The title of this post is inspired from Ch. 18 of Peter Lynch’s One Up on Wall Street, that reads – The Twelve Silliest (and Most Dangerous) Things People Say About Stock Prices.
For today, I have just added to and removed from Lynch’s list, and have illustrated the silliness using real-life examples of listed Indian stocks. None of what you see below portrays my view on any stock showcased in this post. These are purely examples, and that too from the benefit of hindsight. But they offer meaningful lessons.
Anyways, before you read ahead, please understand that I agree with what Morgan Housel wrote recently that people are not crazy in general. Just that they can…
…be misinformed. They can have incomplete information. They can be bad at math. They can be persuaded by rotten marketing. They can have no idea what they’re doing. They can misjudge the consequences of their actions.
I also agree with Charlie Munger who said that even smart people may have their ‘streaks of nuttiness’ that cause them to make occasional dumb remarks and decisions.
So, what follows below showcases just those moments of nuttiness and craziness that get a lot of people into problems in investing. I have experienced some of these moments myself, just that I have managed to survive to tell the tale. 🙂
Anyways, let’s get started right away with the sixteen silliest and most dangerous things people say about stock prices, but in no particular order of silliness.
Takeaway: Please do your homework, even if you’re cloning the best investors out there.
Takeaway: No time is different in the stock market. History does not repeat here, it rhymes. If you take undue risks, you will be penalized. There’s no getting away from this.
Takeaway: Trying to the catch the “next something” can be disastrous. Consider each business on its merit.
Takeaway: One, a stock that falls 95%, first falls 90%, and then 50%. Two, cheapness in stock price does not mean value in the underlying business. Whether a stock costs Rs 1,000 or Rs 10, you still lose everything if it goes to zero.
Takeaway: Avoid IPOs as a thumb rule. They are priced beyond perfection. And please avoid all mothers and fathers of IPOs.
Takeaway: Don’t look at a stock’s price while making a decision. Look at the underlying business.
Takeaway: Don’t torture yourself with the regret of what you’ve missed. Remember, each day is the first day of the rest of your life.
Takeaway: Companies are dynamic entitites. They change everyday, and so do their future prospects. You cannot afford to buy and forget any stock.
Takeaway: This is a lazy and weak argument to hold on to your mistakes and/or losing businesses. Accept reality, especially when it’s painful.
Takeaway: Thomas Phelps wrote in his book – To make money in stocks you must have “the vision to see them, the courage to buy them and the patience to hold them. Patience is the rarest of the three, but with sound businesses, it pays off in the long run.
Takeaway: One, a Rs 1,000 stock can be cheaper than a Rs 10 stock, as price-to-business reality is much more important that price alone. Two, there is no arbitrary limit to how high a stock can go, and if the story is good, earnings continue to improve, “can’t go higher” could be a dangerous belief to hold.
Takeaway: You can never tell when a stock hits a bottom, till it goes to zero.
Takeaway: To borrow from Warren Buffett, turnarounds rarely turn around.
Takeaway: One, never try to make money the way you lost it. And two, if you find yourself in a hole, stop digging.
Takeaway: Really? Fund managers are as human as we are. They suffer from the same biases as we do, plus more. And they are prone to make bigger mistakes than we do, because they think they cannot make mistakes.
Takeaway: One, never buy a business you don’t understand. Two, especially when such businesses are run by people who seem smart and can’t seem to do anything wrong.
This is, in no way, an all-inclusive list and there are a hundred more ways to lose money in the stock market. I may someday write a book on the same. 🙂
Also, if you can relate to some of the silliness as portrayed above, don’t beat yourself for it. Take the lesson. Move on.
Anyways, what are some other silly and dangerous things people say about stock prices that you can think of? Add in the Comments section of this post.