In a bull market, everybody is a financial genius. Be careful thinking you are smarting than you really are. Confusing brains with a bull market is one of the easiest ways to lose a lot of money.
During a bull market, it's important to properly assess your investment risk profile. You may be investing way more aggressively than your risk tolerance. If so, when the bear market eventually returns, you may be in big trouble.
Once of the easiest ways to ascertain your true investment risk profile is to speak to a financial professional. I spoke to a financial professional in 2013, a year after I retired, and he helped me realize I was way too conservative as a 35 year old man. As such, I invested all my cash and an expiring CD in stocks and real estate. My talk with him helped me boost my net worth by an extra $1 million today.
Everybody Is An Outperform In A Bull Market
Although I sold 75% of my Tesla holding at $888/share, I'm glad I held onto the rest. Otherwise, I'd feel like a real dummy! With Trump as president again, Tesla shares should do well again.
Over at one of my favorite blogs, “Get Rich Slowly”, site owner JD writes how he successfully invested more money in the stock market earlier this year. He wasn't bragging, he was just stating a fact. JD is very influential, especially given he has 68,000 subscribers!
What's interesting to note is the commentary that follows his entry. There are about 125 posts so far on the topic today alone. Not bad, considering the 75% commentary range is between 60-90.
After reading every single comment here at home, it surprises me that over 80% of the readers have outperformed the S&P drastically and have made a lot of money. 80% compares favorably to studies which show that only 6% of active fund managers outperformed the S&P 500 over the last five years!
In one of the greatest stock market turmoils in our lifetimes, apparently the majority at GRS didn't lose much money, didn't capitulate at the bottom, and made some timely investments earlier this year to ride the rocket ship! Financial genius might be very common.
Why Are There So Many Financial Geniuses?
1) Are only the readers who made the right investments posting?
2) Should the readers at GRS start a hedge fund and make millions given their financial acumen?
3) Are people stretching the truth and providing asymmetric information by highlighting their wins and hiding their losses?
4) Is everybody really a financial genius?
The truth probably straddles in between all three questions and I would answer: Probably, Probably Not, Most likely, respectively. People have a false sense of security when it comes to investing. When individuals make money, there's a tendency to attribute gains to one's own financial prowess. Yet, when individuals lose money in the stock market, the world is generally to blame.
The Economic Recovery Makes A Lot Of People Money
I'm skeptical about this recovery, but am happily enjoying the ride because we all gain when the economy does better. If some Joe Schmoe feels better about his finances, he might leverage up and buy another car or LCD TV, which will translate into more corporate profits and then more hiring. Good for him, and good for the rest of us.
With a large reader base, Get Rich Slowly is a great sample set of the American public. If the majority of them are making good money, there's no reason not to believe the majority of Americans with internet access haven't also recouped much of their losses and made good money either. Still in doubt? The Gallup poll regularly samples just 1,000 “national adults” to represent the opinions of the entire nation!
The key seems to really be survival. If one can stay in the game, whether that be in the workforce, or in the stock market, things will eventually snap back in force. Time and time again, firms tend to over fire and stock markets tend to over correct. The whiplash effect will never disappear because nobody's timing is perfect. US real estate looks to be next on the recovery path, if global real estate markets are any indication. I'll touch upon rental property buying come Monday.
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Updated for 2025 and beyond. What a recovery it's been! Let's hope the bull market continues and that all of us continue to be financial geniuses, with the humility knowing we really aren't.
It’s an interesting observation that you make here Sam-urai. I believe loss aversion plays out not just in delaying sale of loss-making stocks but also in acknowledging and talking about such actions in the stock market. On the other hand, talking about things done right in the stock market still have a certain set of bragging rights attached to them. That is probably what played out in the comments section of GRS as well.
Oh yes, I heard it myself, from some my senior colleagues, friends and associates some years ago.
They tend to brag a lot when stock markets start to pickup. What I do, is when I ask them
overall, did they win or how much they have loss, they kept their mouth tightly shut.
And now, recently, I too had a friend, now heavily investing in US stocks, and bragged to me major counters of his is gaining, he so damn happy about it. When I asked, about overall “did you gain?”, you can see his face changed, as I know that, just recent at the financial crisis meltdown, and before it really touch the bottom, he invested almost >95% of his hard earned money. He bought somehow high, and upto now, still far away from break-even.
Yes, RB, survival is crucial to stay in the game, and nobody’s timing will be 100% perfect. For me, need to have an investment goal in mind, what is needed to achieve at the end of the day. What do you want it for? What sort of time frame? what’s the exit plan? gearing towards to stay in the game and then exit when it is winner.
Excellent comment Andy. We have a tendency to brag about our wins, and hide our losses. It’s impossible to time the market in the long run. Short run, yes, but long run, it’s too difficult… as displayed by 80% of active fund managers UNDERPERFORMING their index. Good to hear from you Andy.
Sam-urai
I’ve definitely recouped a lot of my losses, but am still down about 25% from the peak. In fact, that’s about what the market is, still down much from the big.
I don’t think the majority of people are up by any means. People forget we were going to hell in a hand basket from Oct-Feb. Amazing how easy people forget.
Sam, I read the same post over at GRS and all the comments. I agree with you that most of the people are probably exaggerating their investing performance.
One other perspective on the matter that I have is this… many of the readers at GRS are beginners when it comes to investing and personal finance. Therefore many of the commenters probably didn’t have much invested before the downturn. If this is the case, then the benefits of dollar cost averaging into the market during it’s collapse has a bigger benefit for these commenters. This is because the value of their contributions when compared to their total portfolio is larger than the contributions of someone who already has a large portfolio.
-Gen Y Investor
Hey Gen Y – Good to hear from you buddy. I think you may have a point regarding their contributions being larger than the percentage of their total portfolio hence the relative outperformance. Good thinking. The concept is similar to an older post, “The Less You Have, The Less You Lose”. It’s good to not be loaded during a recession.
However, it sure is good to be loaded in the snap back, as Warren has made himself $2.2bn on paper with his Goldman warrants purchase now.
Rgds,
Sam-urai
It is very true that most people tend to brag about their wins, but never reveal their losses. It’s quite annoying to hear colleagues say “I made money on XYZ stock” because it’s almost as if they’re saying also “why didn’t you too dummy?”
However, since these are anonymous forums we post on, one can’t help blame those for expressing their good fortune. People may react differently in real life….. but maybe not.
I’ve survived this downturn and think next year will be a hiring frenzy!
RSC