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Investing Lesson of the Day
If you trade in individual stocks, you’re likely underperforming the market. That is, unless you were lucky enough to grab one of the 10-15 stocks that have absorbed 90 percent of gains. Most blue chip companies are down 10 percent or more from highs and are likely to keep going down. It’s not necessarily because those 10-15 stocks are better investments. It’s simply because in the short term, hype, popularity, insider knowledge, and technology drive the trading. Even if you have Warren Buffett-level stock picking ability, you’re far more likely to lose in the short term. Side note: Buffett’s Berkshire has underperformed the S&P by 15 percent this year.
Recent stock trading is concentrated the most since the 2000 tech bubble due to the insane AI hype, and it’s only going to get worse as Anthropic (maker of Claude) and OpenAI (maker of ChatGPT) have upcoming initial public offerings. Now, we’re also adding in SpaceX, which will have a higher valuation than Musk’s Tesla. The expected market cap of these new publicly traded companies is estimated at $4.5 trillion dollars, despite the fact none of them have made a single dollar of net profit. For reference, the entire market cap of Walmart is less than $1 trillion. That $4.5 trillion has to come from somewhere, so a lot of big investors simply pull money from the rest of the market, causing all those stocks to fall.
You can try to jump aboard the AI and space hype trains, but if your timing is wrong, you could lose a lot of money, and if the bubble bursts, well, ask 2000 tech investors how that story ends. Until then, it’s like going to a casino. You’re competing against investment firms that are loaded with finance PhDs, have advanced tech tools, and get access to more timely information.
The lesson for 99 percent of investors is that if you choose to put money in the stock market, you’re better off putting it in some kind of low-cost index fund, not individual stocks.
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