The biggest mistake people make in investing

The main mistake that people make in investing, in my opinion, is the state of the status quo (status quo). Many things people perceive that they will continue in a straight line - we make plans and live on the impression that our current situation will be the same - the same income and higher, the same health, the same problems. If we understand about age that it cannot remain the same, then at least we mean that our health will be the same (it is precisely because of this that people do not take out insurance, because in their understanding everything will be according to knurled)
In the investment world, such direct assumptions are fraught with a significant loss of money. If you have invested somewhere and the investment starts to grow, then you mean that this will continue forever.

But here a very serious problem arises: if you start earning a lot on something (and even if we assume that the investment is not a pyramid scheme), then other people will start pouring money into the investment and the investment will no longer be able to bring such a large income (t (because having cash from investors dilutes the return on investment and the more cash pouring in, the less the return will be). Accordingly, smart people begin to pull out money, and the more people run to the exit, the more they run to the exit, a vicious circle. Those. it turns out the Mobius loop, the more income, the more it will lead to the fact that there will be less income in the future. The economist Minsky once said that stability leads to instability (it was called the Minsky moment when ‘everything is bad’ suddenly appears out of nowhere).
As an example, if you are looking for the fund that has made the most money, then there is a 99% chance that it will have one of the worst performers in the next few years. Unfortunately, there is no inverse correlation - if you find the worst fund, then it is not at all necessary that it will be in the best, it can, of course, but usually bad funds remain bad.

When people see that some assets (real estate, stocks, bonds, gold, bitcoins or some other kind of spillikins) are growing in price, people are running, crowding to buy it. There are many theories why this asset should grow, it will definitely grow, without it, existence on planet Earth is simply necessary. I have been hearing this about real estate for a long time, for several years people have been writing this about bitcoin. Every time there are many theories why this will continue and it is quite real that many theories and the existence of this thing are necessary, but this does not mean that the price of this thing will increase. Can we live without real estate? Or no oil? Or no uranium? No, but who said that the price of oil should be 20-30-80 or $150 per barrel? Or the house should cost 500 thousand? The price of uranium on the market has been below its cost for several years now. The price has many components, perfect not necessarily that they will remain constant in the future. If the state decides to distribute land to people or allows anyone to build, or announces that the land is worth much less than it is now, then the value of real estate will fall. If engineers are paid not 150 thousand, but 50, then the cost of oil will fall. That won't happen, you say. Maybe, but if you say so, then you are making a correlation between what is today and what you think will be in the future. Has land ever fallen in value? Look at Detroit in the 70s and today. Has the price of oil ever dropped in price? How then to explain the fall from $150 to $30 in 1 year? The engineers were very well done with the pay cut when it happened.

I note that when the price of oil fell to 30, people began to draw straight lines and, based on this, build the conclusion that the price will never rise to 100 again. we have a terrible amount of oil, Musk will put everyone into orbit, we will all walk, etc. Every time we want to invest money, we draw conclusions based on the past line and draw a straight line up, but this is absolutely not true. It is quite realistic that this straight line may go down immediately after we have invested money. everything has a balance in life - what has grown a lot should fall, and what has fallen a lot should grow.

Look at the world around us, because it's not just about investments and asset prices. What would the Germans say about their country if they were told in the 1940s that they would be oppressed in their own country by the very nations whom they mercilessly hated and killed? The pendulum has swung from one extreme to another. 100 years ago, a woman never dreamed that she would not only have the right to vote, but also be able to hold leadership positions (25 years ago, everything was written in the masculine gender in all books, now in the feminine). Previously, the rich could afford cars, and the poor only horses, but now it’s the other way around. Who would have imagined that we would have negative interest rates (i.e. you get paid to borrow money)? We will have an extreme in a different direction, and those who assume that mortgage rates for the next 25 years will be the same as today will be very unlucky.
50 years ago it was believed that debts are bad, now without it there is nowhere and debts through the roof for everyone, young and old. 50 years ago, if a person had been told that you eat organic, he would not have understood at all how you can eat non-organic, what is it all about, eating cones?

In 1996, I bought my first cell phone, which weighed like a brick, Tesla would have envied the size of its battery. For 15 years, probably, all manufacturers tried to reduce the size of the cell until they brought it to the point of absurdity, the buttons could only be pressed with a sharpened pencil. And then the reverse trend began - everyone began to increase the size of the cell, now they do not fit in the palm of your hand. The trend goes from top to bottom, and then from bottom to top - from extreme to extreme.
Most economists make predictions about the future based on today's data, we rely on them to know more than we do, but it's better not to listen to them at all, because. their formulas do not imply that the straight line will go down, there are no turning points in their theories. Can you imagine a permanent economic growth of 3-4-5-7 percent? We read in the newspapers that the economy has grown by a certain percentage and we feel good about it, but can you draw a straight line 100 years ahead under this 3-4-5%? Mars is not enough for us to move along this straight line of growth, we will run out of drinking water earlier. And everyone assumes that this straight line will continue forever, China has been growing at 5-7% per year for 20 years already .. If another 20 years with such growth, then there will be no white people in the world. The population of the planet has grown 7 times (!) in 120 years since 1900. At the same rate, we will be 70 billion in 120 years, dinosaurs from the graves will rise to see it. there will be no place for them.

I remember 2007, I worked at the Investors Group and the crisis was already in the yard, the chief economist of this office came to our office, gathered everyone in the conference room and gave a lecture with a smart look that this was the biggest opportunity to earn money over the past few years, we need to advise customers to buy as much as possible, we were given dozens of arguments that there would be no crisis at all. I was very skeptical about the words of the guru, but who am I and who is he. After that, during the year, clients lost another 40 percent of their investments. I doubt that this grandfather was fired, most likely moved to a warmer place. The problem is that other economists have predicted a bright future as well. drawn a straight line between the past and the future, and if the last 5 years has grown, then the next 5 years will grow. And if the next 5 years still grows, then we again draw a straight line up for the next 5 years. And the straight lines are always up.

The conclusion here is simple.

1. Nobody knows the future and the more educated people you listen to, the more likely you are to lose money, their models come from the past, but the future will not be the same.

2. The more something has grown, the more it will fall and vice versa. It is when it has fallen strongly and you can make money. The more expensive you buy an investment, the less you earn and the less likely you are to earn at all.

3. The more you believe in the status quo, because everyone around believes in this, the more arguments you have that everything will go as it was in the past, the less likely it will be. (do people really think that interest rates will always be the lowest in the history of mankind or that the Germans will endure this mess in their country forever?)
Another good example: real estate prices in Toronto will never drop. immigrants will come here, interest rates will be low, prices in Toronto are not as high as in Vancouver, there is nowhere to build in Toronto, etc. Hope you get the sarcasm. Fairy tales appear when it is necessary to justify reality and people do not believe their own eyes. The same thing happens with pyramids like MMM, people begin to believe in fairy tales, although all sane people understand that it is unrealistic to earn 20-30-50% per year, but a fairy tale is more pleasant than the truth. Moreover, I note that even in MMM, many have earned millions. they understood that the growth of investment had not yet entered the status quo and they were selling before the fairy tale about the good Mavrodi appeared and the crowd cherished this fairy tale

If you take these facts into account when choosing an investment, and try to avoid big losses (i.e. don't bet everything in the certainty that you can't lose), then you will be in the game longer, which means you will have a stable and balanced psyche, well, the pocket, of course, is more predictable. It is not important how much you can earn on this or that investment, but how much you can lose. Men, by the way, are much worse investors than women. we care about ego and proof of innocence, and if the investment goes wrong (read point 3 above), then we will stubbornly put pressure on the gas and add more money to the agony of loss ..

And finally - may the stock market keep you with its guaranteed yield of 10% per annum

By the way, the definition of a bubble is when you don't believe you can lose money on an investment. And, of course, you can't lose in the stock market!

And yes, if I never died, then this will never happen, straight up!

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