All investors find the time long for six months, but there are some for whom it is worse than others. I am thinking of the fashion victims who entered the stock market last to take advantage of the windfall, too. They stuck to titles like Netflix, Meta (Facebook), Spotify or even Bitcoin, among others, bought at their most expensive.
These people are now suffering considerable losses. If they leave, we are not on the eve of seeing them return. It would be a shame for them, because they are savvier investors today than they were the day they scrambled to open an account with an online broker.
Bear markets are a great opportunity to reflect on our mistakes.
And here are four mistakes to avoid:
1. BEWARE, SHEEP!
The story repeats itself.
The higher the stock market climbs, the more participants it brings in. The more people there are, the higher the values go. And the more we talk about it… and the wheel turns. Until it cracks.
Between the low of March 2020 and the high of last November, stock market returns have been unexpected, even for the novice. When things are going too well, one neglects one’s duties.
Why study the basics of investing and apply the basic rules of caution when profits are there without the slightest effort?
2. BE CAREFUL OF TECHNO TITLES ALSO
The trouble is not that more people are interested in investing (there will never be enough of them). No, the problem is that everyone is suddenly interested in the same companies.
I named a few above, to which we can add Amazon, Apple, Microsoft, Alphabet (Google), Tesla, Shopify, in short, growth stocks.
The stock market rout that some of these companies have suffered since the peak of the last 52 weeks sends shivers down the spine:
3. BEWARE OF CONCENTRATION
Another error, a corollary of the previous ones, consists in concentrating one’s investments on a small number of companies which gravitate in the same sector or which react in the same way to variations in economic factors.
When circumstances become unfavorable, the whole wallet eats a volley.
It’s okay to own growth companies.
We can also do very well with a handful of titles.
But the portfolio must nevertheless show some variety: financial institutions, retail companies, telecommunications companies, energy…
4. BEWARE OF ILLUMINATIONS
Some would call it the overconfidence bias, but sometimes it goes further than overflowing optimism: it borders on arrogance. The attitude is characterized by a denial of proven theories and by the cult of novelty: settle down mononcle!
This is typical of the most intense fringe of cryptocurrency enthusiasts. No one is immune to an epiphany, the feeling of grasping something that the majority does not see.
The enthusiasm of some traders for a few “pandemic” stocks was a mild manifestation of this, as if COVID-19 was going to change the order of the economy and the fate of certain companies.
Zoom’s stock is down 85% from its peak, Moderna’s is down more than 72%. Peloton, which sells equipment and services for training at home, saw its title drop by … 92.5%. Goodfood’s title was also lifted by the pandemic. Since its peak, it has planted 87%.
As for Bitcoin, it has dropped 60% of its value since November. Other cryptos are in tatters.
If you give in to the call of fashionable assets, remember…
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