There’s a generation of new investors that think stocks go up forever. Before I continue, I would like to emphasize two points: 1) I’m not being critical because when I first started investing, I thought the same thing. 2) Over a 10, 20, 30-year period, the indexes always go up, but the majority of individual stocks do not.
The stock market is a master manipulator. It conditions us to think a certain way over and over and over until we are finally convinced of a pattern. Then, just when we think we have that pattern figured out, the market magically changes character. The pattern that most newer investors have engrained in their minds is “Buy the Dip,” and I don’t blame them. I’ve written for years that the central banks put together a globally coordinated effort to keep interest rates low and the markets high. As a result, buy the dip has worked very well for years.
Then, in early December 2021, I started writing about how the Federal Reserve was taking away all of this accommodation and to be defensive. Here’s the problem: Too many people were married to the same group of 10-20 pandemic stocks. Again, I don’t blame them because people rarely see gains in individual stocks. So, when certain stocks appreciate +200-500%, they are married to these stocks and their stories and most likely NEVER selling.
Considering the market’s recent decline, I’m still shocked at the complacency with certain stocks. Again, I’m not being critical because I did the same thing when I first started 25 years ago. What got me to change was studying historical charts and the statistical patterns behind growth stocks. The thing that shocks me more is how certain professionals think these stocks are coming back to new highs when the probabilities are very low if you study history. It’s going to take time to unwind this brainwashed psychology that was created over the past few years.
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