There really is no special secret to investing
Today I overheard some discussions on investing — and the recent drops in the stock market. The atmosphere was tense, and terms like ‘government bonds’ and ‘indices’ were treated with reverence befitting scripture. Opinions were expressed like literary interpretations — and the vague consensus was that the whole system was mystical in nature.
The thing is — there is no special secret to investing, nor to understanding markets. It’s too easy to get wrapped up in the dark and dirty details when you ask questions like ‘what caused the drop’, was it; the reaction to the latest vaccine news, the inflation of the dollar, that tweet by Elon (call the SEC!). There’s a thousand answers, but none are better than this: right now more is being sold than being bought. Whether it’s crypto, stocks, bonds, gold or even houses it’s the same thing.
Recently I spent a while watching some of DeepFuckingValue’s videos — that’s the guy who started the whole GameStop debacle (you can check out this video on his investment style here). One of the things he touched on was that despite the tension between fundamental and technical analysis in investment strategies, they often end up telling you the same thing. You can get overly focused on one — say, fundamental events, only to realise that the charts were showing the same story all along. It’s a pretty interesting concept when you think about it, that in some cases the technical analysis of trends and chart patterns can be as useful as knowing what’s going on in the world. That raw figures can tell you as much about future price movements as the news of the day, or a quarterly earnings reports.
That’s because markets on human behaviour — and while there are some people ‘in the know’, most of us are just responding to price changes. We act emotionally to things, and that means we respond predictably. Even large institutions are run by people, so inevitably human behaviour dictates strategy. Let’s take Bitcoin for example. Nothing has changed in the underlying tech of Bitcoin over the last ten years, there is no new CEO, no change in team. So why are institutions like JP Morgan — whose CEO three years ago said that Bitcoin was “a fraud” and “worse than tulip bulbs” now coming round to the idea? Now going as far as to say “we will have to be involved." They’re following the trend, and responding to the price. You can shout and scream and say Bitcoin has no inherent value — but the figures tell you a different story, and even fervent naysayers are having to jump onboard.
You might not have a crystal ball that can read the future and tell you exactly what’s going to happen in a given market, but everyone can understand the basic psychology behind it — because it’s inherent in all of us. Strong upward movements are, more often than not, met with strong reversals. Why? Because people take profit! And it’s the same the other way around. To the vast majority of Joe Bloggs investors, the specifics don’t matter as much as the trend.
This is a long rambling way of saying let’s not get too caught up in the hows and whys of what’s happening. Markets move up and down, generally running in fairly predictable cycles, that ultimately match human behaviour. Stick with the trend, don’t buy out of overwhelming greed or FOMO, and where possible invest for the long term, you’ll do just fine.