One of the most common mistakes made when investing is caused from listening to the financial media talking heads.
And the most common mistake made by amateurs when investing is from listening to the financial media talking heads.
Yes, that was redundant…but it’s true.
The difference is amateurs have a tendency to multiply their problems in Turbulent Times.
Suffice it to say we’re living in Turbulent Times and suffice it to say that they’re not going away anytime soon.
But in order to validate how amateurs make mistakes – especially in Turbulent Times – we need to look at history for proof.
First, everyone uses the S&P 500 as a benchmark of how the “markets” are performing.
What you’re not told is how the increase or decrease in the S&P is calculated.
Example: In 2020 there are five stocks that have been driving the S&P 500. Apple, Google, Amazon, Facebook and Microsoft. These five stocks currently make up over 23% of the increase in the S&P.
Translation: The 495 other stocks aren’t doing nearly as well.
So, the amateur investor sees how the S&P is performing and thinks. “Gee, maybe it’s time I jumped in the market. After all, everyone is making a lot of money.”
Here’s where history comes into play.
In 1999 (Tech Bubble) the S&P was up over 21% while the basic boring blue-chip companies – who paid dividends – was down almost 11%.
In 2000 the Tech Bubble blew up and the S&P ended up losing almost 10% (it got worse the following two years) while the same boring blue-chip companies ended up over 33%.
Most of the amateurs stayed with their tech stocks while the 1% moved on or “rotated” from one sector (tech) to another leaving the amateurs holding the bag.
It’s called wash, rinse, repeat.
You must remember the 1% NEEDS the 99% to be wrong in order for them to make fortunes.
In other words, they trade against you…or they get you to zig while they zag.
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