Staying put and sitting still.
Marketing is not an exercise in charity or donation. Marketers are not trying to figure out how to best help you out. The entire industry is in the business of figuring out what you might click on, and, eventually, purchase.
They want your money.
I recently wrote about purchasing AMD and Netflix stock about 10 years ago.
In that piece, I documented all my reasoning for purchasing the two companies. I spent a little more than $30,000 I had saved at the time to buy them. Outside of buying more AMD stock as it fell over the years, I didn’t touch them.
In fact, for years sometimes, I didn’t look at the market. I had an alert set to tell me about crazy price spikes, and that was it.
Nobody will tell you those growth stories — usually, because nobody knows them. They’re captured in the buzz of the hour. AMD at $80 a share. Tesla skyrocketing to $2,000 a share.
Netflix at nearly $600 a share.
I didn’t sell my Netflix or AMD stock nearly that high. I’m not here to tell you that I’m able to predict the all-time lows and all-time highs of equities. That’s impossible, and anybody who tells you that they can do it is lying to take your money (I’m looking at you, Raging Bull or Motley Fool).
I’m here to tell you that it’s possible to make a lot of money if you’re extremely patient and disciplined. This is true, especially in markets.
“The stock market is a device for transferring money from the impatient to the patient.” — Warren Buffet
When I bought Netflix, they were sinking so fast that most people thought they would go bankrupt. In post-split prices, I bought them at $11 a share. They went as low as $7 a share at one point. I didn’t care. Their annual reports were strong and their numbers were genuine and authentic. They were growing — fast.
When I bought AMD, nobody believed that the undercard of all chipmakers could compete in a market with players as big as Nividia and Intel.
Most people counted them out. And, for almost half a decade, AMD continued to fall. It saw prices as low as $1.80 years after I bought it. I didn’t care. When I saw that I had additional money available, I bought more. This is all while Jim Cramer was telling people to sell their AMD stock at $5 a share.
When gains occur, they occur in short periods as if they are being squeezed.
Rationality’s sedation comes and goes in waves. My thoughts on the technology industry eventually became accepted, and, most of the Nasdaq, along with my companies, flourished.
But they didn’t happen progressively.
AMD’s initial spike happened within two years. At present, it’s traded north of $80 a share.
You could be right at the wrong time. You can also be wrong at the right time.
With Netflix and AMD, I was definitely trading far earlier than most others. I had the right ideas, and, if I was a perfect trader with perfect insight, it could have been possible to trade other things before I entered those companies fully.
I didn’t trade options until 2018. For 7 years, most of what I had in the stock market came from two companies and a heavy deal of research. While my tactics and my programming have gotten tremendously better, these two companies go to show that a 6,000% gain is possible if you have the discipline to not do anything.
You don’t need the fancy strategies and the guessing game on the next big pump. You need a fundamental idea that’s sound and unbreakable. You don’t even need to know the entire stock market. I only knew semi-conductors, so I stayed in or near that circle. It was luck that brought me to Netflix — mostly because I saw them on the news so many times after the Qwikster blunder.
Right now, I think I’m wrong at the right time. I am out of Netflix and AMD for about 2 years now. Today’s technology boom sounds a lot like the dot-com bubble of 2001. People have bought into technology as a cureall, when, in reality, it’s backed by shady advertising revenue and data privacy issues all around.
Every now and again, people’s anticipation gets very far ahead of the reality. I believe this is one of those times.
The birth of the Reddit millionaire.
It is a semblance of the million-dollar person we are sold as being the real thing. Everybody knows the appeal and the dream of creating a million dollars by riding Tesla calls. We have dreams of catching it right before it takes off like a rocket ship designed by SpaceX.
Almost everybody on this subreddit is wrong. And they all have reasons that they feel justified in documenting.
Between those who make money randomly and those who lose it all, nobody understands what they’re doing or why they’re doing it. In the background, the vast majority of people are either spectating the show or have lost their money and are too ashamed to post it on the internet to see.
Lead researcher Fernando Chague, assistant professor at São Paulo School of Economics, suggests, “day traders do not learn with experience.”
In fact, as the figure above demonstrates, almost all day traders lose money the longer they are on the market. Approximately 1.1% earned more than the Brazilian minimum wage and only .5% earned more than the initial salary of a bank teller — at all points along the frontier, there was massive risk involved.
The new era of data analytics is not analytical.
In a recent podcast with the most successful hedge fund manager in the world, Jim Simons, Dr. Brian Keating asked if the rise of new quantitative hedge funds were problematic to maintaining success on the stock market.
Simons replied, “Most quantitative hedge funds are not quantitative.”
And that’s the thing. Renaissance Technologies’ Medallion Fund has annualized 70% gains on the market for 30 years straight now. By some estimates, that’s more than $100 billion in realized gains.
The advent of data science and its popularization has brought forth an era similar to the gold rush. Like that era, very few people actually mined gold at a rate that proved profitable. In this era, very few people are producing code that makes much sense and consistently profits. At its core, we confuse heteroskedasticity, or unequal variability in our predictor, with homoskedasticity, or some consistent error and variability which can lead to meaningful results in markets.
In an era of noise, the simplest reasons will always win out.
Good ideas aren’t overly complicated. You don’t need to buy into a marketing ploy or a set of stock picks on someone’s blog to make a lot of money. In fact, I would guess that those situations would put you in negative dollars.
Stock picking doesn’t work. It’s an insult to the function of the stock market and the concept of buying companies you believe will grow.
Data science testing (mostly) doesn’t work. No matter how clever you think your code is, there are people in this world who have 100 times the resources, 100 times the intellectual power, and 100 times the complexity of a few lines of python. Rennaissance Technologies has hundreds of the smartest engineers, mathematicians, statisticians, and programmers in the world. Their success isn’t some magical black box — they’re geniuses.
Riding inflationary waves doesn’t work. Everything eventually deflates to normal, and, in another one of Buffet’s succinct quotes, “Nothing sedates rationality like large doses of effortless money.”
That last part is found in Berkshire Hathaway’s annual report in 2000. Two years after that, the NASDAQ fell by 85% and almost all the internet companies that were going to change the world went bankrupt.
If we’re in another one of these stretches, time is about to tell.