Napolitano looks at money.
Its human nature to think about investment ideas that will make you feel good. Reflecting on that once in a lifetime opportunity that we have all missed has keeps us all searching ever since. While some ideas may pan out, and may even reach your idea of a big winner, many others may not.
The first reason may be recency bias. If you, or someone you know recently had a huge success it would be instinctive to think that you can find another. Remember this, friends and family that claim a huge win also had some big losses in pursuit of higher returns, but you don’t typically hear about their losers making you think that all of their ideas must be great ones.
The next reason is timing. Reflect back just two years ago when everyone on the planet swore that interest rates were headed up. Folks locked in new loans, they went short duration on their fixed income holdings in hopes of higher future rates. They wondered out loud why anyone would even think about investing in yield based instruments when future yields would surely be higher. How did that work for you? Did you ever imagine that rates would have plunged so much in merely 18 months?
The other side of that timing coin is when market volatility is extremely high. Investors who got spooked by COVID-19 and sold their portfolios after the first few weeks of declines were probably stunned at the snap back in US equity prices. Once again, don’t let timing ruin a good thing. Just because of a quick rally to the upside doesn’t mean that we have seen all the downside that this COVID-19 situation may deliver. Taking an excessive bet in one direction or another is a way to make big losses permanent.
The very nature of a quick hit investment means that the risk may also be a quick hit. Take a look at the price of oil. While the price of oil has been low by historical standards for quite a while, not many predicted the immense drop in demand and the ensuing price declines that has occurred. In a world where you’re looking for short quick hits, just remember that the quick hit has no memory, and can go either way at any time.
Aggressive investing should not be confused with quick hit returns or losses. Aggressive investors still need to be patient and have a disciplined thought and research process, with a planned holding period that is likely to be long term. Great companies and great investment ideas all experience trying times. The person looking for the quick hit may not have the stomach to withstand downturns and probably does not have a strategy or a plan for harvesting potential gains.
If you can’t resist, try this. Use a small portion of your money that you can afford to kiss goodbye … or go to a local casino when they reopen.