“I’m just trying to get rich quick. So just tell me which stock is going to be the next GameStop. I’ll be happy to make a million dollars and move on.”
This weekend, I took a 20-mile run with a few friends from the group that I train with.
We always have great conversations whenever our team gets together. But this weekend was something special…
Every single person in my running group seemed to have an opinion on the drama that’s been happening in the market over the last two weeks.
And ironically, while very few of them have any experience trading or investing, they all thought they were experts on the subject.
A couple of the guys had it out for the hedge funds. They wanted to see the “evil short sellers” experience more pain.
Others were just in it for the excitement. “I haven’t felt this excited for Monday morning in years,” said Nicole.
As we start another exciting week in the market, I thought I would share some sound-bites from my run this weekend in the hopes that we can all learn something from this unique period in the market.
“Ninety-Five Percent of the Time, It Happens Every Time”
I had to check to see if this first statement was a Yogi Berra quote. My friend Nick was convinced that none of us have a shot at making money in the market.
“Zach, it’s been proven that 95% of individual investors blow up. It happens 100% of the time!“
I had to laugh and ask Nick if he was 100% sure about the 95% statistic. He seemed pretty convinced, but he couldn’t tell me where he came up with his numbers.
From what I could tell, Nick was just upset that he didn’t make any money from GameStop — or from the other opportunities the market has given investors over time. He believes that you simply can’t make money investing in stocks. So why even try?
Of course, here at Rich Retirement Letter, we know that the stock market is one of the greatest tools you have to grow your wealth over time.
Sure, it takes discipline and a well thought out strategy to profit consistently. But so does running a business, holding down a professional career or just about any other worthwhile lifetime goal.
Please don’t listen to the naysayers who tell you there’s no way you can win at the investing game. There are tens of thousands of retirees who have made smart investment decisions and grown their wealth steadily over time.
And those investment decisions are what we’re all about here at Rich Retirement Letter!
“I’m Only Holding My Shares to Stick It to the Hedge Funds”
Ben spent a few miles explaining to me how he knew that GameStop wasn’t worth anything close to what the stock is trading for.
“I know that soon the stock will trade lower. And I’ll probably lose the money I invested. But right now I’m holding my position just to stick it to those hedge funds and make them hurt.“
This one made me laugh out loud. And I hope Ben wasn’t offended.
What Ben was ultimately saying is that he was willing to intentionally lose money in his investment account just to hurt someone he hadn’t even met.
This seems to be a big part of the sentiment behind the Reddit crowd that has been driving the volatility over the last few weeks.
Unfortunately, many of the stocks that recently surged higher will ultimately trade back down to more reasonable levels. And when this happens, it’ll be individual investors who experience most of the pain.
That makes me sad. And I hope the investors here in our Rich Retirement Letter community will avoid these losses!
Ben’s perspective sounded a lot like a bug willing to fly into the windshield of a car — just to inconvenience the driver and make him have to wash the windshield.
Don’t do that to your retirement.
It’s fine to speculate on stocks that may surge higher. But don’t ever take a position based purely on emotion — especially if that emotion is directed at hurting someone else.
It’s just not worth it!
On Regulation and Free Markets
During the run, I enjoyed listening to a heated debate about whether markets should be more heavily regulated (to keep hedge funds from shorting stocks and individual investors from getting into risky situations) and the merits of free markets.
Two of my friends took polar opposite views. One seemed to think the government should manage markets, stock prices and who has access to what trading strategies. The other friend seemed to favor a “wild west” perspective where anything goes.
As with many other areas of life, I think a healthy balance is the best approach.
Yes, markets need to be regulated so that people know what they’re getting into… so that fraud is discouraged… so everyone has access to the same information… and that prices are fair for everyone. I believe that deeply.
But I don’t believe that short sellers are evil. (Short sellers are investors who bet that a stock will go lower.)
Without these investors taking the other side of the market, the stock market would be less efficient and information would be more scarce.
If there’s something wrong with a company, I want there to be short sellers in the market who are selling shares and making the information public to the rest of us.
That way we can understand more of the risks and avoid the position ourselves if the company does have serious issues.
At the same time, if the short sellers are wrong, it can benefit the stock price over time because these investors will have to cover their positions — ultimately sending the stock higher as they buy back stock.
Regulations have come a long way since I first started investing more than two decades ago.
And in today’s information age, individual investors like you and me have more access to market information than ever before!
There’s still room for improvement, of course.
But I’m thankful to live in a world where markets are largely level playing fields (for both institutional and individual investors) and where stocks can offer you some tremendous opportunities to grow your retirement wealth.
“We’ve Never Seen Anything Like This Before!”
As we finished up the last few miles of the run, my friend Jeff had a big smile on his face.
“I’m just happy to be involved right now — playing my small part in history. After all, we’ve never seen anything like this before!“
In some ways, Jeff is right. This may be the first time Reddit has helped inspire an army of individual investors to work together and send a handful of stocks into the stratosphere.
But in truth, this is not at all a new phenomenon.
Wall Street has been home to many manias, depressions and wildly volatile periods over several generations.
And even before Wall Street became a global hub for trading, the free spirits of greed and fear sent prices higher and lower.
To quote Edwin Lefevre from the book Reminiscences of a Stock Operator:
“There is nothing new on Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.“
That’s great news for us as investors. Because we can study history to see how these situations ultimately pan out.
And using history as our guide, we can find plenty of ways to grow your wealth reliably, while sidestepping needless risk.
A Time and a Place for Everything
During my run this weekend, I pretty much kept my mouth shut and enjoyed listening to everyone else’s perspective.
I’m no longer licensed to give individual investment advice. And everyone pretty much held their own opinion anyway.
But when it comes to your retirement, I can’t keep silent at such an important time.
My advice to our Rich Retirement Letter community is to keep that all-important balanced approach.
I want to go on record saying that there’s nothing wrong with speculating on fast-moving opportunities like we’ve seen over the past few weeks.
I’m serious! There are some great ways to boost your wealth quickly when stocks move sharply higher or lower.
Use common sense and discipline when you make speculative trades on situations like this.
Since stocks are moving so quickly, it’s possible the position could move against you and your losses could accumulate quickly.
That’s why it’s so important to have most of your retirement invested in reliable positions that will generate profits, pay dividends and increase in value over time.
If you take a big profit in a speculative name like GameStop or AMC, it probably makes sense to roll at least some of that profit into shares of time-tested companies that are more reliable.
Over time, combining some speculative gains with a steady approach to retirement will ultimately help you grow your wealth, enjoy your retirement and sleep well at night knowing that your nest egg is safe.