Every now and then a stock will run up and leave you wondering why it ran up. There was no news, there was no earnings surprise and they don’t have a viable product. What most people do when they see pops like this is run in and buy thinking that the returns can keep going. They buy in and lose.
I believe that if something runs up for no reason there is usually no reason for it to run up. When something goes up and creates great returns for no reason this is the sign of a bubble. If that is the case then the only place that stock, company or “currency” can go is down down down, where it belongs.
My friend and business partner has seen this recently in AMD. He saw that it us up substantially on the year, shorted the stock and made a quick 40% on the downside. Another obvious example was the bitcoin chart. Bitcoin rose so high so fast with no proof of its legitimacy that the only place it could go is down. If you had any long term experience in the market you would have spotted this.
Wale’s contrarian thinking made him play the cards right when most people would have bought in hoping for it to continue to run. This is the same thinking that will allow you to spot the crypto bubbles and the multi family housing bubbles. You have to look for evidence to support your buy. If you don’t see evidence this makes you a speculator and a gambler. I believe that people do this because they want to get rich quick with little effort or work. They want that lotto ticket. This is silly. Investing like this will keep you poor as you gamble away your money on hope and not on facts. Investing is not a short cut. Investing to win takes time effort and study just like any other money making endeavor.
Stocks, businesses and real estate go up for fundamental reasons and fundamental reasons only. If the stock goes up above its fundamental value (the value of sales, revenue, growth etc) then that stock or property is overvalued. Most of this is caused by peoples greed and irrational exuberance. People see the opportunity to get a quick buck and run up the price well above its actual intrinsic value. The intrinsic value is still the value though. Ultimately the stock will return to the value taking your savings with it.
When you see prices increase they should be increasing for a reason. If they are increasing off of hope and dreams and not on profits and growth that is the sign of a bubble. You want to avoid these or short these not be the people who hop in hoping for the run to continue. If you invest like this you will avoid busting out like so many do. You will avoid the crypto stuff but you will also be smart enough to short the crypo stuff or in my opinion short multifamily housing and their unjustifiably high rents.
If something goes up for no reason it shouldn’t be up in the first place. It will meet its demise sooner rather than later. Just be patient..
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Thanks for reading!
Be great, invest well,