It was December of 1996, Alan Greenspan (then Chairman of the Federal Reserve) gave his infamous speech about the irrational exuberance of the US stock market. Over the next 3 years, the lofty market valuations Greenspan spoke of .... increased another 40%!
Greed and Envy, two emotional sins that I’m guilty of having over the past year watching one of my regular weekend golfing buddies amass a small fortune in a stock he took a gamble on back in 2020. The stock you may ask???... Ah yes, Nvidia! And notice I said gambling and not investing…
I was confident in the advice I was giving:
Sports were shut down, but the stock market was open so buying stocks was a way to satisfy one's gambling fix. He purchased the stock (amongst a handful of others) because he was bored….and well,…Buy The Dip right.....markets always recover...
In what other field does someone with no education, no relevant experience, no resources, and no connections vastly outperform someone with the best education, the most relevant experiences, the best resources, and the best connections? There will never be a story of a Grace Groner performing heart surgery better than a Harvard-trained cardiologist. Or building a faster chip than Apple’s engineers. Unthinkable.
But these stories happen in investing.
- Morgan Housel, The Psychology of Money
I recalled a story from Morgan Housel’s book “The Psychology of Money” in which he describes two individuals who came from completely different backgrounds; one had tremendous investment success while the other ended in bankruptcy.
My friend has no PhD in finance, no cash flow valuation models, couldn’t rattle off Nvidia’s financials, has no knowledge of computer chips nor does he have access to insider information (that I know of..) Assessing the degree of luck vs. skill in an outcome can be very difficult in the investment world because....
It can be distracting to watch our friends and even random strangers boast of their investment successes while we are left telling ourselves…..I could’ve done that……how did they do it..? Social media has only amplified these emotions and we now have a generation of young investors who believe...
As I thought through all of this, I now know why Warren Buffett has a door to his office…
I don't know how this story ends and I'm not rooting against NVDA nor my friend. I hope he realizes his fortunes and makes the intelligent choice. Until that time comes, I will simply keep my door shut.....and focus on taking some of his investment earnings on the golf course this summer!
Interesting fact: When I first began writing this blog post Nvidia was trading just below $700 / share, as of this morning it is at about $970 / share in less than 3 weeks' time......markets move fast....in both directions!
Disclosures: This article is for informational purposes only and should not be considered a recommendation. Information contained in this article is obtained from third party resources that Meredith Wealth Planning deems to be reliable. Consult with a financial advisor before implementing any strategies. Past performance does not equal future results. Meredith Wealth Planning does not guarantee any minimum level of investment performance or the success of any index portfolio, index, mutual fund or investment strategy. You cannot invest directly into an index, and index returns do not account for real life fees and transaction costs.
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