Lately as the value of Bitcoin approaches new heights and the stock market continues to rally I am reading a lot about “if you invested x amount back in xxxx” articles. This is what we used to call the woulda shoulda coulda trade. It’s wistful and regretful and it doesn’t do your mental health any good. It’s also tied to the psychology of beating the market.
The publicly traded technology sector is up 34% so far in 2017. There are pages on Reddit where people are expressing regret for not buying more Bitcoin when it was .25 cents and for selling it. Here is a chart of what $1000 would be worth if you bought at the highs of the 2007 market. I guess I would wonder how many people would have sold when the market tanked. If you want to do more research, go check out Ycharts. They have the best stuff on the internet to do research.
The only way to invest and get a return is to actually invest. You have to write the check when the rest of the world thinks you are totally stupid. Think about investing in Netflix back in 2007. It would have been totally stupid given the normal convention at the time. It’s only looking in the rearview mirror that it looks good.
Let’s be honest. You cannot beat the market unless you have an edge. It could be a speed edge. It could be a knowledge edge. However, in order to beat the market, you have to have something that no one or few people have. Sometimes it’s just the psychological ability to take a risk.
You also have to immerse yourself in it. If you are working a day job it’s going to be pretty hard for you to find the next great company. It’s going to be hard to do all the research. The problem with finding the next great trade is you have to discard a lot of potential trades. It’s why you might invest in a fund rather than on your own. I have money in funds that replicate the S&P 500. I can’t do the research on stocks. I have money in a hedge fund that trades a lot differently than most hedge funds with a different strategy. Outsourcing isn’t a negative. The fees are the price of admission.
When I traded on the floor, the best trades were the ones you could build a position in over a little bit of time. No one else saw what you saw. It was easy to yell “buy ’em/sold” after an economic release. The trick was doing things like selling crude oil at $130 a barrel on the way to $140 when you thought it could trade $40. The frenzy at tops and bottoms is all emotional and can be leveraged to your advantage. I had a speed advantage, and to a certain extent a knowledge advantage because of the network. I don’t trade much anymore because I lost my edge. I am too busy to be immersed. When my money became retail, I knew I was on the wrong side of trades.
One thing this new generation of traders has not seen is a bear market. 2008 is a distant memory, and 2001 doesn’t resonate at all. LTCM isn’t something they remember either. I am not worried about a bear or the effects on the trading community. They all take their risks and when the lumps come they will have to deal with them. It does no good worrying about “what ifs”. That’s the precursor to the “woulda shoulda coulda”.
What I have learned is that floor trading a position is similar to what you do as a venture capitalist. Some VC firms have websites or icons in their office of companies they missed on to keep their heads screwed on straight. It keeps them from saying woulda shoulda coulda, even though they coulda.
I know we look at lots and lots of deals. We read a lot about what is going on in our space. We network and talk to lots of different people in all kinds of positions. We do a lot of learning. We try to put ourselves in a position so that if a deal walks through the door, we have more information than the market. When the entrepreneur tells us their vision of the world, we are able to process it and understand it. To 99.9% of the world, it will look like a totally stupid idea. But if it works, it will return a lot of money to investors.