You have to decide what your goal is. Do you want to make money, sound smart, get on TV, etc? It sounds simple but the reality is that many investors get it very wrong. They think they are investing to make money but in reality they just try and impose their view on the market. Other people, a prominent gold bug comes to mind, just seem to want to be on TV. I am not even sure they are trying to make capital gains but instead just sell a product. Luckily I don’t think most investors fall into the TV camp….at least I hope not.
Where I see most investors go astray is when they fall into the sound smart/economist camp. Many investors do a lot of research for a view and then get so anchored into that view that they cant envision a different world. This causes a lot of problems if you are ever wrong…..and everyone is wrong on a regular basis.
One recent case of the “this is what I believe and I am right” disease was peak oil. Everyone thought that we were going to run out of cheap oil and that it would stay above $100 forever. There were dozens of books talking about it, hundreds of websites, and thousands of research pieces written talking about how oil was going higher and never coming down. Here is a sample.
Of course as we all know now the only think that was peaking was the actual price of oil. The high price of oil spurred everyone to find new energy and new ways to extract oil. This brought us the surge in solar and wind capacity that is still going today, companies like Tesla, as well as a group of folks collectively referred to as “The Frackers”. It was a long battle but five years post-financial crisis we finally saw the price of oil fall…and fall hard, going from $100/barrel to just under $40/barrel in about 18-Months.
If you held onto the view that oil was going to go higher forever no matter what, even once we started to see overwhelming evidence that fracking was very real and very repeatable, then you have likely lost a lot of money as both oil, natural gas, and all their related stocks have come crashing down. It is not that the original research wasn’t accurate or that your initial view was bad, but instead that you stayed wedded to the notion that things don’t change and that you have to be right.
This happens time and time again. Think the Dotcom crash when the internet was not only going to change everything but that “the winners of the new world” were going to overtake everything and could never go down. (BTW Google that phrase and read the first result. Classic mania) Other recent examples would be gold or 3D printing stocks.
Ed Seykota has a great quote “Win or lose, everybody gets what they want out of the market” and while it has been beaten to death it is still worth pondering. If you are trying to make money you have to have “strong opinions, weakly held” and not “strong opinions, I can’t be wrong”. This is why I like to think of myself as a trader economist. Every day, week, month, year I shop around for what makes the most sense given the current environment. What is the same, what is changing, and what looks like it might change are all better uses of your time than complaining that “they just don’t get it” because whether they get it or not if your positions are moving against you, pick your time frame, then you are wrong.
Most your ego from “I am right” to “I like to count my money” and your odds of success in this game will go up exponentially. If you want to be an expert or get on TV on the other hand than good luck with that.