One Bias at a Time Part 4: We all make the same mistakes ...
Why is it still so hard to avoid them?
A warm hello to all new readers! I’m glad you are on board.
New here? I’m Michael and on a mission to make beating the stock market as easy for you as choosing your favorite ice cream. I write an algorithm that does exactly that.
How it all started. The journey so far.
“Experience is simply the name we give our mistakes.“
- Oscar Wilde
James strides into the office with his usual vibe, greeting everyone with a broad smile and swinging John Waney shoulders. Lisa is already at her desk, heavily soaked in financial reports.
“Morning, Lisa!” as he is setting his coffee down. “Ready to rock?”
Lisa looks up, her eyes twinkling with a hint of amusement. She’s trying hard to stay professional. “Always, James. Do you want to know the latest about - Adam? He made an investment that’s raising some heartbeats.”
James nods. “Ah, Adam. Did you have a chance to look at the mess?”
Lisa hands James a report. “Adam bought heavily into a startup called FTX. It’s been hyped all over social media, and everyone’s talking about it.
But the fundamentals are - crap.”
James signs, “FTX, huh? I guess we have to visit him.
James and Lisa sit down with Adam in the conference room. Adam is fidgeting with his pen.
“Hey, Adam,” James starts with his friendly voice. “We wanted to chat about your investment in FTX. How does it feel?”
Adam nods, looking a bit wary. “I know it seems risky, but everyone’s investing in it. Even Tom Brady is in! It’s all over the news. I didn’t want to miss it.”
Lisa leans forward, gentle but firm. “Adam, that’s exactly what we need to discuss. Just because everyone is investing in something doesn’t mean it’s a good decision. This is called the bandwagon effect.”
Adam looks puzzled. “Bandwagon effect?”
James smiles, leaning back in his chair behind his laptop. “Google says, the bandwagon effect is when people do something primarily because others are doing it. In investing, it means buying into a stock or a start-up because it’s popular, not necessarily because it’s a sound investment.”
Lisa nods. “It’s easy to get swept up in the excitement, but we need to look at the hard data.
Lisa points out the company’s weak revenue streams and high cash burn rate. James highlights the overinflated market valuation driven by media hype rather than solid performance.
“Look here Adam,” Lisa says, pointing to a graph. “Their projected growth is based on pure hype. They’re spending too much on marketing without a clear path to profitability. Warren Buffet wouldn’t invest for sure.”
James adds, “And their leadership team never scaled a business. These are red flags we can’t ignore.”
Adam listens intently, his initial defensiveness fading. “Makes sense. I see what you mean.”
“Adam, it’s okay to make mistakes. I made tons of mistakes, as Lisa did. What’s important is that we learn from them. Do the boring due diligence and not just follow the crowd. If you need an opinion, we are happy to help.”
Lisa smiles. “We’re happy to help. Let’s soften the losses.”
Adam nods, grateful for their guidance. “Thanks. I really appreciate that.”
James and Lisa work together to help Adam reassess his portfolio as they give him some more feedback on his current portfolio.
As the day wraps up, James starts with a broad smile.
“Adam’s got potential. He just needs to remember doing the boring basics.”
Lisa laughs, “Just wait until the next crisis hits. We’ll be ready.”
As they’re about to leave the office, James’s phone buzzes with an urgent message. It looks like there’s a sudden market shift. Is it a chance or a risk?
Lisa glances at the message and then at James. “Looks like we’re in for another ride. Ready to rock?”
James grins, “Always Lisa.”
Will they manage to stay ahead of the curve, or will new obstacles test their partnership?
Next time you will know more.
Which brings me to my week.
The Progress
The code is doing the boring work, and I decided to set up a second machine to speed things up a bit. Besides that, I was frequently in the hospital.
The Plan
Doing the boring work. Document the bits and pieces of the code.
What’s on my head
Right now, my mom.
Nuggets
Re-listened to Viktor E. Frankls Men’s Search For Meaning.
A great book about what people can tolerate and endure. It grounds you and lets you focus on the important things in life. Highly recommend it because the will is the one who pushes us further.
Hit that heart if you are giving your best!
Michael
Recommend The Economy Rocket to your readers and friends
I share my stock investment story without sugarcoating – you get the good, the bad, and those tricky ego trips. I'm developing a service with a mix of smart code and proven investment strategies, making stock analysis a thing of the past if you wish. Why? Because life offers so much more beyond the confines of stock analysis.
Disclaimer:
The information in this article is my personal opinion. I’m not a certified investment professional. It is not consulting, nor does it constitute investment recommendations.
I do my research carefully and follow my personal investment strategy.
The stock market is a complex building with its own rules. There are no rules set in stone, like the rules of physics.
Therefore, use the contents of this newsletter at your own risk and do your own research as well. Investing in the stock market can lead to a total loss of the capital invested.
Bonus Nugget: Read The Choice by Edith Eger. If you already read Victor and want another incredible story of perseverance and determination this is a golden nugget.