Everything in life is in constant change, so why would we expect something like investing to remain the same?
What i mean by that is that if you have any glimpse of investing knowledge, or not… probably even you have heard the old, invest in Real estate and Bonds, you can never go wrong with that, or the 60/40% portfolio.
Which is made up of stocks 60% and bonds 40%, intendend to provide growth over your investment with the stock portion of it.
By “reducing” volatility by being able to rebalance your investment in the stocks, with the bond portion of it
I think the reason this remains to be the case is that in investing cycles tend to be loooong.
Think of the tech bubble in 2000, the currency devaluation in emerging countries in 1994, the financial crisis of 2008, you remember the feeling of those … right?
Exactly… probably not, and maybe is because you were a teen in those years, and even if you remember one of those and were fully investing in tech in 2000´s, you weren´t even aware of the currency devaluation going on in other countries.
You get my point, is difficult to get a grasp of how it felt and then fully adapt, iterate and become a better investor
Probably that´s why there is so much praise to investors, like Stanley Druckenmiller, Howard Marks, Charlie Munger (he´s seen a 100 years of things!!! btw HBD Charlie:)
How does this grow corn ?
I like that phrase, i heard it from someone who used to say it in order to say “how is this of any use for me ?”
Well let´s see how this grow corn… If you want to go and study Finance – Investment at college, probably you think you´ll be in for the top investment knowledge, and ready to crack the markets… oh boy… would you be in for a surprise
Now don´t get me wrong, probably you are still going to learn a ton and be much better of in financial shape than the majority of people, so what is the problem ? The problem is just that is useless, let me elaborate:
TradFi (Traditional Finance) teachings 101:
- Learn to value stocks through P/E the cheaper the better (duh!)
- Understand how much a stock is worth by DCF method
- If the company is at a loss, dismiss it, BAD company
- If something doesnt have earnings then you can´t value it correctly then not worth it (e.g Bitcoin, Gold)
This are some of the fundamentals in finance, and to some extent there are needed to understand what comes next
Is like the classic example when most of the people who are against something were at some point very much in favor of it. That just makes the understanding of it much better and up until certain point that same clarity makes them realize how wrong they were
Why tech investing is widely misunderstood?
Purpose of investing is to make a profit, normally tech investing is favored in this regard, because if risk is higher, reward should be higher too
When investing in a tech company a very important metric to consider is this:
What is the potential of this company?
Where could this company be in the next couple of years IF it succeeds?
That in itself will open your eyes and lead you to understand why tech investors will pour money in companies that are losing money every year and have high P/E ratios which for traditional finance investors is crazy!!
It’s because they are not paying for what the business is doing now, they are investing for what they are foreseeing the business can be in the future, how big can it grow if it succeeds
Think of –
Netflix, Tesla, Facebook, Apple, Amazon -15 Years ago
All of those companies were losing money month after month, and that is normally because their main purpose is growth.
They are not worried about making the most money today, they are looking forward.
They are not just looking at what their current market is but what their current market could be. Of course none of this is certain hence that investing in tech companies is often seen as “riskier”
For most traditional investors it doesn´t even make sense.
I have my personal approach, that i will share on another post on how i used the best of both worlds to create my investment style
Investing with a higher purpose
Also one nice factor for me is that investing in tech allows me to be constantly learning about the world, new concepts and ideas, which is great for someone that can get bored fast (me)
But also investing is not the same as buying a lottery ticket, your money is giving support to the company, so it’s a great feeling to invest with a purpose
If im passionate about health, investing in a biotech company working on some treatment that can potentially improve the health of millions of people is awesome
Whatever is the thing you are passionate about, you can back that up by investing in companies that align with your interests
Being part of the mission of the company and supporting it via investing on it is just a wholesome part of the process for me
Thanks for reading, till next time
*Disclaimer: this is not financial or investment advice, this are merely thoughts on a subject meant for entertainment purposes, do your own research and consult with a professional before taking any financial or investment decisions