Lessons from The Stock Market

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  1. How to get rich in the stock market
  2. Dave Coker - Medium
Source, Author, 2022

When everyone is thinking the same
No one is thinking

So said one of my earliest bosses on a trading desk. And over the years I’ve embraced this wisdom to gain some totally spectacular profits in the stock market. What did I do?

I DIDN’T FOLLOW THE CROWD

A few examples. During the run up to what we now call the dot com bubble, I held some tech stocks. This makes perfect sense, considering my undergrad was in Math & Computer Science and I’ve been programming professionally, on Wall Street since 1987. Before that I took my first programming job in 1980 (payrolls, boring!) so I have a deep understanding of both finance and tech, and selected these stocks well. But as these stocks boomed in price

I BEGAN TO GET NERVOUS

because the valuations were extreme and simply DID NOT MAKE SENSE. So I sold all my tech stocks and purchased, by comparison, boring Real Estate Investment Trusts, or REITs. Lots of good natured ribbing from my buddies, many of whom were doing what the crowd was doing: doubling down, leveraging up and buying more tech stocks. And we all know how that ended as markets all suddenly, explosively moved in the same direction — down. Here is another example: when the

TERRORIST ATTACK THAT WAS SEPTEMBER 11th

hit, I was working for Deutsche Bank in London, but coincidentally was supposed to be at an industry conference that morning at, WTC II, the 107th floor no less. This was long planned, and as I hadn’t been in The US for a couple years, my family and friends were all excited at the prospects of seeing me. No fewer than

SIX OF MY CLOSE FRIENDS DIED

in that terrorist attack. US Markets closed until September 17th, and when they reopened the effect on stocks was immediate and chaotic; almost $1.4T wiped out as the S&P 500 dropped 14% in just two trading days. Everyone was selling everything, and again, another example of everything moving in the same direction, down. I scrambled to buy the stocks I liked at the prices I loved, much lower. If I have one regret about that event (besides missing my buddies who died at the conference I should have been attending) it was I only had about $50K to toss into the market since I was also building out my property business, and had just done a deal in London. And that is enough for an old man reminiscing, let’s

TALK ABOUT THE PRESENT

This is one of the oddest markets I’ve seen in my decades of involvement in US Equities. The chart below shows the percentage of S&P 500 stocks all moving in the same direction.

S&P 500, % of stocks moving in the same direction, source Datastream, Author, 2022

measured annually. Note we’re not talking about moving up or moving down, just in the same direction. This presentation informs us what The Herd (as I like to think of the mindless) are up to. We can see 2022 is interesting due to the very large number of S&P 500 components that are moving in the same direction, price wise. This is unprecedented, and we’ve only seen 2009 and 2020 coming close. So, you ask,

WHAT DOES IT ALL MEAN?

Getting back to what my boss told me, when everyone is thinking the same, no one is thinking. So I’m ignoring the short term market carnage we’ve seen so far this year. In fact I buy stocks every month, according to the process I outlined here

and ignore what the crowd is doing.

Because I’m not thinking the same.

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