Misconception in investment 1- Hold for long term= Profit?
Oh my godness, the market is like free falling and no bottom is seen yet… As I like to mingle with different investing and trading communities, I found that there are 3 general misconceptions that I need to share in this video, as these 3 wrong mind-sets would crash our portfolio lower.
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1st misconception: If we hold long enough, we will still profit eventually.
Eiii wait, Hey JM investor, I thought in your last video you said time is our friend if we hold long enough?
Yeah, please chill. What I mean here is, I found many investors, traders, or rather gamblers, when their stocks crashed, such as $Palantir (PLTR.US)$ , $Unity Software (U.US)$ or $Peloton Interactive (PTON.US)$ , what I heard from them are: Just hold, they will recover soon or later. Just delete the apps, 2 years later it will be back.
Yeah, please chill. What I mean here is, I found many investors, traders, or rather gamblers, when their stocks crashed, such as $Palantir (PLTR.US)$ , $Unity Software (U.US)$ or $Peloton Interactive (PTON.US)$ , what I heard from them are: Just hold, they will recover soon or later. Just delete the apps, 2 years later it will be back.
To be honest, the only instrument that can hold long for a 100% profit is only index ETF such as $SPDR Dow Jones Industrial Average Trust (DIA.US)$ , $SPDR S&P 500 ETF (SPY.US)$ and $Invesco QQQ Trust (QQQ.US)$ , or any similar ETF that tracking the index.Next will be the companies with superb fundamental, but they may not be the market leaders in the next bull cycle. There are still risks but minimal to hold these companies for long.These stocks price are supported by their revenue, net earning and cash flow.
However, for the speculative growth stocks which do not have profit yet, their previous price surge are supported by the two key factors:
1. Low interest rate environment. FED was pumping a lot of liquidity during that period, and manage to support high valuation of these speculative growth stocks.
2. Hype, hype and more hype.
2. Hype, hype and more hype.
Thus, now FED is tightening the monetary policy, and their valuation cannot be supported. Once the stock is going down, those who bought the stocks because of the hype, won’t be able to hold for long. They will just panic sell or cut loss, which further tumbled the stocks.
Let us see some examples:
Tumbled 91% from the all time high.
$Unity Software (U.US)$ . Tumbled 86% from the all time high
$Skillz (SKLZ.US)$ , tumbled 97% from the all time high.
$ARK Innovation ETF (ARKK.US)$ , tumbled 79% from the all-time high.
$Palantir (PLTR.US)$ . Tumbled 86% from the all time high.
$Nano Dimension (NNDM.US)$ , tumbled 88% from the all time high.
$NIO Inc (NIO.US)$ , tumbled 83% from the all time high.
Based on finviz, these are their net profit as on 12May2022
All of these companies are considered speculative, as investors are “anticipating” they will be very profitable in the future. Is that true? I do not know. Some may be yes, some maybe no. Time will prove it.
In addition, I also heard some worries that the current sold off could be similar to Year 2000 dot.com crash, where $Nasdaq Composite Index (.IXIC.US)$ tumbled for almost 80% from the all time high.
Based on today data as on 12May2022, Nasdaq composite index has down for almost 32%. If the current market would follow the dot-com crash, we still have almost another 50% downside movement to go. It is crazy right? It means that current portfolio would be further reduced by half or even more!
In fact, I think we already in the dot.com bubble crash. But, it is mainly on the speculative growth stock. Let me show you the fact.
During that period, as long as the company was associated with .com, or internet, everyone would just hyped and bought the stock. Investors speculated that internet was disruptive and their growth would be unlimited. In the hyped, there were many technology stocks rose around 1000%, such as Qualcomm rose in value by 2,619%. Then, after the bubble burst, almost all stocks threw back their gains, some shut down, and some never recovered until today.
For example, Yahoo.
After the dot.com crashed, it never be able to recover until year 2017, then it was acquired by $Verizon (VZ.US)$ .
However, during this period, $S&P 500 Index (.SPX.US)$ already recovered from the dot.com and sub-prime mortgage crisis, and achieved a 226% gain in year 2017!
Not to mention that there are many dot.com companies, such as Pets.com, Webvan, and Boo.com, were shut down and delisted. Yes, you may not know these companies, as we may still in kindergarten or primary school during the dot.com bubble crash. And, no one will remember the loser.
Thus, the current crash of the speculative stocks are indeed, very similar to the dot.com bubble crash. Instead of dot.com hyped, many investors were hyped on 3D printing, fintech, disruptive technology etc. Then, similar to the dot.com companies during the dot.com crash, most of them were down more than 80%. Similar right?
Thus, we never know which of these stocks will recover. Some may, some may not. Thus, the risk is very high as we never know if we could bet the correct or the wrong one. Even they may recover, we would have to wait for the next cycle where FED starts to pump the liquidity into the market again.
Hence, I would reiterate that, holding a stock for long, does not mean we will profit in the long run. In contrast, we may continue to bleed, and lose everything.
In addition, there are some cyclical stocks which I am not keen to hold for long as well. Take $Bank of America (BAC.US)$ as an example. Look on the pass 18 years data, from year 2004, BAC indeed down 21% for 18 years! Mean that if we hold for long for $Bank of America (BAC.US)$ , not only we did not gain any profit, we are losing instead! Please note that I do not consider dividend gain for this example.However, if we look its individual cycle, we would see that the move was big. For example, it dropped 94% during the subprime crisis. Then, it recovered for 731% from the low. But then, it crashed for another 74%. Next two bull cycles gave almost 180% gain! Then the recent sold off hit the stocks for 27%. Thus, for cyclical stock, it is good to buy or short them for short-mid term.
It is similar to the oil stocks. Using $Exxon Mobil (XOM.US)$ as an example, although seems that since year 2004, the gain looks good with 116% for 18 years. But, if we look closely, the similar gain can be achieved from year 2004 to year 2006! Then it follows the cycle up and down.
Thus, not all stocks can hold for long, especially speculative stocks, hyped stocks and cyclical stocks.
Btw, I was reluctant to prepare this topic, as I am sure many people may be annoyed when they watch this video. Most investors are not feeling good during this sold off period, and what I shared here, basically is to burst the hope. But, I still think it is important for me to share this topic, as we are aim to profit in the long run. Getting the concept right is indeed important for our future investment.
Feel free to comment on your thoughts on how you overcome this bearish market?
I will be sharing another 2 misconceptions that would crush our portfolio in the next video. Please give me a like if you gain any insight from my video. And subscribe my channel if you would like to get my latest update. Thank you and see you in the next video.
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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Greenbird : Well said
JM investor OP Greenbird : thank you!
Shuseido : Good sharing. thanks!
momvestor : thanks for the great advise!
JM investor OP Shuseido : thank you!
JM investor OP momvestor : thank you! let's profit together in the market!
MultiBaggers : I beg to differ for stocks like BAC, NIO and PLTR. These are good companies with strong fundamentals
JM investor OP MultiBaggers : BAC is good but it is cyclical.
NIO and PLTR can be good but they are still considered speculative stocks.
MSW SALAT8 : Huat Huat Ah! May the Huat be with All courageous & Fearless Investors. We need to ride thru these rough storms together.