until broke.”
I was reminded of this moment last week when the Fed cut interest rates and markets jumped to all-time highs.
Because for the past three years, we’ve been caught in the worry of high inflation, high interest rates, and constant recession fears.
And maybe waiting in cash or T-bills for inflation seemed like no brainer bet for a good part of the last few years. But then you would have missed the entire bear market recovery plus the new highs.
Its crazy to accept, but S&P 500 is up over 30% (without dividends) from where it was when the Fed first raised rates back in early 2022.
Welcome to the stock market.
young investor takeaways
you need optimism to make money
Fear keeps us from making reckless decisions. Preserving capital is rule #1, #2, and… in investing.
But being a successful long-term investor requires a fundamental layer of optimism to let compounding do it’s work.
There are always a million reasons to be negative.
Smart people can identify and analyze these risks and challenges, which, of course, are real.
But the opportunity lies in thinking beyond those risks and seeing how they can be overcome.
As the saying goes, “Do you wanna be right or make money?”
What if, despite a roller-coaster ride in the markets, all the crazy shit being invented - AI tools and companies being founded left and right - lead to a better, more prosperous world?
Artist Unknown
why new all-time highs are counterintuitive
As Ben Carlson over at Wealth of Common Sense pointed out in a great post a couple of months ago: “All-Time Highs in the Stock Market are Usually Followed by More All-Time Highs”
“All-time highs seem scary because every stock market crash in history started from one.”
But, if we are at all-time highs, it’s also because many good things are happening. Instead of being a sign of fragility and impending doom, it’s usually the contrary.
So looking at JPM’s chart above the incredible thing is that forward returns are generally higher after all-time highs - not the other way around.
reject the nihilism trap
I often hear arguments like, "I only believe in (crypto, gold, collectibles, etc.) because of unsustainable government debt (climate crisis, or fill in the blank), which will lead to [fill in the blank] terrible economic crisis."
This used to be my bread and butter haha.
This outlook leads to the belief that the world is headed for inevitable collapse.
But here's the catch: If everything is doomed, what's the point anyway?
What can any of us do with a bunch of gold, crypto, or cash under the mattress when the world comes crashing down? (I own both, so this is not against either as an investment).
Nihilism is self defeating and prevents us from taking advantage of all the opportunities out there. Even when times are uncertain, which is always.
"I'm optimistic about life. If I can be optimistic when I'm nearly dead, surely the rest of you can handle a little inflation."
quote
Things in life will not always run smoothly. Sometimes we will be rising toward the heights—then all will seem to reverse itself and start downward. The great fact to remember is that the trend of civilization itself is forever upward; that a line drawn through the middle of the peaks and the valleys of the centuries always has an upward trend.
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