A cautionary tale from investing world
I was cleaning up my Twitter bookmarks the other day and ran into a post someone made in May 2021. At the time, the stock market was experiencing big drops across the board, hitting especially hard growth companies that are early, not yet profitable, but high promise companies that many chase to get high returns. What I bookmarked was a tweet from someone that is well respected in the investing community and has a large investing forum/subscription service:
The post, made in May of 2021 (in retrospect, right at the start of the bear market in growth stocks), came off rather childish to me, so I bookmarked to check on it down the road. This post is not to criticize the tweet’s author, so I leave his name out (although you can easily find it using the text in the tweet). Instead, I want to discuss what happened with the mentioned four stocks since the post was made and share thoughts on what went wrong here.
First, the four stocks he mentioned are TradeDesk (TTD), Fiverr (FVRR), Sea (SE), and Square (SQ, currently known as Block). And here are the prices of the four at the time of the post and where they are now:
If you saw this tweet and thought this guy might be onto something and put in $1000 in each stock for a total of $4000, your account balance now would show $1742.3. Not great, huh? The declines are brutal, and that’s not even the change from the all-time high. Here is the breakdown of each ticker’s all-time high and how far they have dropped from their all-time highs:
To give more background information on the author, he is a very well respected and known stock analysis and researcher who owns a trading subscription service. I was part of his trading forum and subscribed to his services for over a year. I know him well and don’t consider him a scammer, etc. He spends an incredible amount of time doing fundamental analyses of companies. His goal is to find “100-baggers”, such as stocks that can go up 100x and make one incredibly rich. However, if you don’t follow his system EXACTLY as he describes, you can get in big trouble and lose a lot of money. His particular system requires long periods of holding time, and it’s critical to stick with the above drops. Otherwise, you might sell that one stock that will recover and pay off for the declines in the others.
What turned me off from following the author and participating in his forum were tweets like the above. His blindness, inability to see the whole picture and insistence on everyone doing nothing but buying these “great companies” that he has discovered through his research were off-putting.
A few months into the bear market, he was showing how he had doubled his DCA amounts, meaning, as the stocks were falling, he was putting more money into it. He insisted that he was not trying to predict the bear markets. Yet, instead of staying steady with DCA, he doubled it, essentially to me, saying that he believed the drops were temporary and it was essential to increase the buying activity to get better deals. Well, guess what? You would have been much better off sticking to normal DCA or reducing the frequency until markets stabilized. He did the opposite.
Of course, putting more money into the stocks was not an issue for him as he was getting a constant stream of subscription revenue from the members, regardless of what the market was doing. On the other hand, individual members were hurting and hurting badly.
I could see the pain from the forum posts. They blindly followed his advice, got into stocks like the above, sometimes at their all-time high prices, and then the drops came. Tweets like the above gave the impression that one should get these bargains now, and many put in much bigger amounts than they should have.
To be fair, the author constantly reminded people not to buy too much at once. To do it in pieces, to DCA. But we all know how that goes; when greed takes over, you buy more to gain more.
And once the drops came, they couldn’t handle seeing their investments drop 80% in value (even if only on paper before they sold), and they would sell, stunned, sad, and depressed. There were numerous posts on the forums where people were discontinuing their investing after encountering losses and being unable to handle them, selling for the loss, canceling subscriptions, swearing off from the markets completely, or changing the approaches and picking up technical trading for instance. Of course, changing directions like this is less than ideal if you jump to another “methodology” without fully realizing how the old one you abandoned worked. Such “trading style drift” could be a problem in the future, as you quit something that might require time to work its way through.
The moral of the story is that investing is not a joke if you are doing it with serious money. You are better off picking up index funds, taking the most basic approaches, and letting professionals handle this. This person did stock research full-time, going into complete nitty gritty (I have seen his reports, and they are choke full of details and financial analysis, as well as the company’s product analysis), and still, this person is down huge in the positions he recommended and supposedly purchased.
If you still jump into this on your own, don’t invest more than what you are comfortable losing. And do a lot of research and work to understand your strategy fully. You must have a good handle on when you will buy, how frequently, and when you will exit. If you don’t have those defined, you will have difficulty surviving. And even when you have it defined, be prepared to struggle with the execution as greed, fear, and other human emotions will take over and try to derail you.
